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Daily Pivots: (S1) 111.62; (P) 111.77; (R1) 111.93; More...

USD/JPY is staying in consolidation below 112.13 temporary top. Intraday bias remains neutral first. In case of deeper pull back, downside should be contained above 110.35 support to bring another rally. On the upside, above 112.13 will resume rise from 104.69 for 114.54 resistance next.

In the bigger picture, current strong rebound from 104.69 argues that decline from 118.65 (2016 high) has completed with three waves down to 104.69, after failing 104.62. More importantly, the rise from 98.97 (2016 low) could be resuming. Focus now turns back to 114.54 resistance, decisive break there will add more credence to this bullish case and target 118.65. This will now be the favored case as long as 110.35 support holds.

Daily Pivots: (S1) 1.0033; (P) 1.0045; (R1) 1.0062; More....

USD/CHF is losing some upside momentum as seen in 4 hour MACD. But with 0.9997 minor support intact, further rise is expected to 1.0098 resistance first. Break there will target 1.0128 key resistance next. On the downside, below 0.9997 minor support will turn bias back to the downside to extend the correction from 1.0098 instead.

In the bigger picture, USD/CHF drew strong support from medium term trend line and rebounded. That suggests rise from 0.9186 is still in progress. Further break of 1.0128 will confirm up trend resumption and target 1.0342 key resistance. Nevertheless, break of 0.9716 will dampen this bullish view and at least bring deeper fall to 0.9541 key support.

Daily Pivots: (S1) 1.3136; (P) 1.3159; (R1) 1.3195; More....

Outlook in GBP/USD remains unchanged an intraday bias stays neutral. Focus is on 1.3109 minor support. Firm break will be an early sign of near term reversal and bring deeper fall to trend line support (now at 1.2956). Break will target 1.2774 support to confirm completion of rebound from 1.2391. Nevertheless, rebound from current level, followed by break of 1.3350, will resume rise from 1.2391 to 61.8% retracement of 1.4376 to 1.2391 at 1.3618 next.

In the bigger picture, medium term decline from 1.4376 (2018 high) should have completed at 1.2391. Rise from 1.2391 is now seen as the third leg of the corrective pattern from 1.1946 (2016 low). Further rise could be seen through 1.4376 in medium term. On the downside, though, break of 1.2773 support will turn focus back to 1.2391 low and then 1.1946.

A tale of two contrasting economies has unfolded over the past 24 hours, with the US and Australia at opposite ends of the spectrum.

Australia posts record surplus

Data released today showed Australia's trade surplus surged to A$4.55 billion in January, a record high according to data compiled by Oanda going back to 2007. This contrasts with US data for December, which was released last night, which showed the US trade deficit ballooning to $59.8 billion, a level not seen since 2008. Australia's higher surplus came from a strong uptick in exports, up 5% in the month after a 2% contraction in December.

Released at the same time, the country's retail sales data for January was a mild disappointment. Sales increased 0.1% m/m, a solid rebound from December's -0.4%, but failed to match economists' forecasts of a 0.3% gain.

The knee-jerk reaction to the retail sales data was to sell the Aussie, with AUD/USD weakening to 0.7020, the lowest since January 4, while AUD/JPY edged down to a three-week low of 78.33, though still held above the 55-day moving average at 78.438.

Both FX pairs subsequently rebounded as the impact of the trade numbers took hold. They are now at 0.7047 and 78.709, respectively.

AUD/JPY Daily Chart

The Australia200 index touched a six-month high this morning, shrugging off weaker than expected retail sales data. The index could be benefiting from a shift in the outlook for RBA monetary policy, with markets starting to price in a cut by June

The August high of 6,390 could be the next resistance point as the index is comfortably above all the Fibonacci retracement levels of the August-December drop

Retail sales rose 0.1% m/m in January, a strong rebound from December's -0.4%, but below economists' estimates of a 0.3% gain. The trade surplus widened to a record high in January due to a strong exports performance.

How will the ECB react?

The ECB rate meeting will probably attract more attention than normal today as the markets await the central bank's reaction to the recent spate of softer economic data. There was speculation in European press yesterday that the ECB might lower growth and inflation forecasts to such a level that would warrant considering another phase of targeted loans to banks (their form of quantitative easing).

If that were the case, EUR would struggle to maintain its fragile foothold above 1.13 and retest the 2019 lows near 1.1234.

