The financial markets reacted differently to the FOMC minutes overnight. Stocks seemed to have taken the more optimistic view of the minutes. DJIA closed up 60.4 pts, or 0.30%, at 19942.16. S&P 500 also gained 12.92 pts, or 0.57%, to close at 2270.75. Both indices are heading back to historical high with DJIA set to take on 20000 handle again. However, Dollar and yields seemed to pay more attention on the "consider uncertainties" that policy makers believed would alter the policy path. In particular, Dollar index drops sharply to as low 101.86 so far today and is threatening a near term reversal. Gold rides on dollar weakness and is back above 1170.

The FOMC minutes for the December meeting unveiled that the members incorporated the assumption of a more expansionary fiscal policy in their economic growth forecasts as well as monetary policy outlook. The latter was also driven by unemployment staying below the "longer-term normal level". As noted in the minutes, the forecast for real GDP growth over the next several years was "slightly higher, on balance, largely reflecting the effects of the staff's provisional assumption that fiscal policy would be more expansionary in the coming years". It also added that "about half of the participants incorporated an assumption of more expansionary fiscal policy in their forecasts".

Notwithstanding the better-than-expected employment situation, the members remained concerned about the undershooting of the natural unemployment rate. While most members judged that unemployment rate would be "only modestly below" the estimated longer-run normal rate over the next few years, "several" were worried over "a more substantial undershoot". As such, many participants "emphasized that, as the economic outlook evolved, timely adjustments to monetary policy could be required to achieve and maintain the dual mandate.

On the data front, Japan monetary base rose 23.1% yoy in December. Swiss CPI will be featured in European session. Also, Eurozone will release PPI, retail PMI and ECB monetary policy accounts. UK will release services PMI. Canada will release IPPI and RMPI later today. But focus will be on US ADP employment and ISM services.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3234; (P) 1.3345; (R1) 1.3409; More...

USD/CAD's decline from 1.3598 accelerates to as low as 1.3261 so far and intraday bias remains on the downside for 1.3080. As noted before, price actions from 1.2460 are viewed as a corrective move. Decisive break of 1.3080 will indicate that it's completed and turn outlook bearish for retesting 1.2460 low. On the upside, above 1.3383 minor resistance will turn bias neutral again with focus back on 1.3588/98 resistance zone.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is possibly finished at 1.3588 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3005 would likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We'd start to look for reversal signal below 1.2460 to complete the correction. In case of another rise, we'll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

Economic Indicators Update

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Daily Pivots: (S1) 117.09; (P) 117.84; (R1) 118.49; More...

Intraday bias in USD/JPY remains neutral with focus on 118.65 resistance. Break will confirm resumption of whole rise from 98.97. In such case, intraday bias will be turned back to the upside for retesting 125.85 high. We'd be cautious on topping at 125.85 on first attempt. In case of another retreat, downside should be contained by 114.76 support and bring rally resumption finally.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the corrective is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance.

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Daily Pivots: (S1) 1.0211; (P) 1.0272; (R1) 1.0335; More.....

Intraday bias in USD/CHF remains neutral with focus on 1.0342 resistance. Break will confirm resumption of recent up trend. In that case, intraday bias will be turned back to the upside for 61.8% projection of 0.9548 to 1.0342 from 1.0056 at 1.0547. In case of another retreat, we'd expect downside to be contained by 1.0019 support and bring rebound.

In the bigger picture, the corrective fall from 1.0327 should have completed at 0.9443 already. Rise from 0.9443 could be resuming the long term rally from 2011 low at 0.7065. But decisive break of 1.0327 is needed to confirm. In that case, next medium term upside target will be 38.2% retracement of 1.8305 to 0.7065 at 1.1359. Rejection from 1.0327 will extend the sideway pattern with another fall back to 0.9443/9540 support zone.

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Daily Pivots: (S1) 1.0333; (P) 1.0412 (R1) 1.0484; More.....

Intraday bias in EUR/USD stays cautiously on the downside for the moment. Prior breach of 1.0351 support suggests down trend resumption and EUR/USD should target parity next. Meanwhile, above 1.0489 minor resistance will turn bias neutral again. In that case, outlook will stay bearish as long as 1.0562 resistance holds. However, break of 1.0652 will now confirm short term bottoming and turn near term outlook bullish for stronger rebound.

In the bigger picture, break of 1.0461 key support indicates that consolidation from there has completed as a triangle at 1.1298. And, the down trend from 1.6039 (2008 high) is resuming. Current downtrend is now expected to target 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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Dollar trades mildly softer today as markets await FOMC minutes. Besides the discussion over the 25 bps rate hike decision made on the month, we are closely watching for the discussion of potential monetary policy changes as Trump takes office. The president-elect has been proposing pro-growth fiscal policy. We would also look for the rationale behind the more hawkish shift in the dot plot which signals 3 rate hikes in 2017. Currently, fed fund futures are pricing in around 70% chance of another rate hike by June this year.

Eurozone CPI rose to 1.1% yoy in December, up from 0.6% yoy and beat expectation of 1.0% yoy. CPI core rose to 0.9% yoy, also above expectation of being unchanged at 0.8% yoy. The headline number was also the highest since 2013 even though it's still around just half of ECB's target of 2%. Also, the number justified the central bank's decision December to lower the size of asset purchase from EUR 80b to EUR 60b a month while extending it. ECB executive board member said in an interview published last Friday that policy makers "are still waiting for signs that core inflation is on the rise and will clearly exceed 1%. That said, our assessment of the balance of risks, including for inflation, is shifting." Today's number should be welcomed by the central bank. Also from Eurozone, services PMI was revised up to 53.7 in December. Italy services PMI dropped to 52.3 in December.