EUR/USD Daily Chart

Other data likely to get lost in the ECB noise

The rest of the data releases for today are relatively minor. Euro-zone Q4 GDP is not expected to be revised from the +0.2% q/q and +1.2% y/y first estimates, while the region's unemployment rate is seen unchanged in Q1 from the previous quarter.

On the US front, we see Q4 non-farm productivity and unit labour costs, consumer credit totals for January and we hear a speech from the Fed's Brainard.

Daily Pivots: (S1) 1.1285; (P) 1.1307; (R1) 1.1327; More.....

EUR/USD is losing some downside momentum as seen in 4 hour MACD. But with 1.1345 minor resistance intact, further decline is still expected for 1.1215 low. Decisive break there will resume larger down trend from 1.2555. On the upside, above 1.1345 minor resistance will turn bias to the upside for 1.1419 resistance to extend the consolidation from 1.1215.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Asian markets are mixed today despite selloff in US overnight. Investors are generally non-committal, probably waiting for more concrete developments regarding US-China trade negotiations and Brexit. Though, the decline in US treasury yields is worth a note as 10-year yield closed back below 2.7 handle at 2.692. It remains to be seen if last week's strong rise was a false dawn as more evidence of global slowdown surfaced. Non-farm payroll report, with wage growth, on Friday would probably firm up the tone in Dollar, yields and US stocks.

But for now, focus will turn to ECB meeting first. Euro is generally soft today as markets are expecting downgrade of economic outlook from the central bank. But Canadian Dollar is the worst performing one after BoC took rate hike off the table for now yesterday. Dollar is also soft for today on weakness in yields. On the other hand, Australian Dollar is regaining some ground after strong trade balance data.

Technically, yesterday's strong rally solidifies USD/CAD near term bullish momentum for 1.3664 resistance. Dollar lost some momentum again against Euro and Swiss Franc. But with 1.1345 minor in EUR/USD and 0.9997 minor resistance in USD/CHF intact, more upside is mildly in favor in the greenback. Though, USD/JPY's retreat from 112.13 looks basically corrective. Similarly, EUR/JPY and GBP/JPY are also engaging in corrective retreat. In other words, Yen will likely suffer renewed selloff after the corrective recovery completes. It's just a matter of time.

In other markets, Nikkei is currently down -0.79%. Hong Kong HSI is down -0.46%. China Shanghai SSE is down -0.02%. Singapore Strait Times is up 0.26%. Japan 10-year JGB yield is down -0.0001 at -0.004. Overnight, DOW dropped -0.52%. S&P 500 dropped -0.65%. NASDAQ dropped -0.93%. 10-year yield dropped -0.030 to 2.692, back below 2.7 handle.

US-China trade talks going well, getting words down on contract

Ted McKinney, Undersecretary for Trade and Foreign Agriculture Services, said US-China trade talks are going well. And, "presently there's a lot of discussions going on by digital video conference, also a very good and productive thing". Meanwhile, there's just a lot of work in getting words down ... a contract or agreement, and that's the current status".

Trump said in the Oval Office that trade negotiations with China are "moving along well", "very nicely". But he added that "there would either be "a good deal or it's not going to be a deal".

Fed Beige Book: Government shutdown led to slower economic activity

In the Beige Book economic report, Fed noted that "economic activity continued to expand in late January and February". 10 out of 12 districts reported "slight-to-moderate" growth, except Philadelphia and St. Louis, which were flat.

About half of districts said "government shutdown had led to slower economic activity in some sectors", including retail, auto sales, tourism, real estate, restaurants, manufacturing, and staffing services." Numerous manufacturing contacts expressed concerns on " weakening global demand, higher costs due to tariffs, and ongoing trade policy uncertainty".

Employment increased in most districts, with "modest-to-moderate" gains in a majority. Wages continued to increased, with a majority reported "moderately higher wages". Price continued to increased at a "modest-to-moderate pace". A few districts reported "upward price pressures from tariffs". But several districts noted that steel prices had "stabilized or fallen recently".

BoC turned cautious, rate hike off the table for now

Canadian Dollar dived sharply overnight after BoC kept interest rate unchanged at 1.75% and turned more cautious. A rate hike should be at least off the table temporarily. The most important change in the statement is in the last paragraph. BoC now said the outlook "continues to warrant a policy interest that is below its neutral range". And, given the mixed data, "it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook". Also, with "increased uncertainty" about timing of future hikes, BoC will closely watch developments in household spending, oil and trade.

More on BoC:

• CAD Drops as BOC Drops Hawkish Bias
• Bank of Canada Holds; We May Be Here a While
• Bank of Canada Strikes Cautious Tone; Keeps Rate Unchanged
• USD/CAD – CAD Weaker on BoC Dovish Stance
• (BOC) Bank of Canada maintains overnight rate target at 1 ¾ per cent

EU officials pessimistic on Brexit breakthrough this week

It's less than a week from March 12 when another meaningful vote on Brexit deal could be held in the UK Parliament. But Bloomberg reported that positions on both sides are hardening rather than converging. Both the UK and EU are counting on the other to back down. EU officials are pessimistic about the chance of any breakthrough this week.

In particular, unnamed EU officials described the talks with UK Attorney General Geoffrey Cox earlier this week as some of the worst-tempered of the two-year process. Meanwhile, what Cox requested, independent arbitration of the contentious Irish backstop arrangement outside of European Court of Justice, was seen as unacceptable for the EU.

Australia recorded second largest trade surplus in Jan, but retail sales missed

Australia trade surplus widened to AUD 4.55B in January, up from AUD 3.77B and beat expectation of AUD 2.90B. That's also the second largest surplus on record. Exports rose 5% to AUD 1.90B while imports rose 3% to AUD 1.12B.

However, retail sales was disappointing. Sales grew merely 0.1% mom in January, rebounding from -0.4% decline in prior month, but missed expectation of 0.3% mom.

Also from Australia, AiG Performance of Construction index rose 0.7 to 43.8 in February, indicating a slower rate of contraction.

ECB Previews: Growth and inflation projection downgrade expected, maybe forward guidance too

ECB rate decision and press conference will be the major focus today. No change in monetary policy is expected. The key interest rate should be held at 0.00%, with marginal lending facility rate at 0.25% and deposit facility rate at -0.40% respectively.

Since Q4 last year, economic outlook in Eurozone deteriorated and data released since January revealed little improvements. OECD downgraded Eurozone growth forecasts sharply lower from 1.8% in 2019 to just 1.0%. Most notably, Germany growth forecast was downgraded from 1.6% to just 0.7% in 2019. Italy is projected to contract -0.2% in 2019, revised down from 0.9% growth. There is a large chance for ECB to revised down both growth and inflation forecasts in the new staff projections to be published today.

On forward guidance, ECB adopted the stance that interest rates will remain at present level "at least through the summer of 2019". There is a chance for ECB to extend the duration to at least "through the end of 2019" without losing flexibility nor precision. It's good timing to do so with new economic projections. On new TLTROs, comments from ECB officials appear to suggests that they're still in discussion. thus, it's unlikely to have any formal announcement today.

More previews on ECB:

• ECB Preview – Downgrades in Forecasts, Changes in Forward Guidance and Hints on New Lending
• ECB Meeting: Acknowledging Weakness, Hinting at TLTROs?
• ECB Preview: The Loan Time Is Running Out (TLTRO)
• No Major Changes Likely to ECB's Rate Guidance

On the data front

Swiss will release unemployment rate and foreign currency reserves. Eurozone will release Q4 GDP final and employment. Canada will release building permits. US will release jobless claims and non-farm productivity final.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1285; (P) 1.1307; (R1) 1.1327; More.....

EUR/USD is losing some downside momentum as seen in 4 hour MACD. But with 1.1345 minor resistance intact, further decline is still expected for 1.1215 low. Decisive break there will resume larger down trend from 1.2555. On the upside, above 1.1345 minor resistance will turn bias to the upside for 1.1419 resistance to extend the consolidation from 1.1215.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Economic Indicators Update

Wall Street slips on wider trade deficit

In an otherwise quiet session, data which showed the US trade deficit widening to levels not seen since 2008 pressured US indices lower yesterday. In contrast, Australia reported a record trade surplus this morning. All eyes will be on the ECB meeting today.

US30USD Daily Chart

The US30 index has extended yesterday’s weaker bias in early trading this morning, edging closer to the lowest since February 15

Resistance at the November high of 26,249 remains intact. Support may be found at the 200-day moving average at 25,123

Q4 data for non-farm productivity and unit labour costs are due today. Costs are seen rising for a second consecutive quarter to 1.6%

DE30EUR Daily Chart

The Germany30 index declined yesterday ahead of the ECB rate meeting later today. There was some speculation the central bank was anticipating growth rates low enough to consider more targeted loans for banks

The index is sandwiched between resistance at the 200-day moving average, which is at 11,832 today, and trendline support around the 11,280 level. The 100-day moving average lies at 11,200

The ECB rate meeting will be the centre of attention today, with Draghi’s press conference at 1330GMT highly anticipated to see the ECB’s reaction to the recent spate of weaker economic data.