UK PMI construction rose to 54.2 in December, up from 52.8 and well above expectation of 52.6. That's also the highest number in nine months. Markit noted that "UK construction companies noted that the weaker sterling exchange rate had resulted in higher costs for a wide range of imported materials." Also from UK, mortgage approvals was unchanged at 67.5 k in November, below expectation of 68.7k. M4 money supply rose 0.4% mom in November, below expectation of 1.4% mom.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0333; (P) 1.0412 (R1) 1.0484; More.....

Intraday bias in EUR/USD stays cautiously on the downside for the moment. Prior breach of 1.0351 support suggests down trend resumption and EUR/USD should target parity next. Meanwhile, above 1.0489 minor resistance will turn bias neutral again. In that case, outlook will stay bearish as long as 1.0562 resistance holds. However, break of 1.0652 will now confirm short term bottoming and turn near term outlook bullish for stronger rebound.

In the bigger picture, break of 1.0461 key support indicates that consolidation from there has completed as a triangle at 1.1298. And, the down trend from 1.6039 (2008 high) is resuming. Current downtrend is now expected to target 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Economic Indicators Update

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Daily Pivots: (S1) 1.2187; (P) 1.2247; (R1) 1.2296; More...

Intraday bias in GBP/USD remains neutral as consolidation from 1.2200 extends. Another rise cannot be ruled out but upside 1.2200 should be limited 1.2509 resistance and bring fall resumption. Corrective rise from 1.1946 has completed at 1.2774. Below 1.2200 will target a test on 1.1946 low. Decisive break there will confirm larger down trend resumption.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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The indicated wave C of larger degree wave 2 took place in most part of 2016, indicated downside retracement target at 124.00, 121.90-00 (50% Fibonacci retracement of entire wave I from 94.12-149.79) and 120.00 had all been met, price dropped to as low as 109.49 by mid-2016, however, the single currency found good support there and has staged a strong rebound in H2 2016, suggesting wave C or at least the wave iii of C has ended at 109.49, hence consolidation with upside bias is seen for gain to 125.20-30 (50% Fibonacci retracement of 141.06-109.49), then towards 128.20-25 but break of resistance at 132.33 is needed to signal the entire A-B-C has ended, bring further rise to 134.40-50 (61.8% Fibonacci retracement of 149.79-109.49) but upside should be limited to 139.00-05 and price should falter below resistance at 141.06 (wave B top), bring retreat later.

On the downside, whilst pullback to 121.50-60 and possibly 120.00 cannot be ruled out, reckon 118.70-75 would limit downside and bring another rebound later to aforesaid upside targets. Only below previous resistance at 116.29 (minor wave i top) would defer and suggest rebound from 109.49 has ended instead (which means only minor wave iii of C has ended at 109.49), then further fall to 114.00 would follow but break of 112.60-65 is needed to bring retest of 109.49. Looking ahead, a drop below 109.49 would signal the wave v of C of larger degree wave 2 is still in progress for weakness to 107.00 but reckon downside would be limited to 105.00 and price should stay above 102.70-75 (1.618 times projection of wave A), bring another rebound later.

Although sterling's retreat from 195.85 (2015 high) turned out to be much deeper than expected, as the British pound found support at 120.50 and staged a rebound in Q4 2016, retaining our view that further consolidation above 116.85 (tentatively circle wave V trough) would be seen and mild upside bias is seen for recovery to 150.00 and then 160.00, however, reckon upside would be limited to 175.00 and price should falter below 180.40-50, bring further choppy trading within 116.85-195.85 range. In the event sterling is able to penetrate resistance at 195.85, this would add credence to our view that low has been formed at 116.85 and revive our bullishness for major correction to take place, bring subsequent gain to 199.80-85 (61.8% Fibonacci retracement of 251.10-116.85). We are keeping our count that the circle wave V has ended at 116.85, hence major correction of early downtrend is unfolding for further gain to 199.80-200.00 (61.8% Fibonacci retracement of 251.10-116.85 and psychological resistance), next upside target is pointing at chart resistance at 215.85.

On the downside, whilst initial pullback to 140.00 and 138.00 cannot be ruled out, reckon 135.00 would contain downside and bring another rebound. Below 129.00 would abort and signal the rebound from 120.50 has ended instead, risk weakness to 126.50, then 124.80-85. Only a drop below said support at 120.50 would shift risk back to downside and signal the rebound from 116.85 has ended, bring further fall to 118.00, then retest of 116.85.

Daily Pivots: (S1) 0.8458; (P) 0.8493; (R1) 0.8537; More...

The break of 0.8488 minor support suggests that recovery from 0.8303 is completed at 0.8666, ahead of 38.2% retracement of 0.9304 to 0.8303 at 0.8685. Intraday bias is turned back to the downside for 0.8303 low. More importantly, the larger fall from 0.9304 could be resuming and break of 0.8303 might be seen. In that case, we'd look for bottoming again at around 0.8116.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support around 55 weeks EMA (now at 0.8230) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

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Daily Pivots: (S1) 1.4325; (P) 1.4440; (R1) 1.4523; More...

EUR/AUD is staying in range of 1.4072/4880 and intraday bias remains neutral. On the downside, break of 1.4072 will extend the correction from 1.6587 towards next key support level 1.3671. Meanwhile, decisive break of 1.4880 resistance will indicate that such correction from 1.6587 is completed and turn near term outlook bullish for 1.5094 resistance next.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a consolidative pattern. 50% retracement of 1.1602 to 1.6587 at 1.4095 was already met. While further fall cannot be ruled out, we'd expect strong support above 1.3671 to contain downside and bring rebound. Up trend from 1.1602 should not be finished and will resume later. Break of 1.5094 will be the first sign of resumption of up trend from 1.1602 and target retesting 1.6587 resistance first.

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