AU200AUD Daily Chart

The Australia200 index touched a six-month high this morning, shrugging off weaker than expected retail sales data. The index could be benefiting from a shift in the outlook for RBA monetary policy, with markets starting to price in a cut by June

The August high of 6,390 could be the next resistance point as the index is comfortably above all the Fibonacci retracement levels of the August-December drop

Retail sales rose 0.1% m/m in January, a strong rebound from December’s -0.4%, but below economists’ estimates of a 0.3% gain. The trade surplus widened to a record high in January due to a strong exports performance.

ECB rate decision and press conference will be the major focus today. No change in monetary policy is expected. The key interest rate should be held at 0.00%, with marginal lending facility rate at 0.25% and deposit facility rate at -0.40% respectively.

Since Q4 last year, economic outlook in Eurozone deteriorated and data released since January revealed little improvements. OECD downgraded Eurozone growth forecasts sharply lower from 1.8% in 2019 to just 1.0%. Most notably, Germany growth forecast was downgraded from 1.6% to just 0.7% in 2019. Italy is projected to contract -0.2% in 2019, revised down from 0.9% growth. There is a large chance for ECB to revised down both growth and inflation forecasts in the new staff projections to be published today.

On forward guidance, ECB adopted the stance that interest rates will remain at present level "at least through the summer of 2019". There is a chance for ECB to extend the duration to at least "through the end of 2019" without losing flexibility nor precision. It's good timing to do so with new economic projections. On new TLTROs, comments from ECB officials appear to suggests that they're still in discussion. thus, it's unlikely to have any formal announcement today.

More previews on ECB:

• ECB Preview – Downgrades in Forecasts, Changes in Forward Guidance and Hints on New Lending
• ECB Meeting: Acknowledging Weakness, Hinting at TLTROs?
• ECB Preview: The Loan Time Is Running Out (TLTRO)
• No Major Changes Likely to ECB's Rate Guidance

BOC left the policy rate unchanged at 1.75%. What caused the market dramatic market movement was its dovish turn – stripping off the forward guidance that the next move would be a rate hike. The abrupt turn in just two months marks the weaker than expected slowdown in Canada’s growth and heightened uncertainty in the global economic outlook.

At noted in the policy statement, the central bank acknowledged that, as “recent data” suggested, global economic slowdown has been “more pronounced and widespread” than previously anticipated. This is compared with the language in January that “the global economic expansion continues to moderate”. BOC added that “trade tensions and uncertainty are weighing heavily on confidence and economic activity” and “global economic prospects would be buoyed by the resolution of trade conflicts”.

Domestically, it acknowledged the sharp and broadly based slowdown in 4Q18 and projected that weakness in oil prices would continue to drag the country’s growth at in the first half of this year. Soft household consumption and housing prices are key factors affecting the growth outlook. The central bank continued to attribute weak inflation to temporary factors –weakness in oil prices. Indeed, as we mentioned in our preview, BOC’s preferred measures of inflation remained close to its target.

The most surprisingly change comes from the monetary policy stance, BOC judged that the current economic developments “warrant a policy interest rate that is below its neutral range”. Moreover, “given the mixed picture that the data present, it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook”. As the “uncertainty about the timing of future rate increases” has heightened, the members pledged to “watching closely developments in household spending, oil markets, and global trade policy”.

Note that BOC removed the reference that the policy rate would “need to rise over time into a neutral range to achieve the inflation target”. This is obviously a dovish shift. Not only does BOC appear comfortable to see a below-neutral policy rate, it is uncertain whether the next rate change would be increase or decrease. The market reacted rigorously after the announcement with USDCAD rallying to a 2-month high. Yield spread has been a key driving force of USDCAD movement. Note that as the yield spread has shot up to the highest level since December 2015, when the Fed began its rate hike cycle after the 2007/08 global financial crisis, near-term upside for USDCAD might be limited.

Australia trade surplus widened to AUD 4.55B in January, up from AUD 3.77B and beat expectation of AUD 2.90B. That's also the second largest surplus on record. Exports rose 5% to AUD 1.90B while imports rose 3% to AUD 1.12B.

However, retail sales was disappointing. Sales grew merely 0.1% mom in January, rebounding from -0.4% decline in prior month, but missed expectation of 0.3% mom.

Also from Australia, AiG Performance of Construction index rose 0.7 to 43.8 in February, indicating a slower rate of contraction.