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US stock markets closed down sharply overnight as the selloff in Facebook spread to techs and then other sectors. In the background there is also concerns of Trump's trade war against China. Down dropped -1.35% to 24610.91 and S&P 500 dropped -1.42% to 2712.92. NASDAQ suffered the biggest damage by losing -1.84% to 7344.24. Nikkei opened lower and is down -140 at time of writing. HK HSI is down -0.55%.

Even though DOW managed to pare back some loss towards the end of the session, the break of 24668.83 support now put the bears in control. For the near term, deeper fall is expected to 24217.76, or slightly further to 23.6% retracement of 26616.71 to 23360.29 at 24128.80. Overall, it's bounded in corrective pattern from 26616.71 and price actions inside this ranging pattern is rather hard to predict. We'll keep an eye on downside momentum to gauge the chance of a test on 23360.29.

NASDAQ's fall from last week's record high at 7637.27 accelerated after taking out 55H EMA firmly. But it's now trying to draw support from 38.2% retracement of 6630.67 to 7637.27 at 7252.74. Initial support might be seen to bring recovery. But sustained break of 55 H EMA (now at 7445.43) is needed to confirm completion of the fall. Otherwise, based on current momentum, deeper fall is in favor back to 61.8% retracement at 7051.19.

Across the Atlantic, FTSE also tumbled sharply yesterday. But that's mainly due to Sterling's sharp rally following news of Brexit transition deal. The break of 7062.13 now confirms resumption of whole fall from 7792.56. FTSE is now set to take on 38.2% retracement of 5499.50 to 7792.56 at 6916.61. Reaction to this medium te4rm fibonacci level could hinge on whether GBP/USD will break above 1.4345 key resistance.

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Nasdaq was sharply lower after Wall St opening and hit new two-week low at 6888 on Monday, marking total loss of over 2% for the day, so far.

The index was dragged lower by strong fall of Facebook shares which were down over 5% on Monday.

Fresh bearish acceleration weakened structure of daily techs, as bears broke below initial supports at 7009 (10SMA) and 6929 (20SMA) and momentum breaking into negative territory.

Bears eye target at 6852 (Fibo 61.8% of 6645/7187 upleg), as extension of current wave C of five-wave sequence from 7187 (13 Mar high), cracked its FE 100% at 6891, validating wave principles.

The wave could travel to its FE 138.2% at 6817 on firm break below 6852 pivot, with stronger bearish acceleration capable of extending towards 6722 (FE 161.8% of wave C from 7084 lower top).

Broken 20SMA marks initial barrier with broken 10SMA (7009) expected to keep the upside protected.

Res: 6929; 6964; 7009; 7042
Sup: 6852; 6817; 6798; 6722

The British pound has posted gains in the Monday session. In North American trade, GBP/USD is trading at 1.4040, up 0.69% on the day. On the release front, British Rightmove HPI posted a gain of 1.5%, its strongest reading since February 2017. There are on US events on the schedule. On Tuesday, the UK releases a host of inflation indicators, led by CPI.

After months of wrangling between London and Brussels, the two sides announced that there would be a transition period following the UK’s departure from the EU in March 2019. The transition deal will kick in at that time, lasting until December 2020. The deal covers the rights and status of EU citizens in the UK and British citizens in the EU, and allows the UK to pursue new trade agreements during that time. There are still issues to iron out, such as the Northern Ireland border. The transition period is a major, positive development, in that it will enable Britain to enjoy the benefits of the common market, albeit without a seat at the table.

The Federal Reserve is poised to raise interest rates on Wednesday, which would mark the first hike of 2018. According to the CME Group, the odds of a quarter-point raise stand at an impressive 91 percent. What can we expect from the Fed during the year? The pressing question is how many rate hikes will we see in 2018. The current Fed projection remains at three hikes, but a robust US economy has raised speculation that the Fed could accelerate the pace to four hikes, which would be good news for the US dollar. Investors will be keeping a close eye on key US data, especially upcoming inflation indicators. If these numbers improve, we’re likely to see four rate hikes in 2018.

The Japanese yen continues to post gains. In Thursday’s North American session, USD/JPY is trading at 106.10, up 0.10% on the day. On the release front, the BoJ released its summary of opinions, and Japan surprised with a trade deficit, the first since October 2015. The deficit came in at JPY -0.20 trillion, higher than the forecast of -010 trillion. There are no indicators in the US on the schedule.

The message was “business as usual” from the Bank of Japan, which released its summary of opinions from the March meeting. Members voted 8-1 to maintain its ultra-accommodative easing program. Given that inflation is around 1%, well of the target of just below 2%, there are no plans for normalization. In the summary, members went as far as stating that if there was an increased risk of a delay in reaching the inflation target, additional easing would be needed. The cautious message from the bank did not surprise the markets, as the yen has started the week quietly.

It’s all but a given that the Federal Reserve will raise interest rates on Wednesday, which would mark the first hike of 2018. According to the CME Group, the odds of a quarter-point raise stand at an impressive 91 percent. What can we expect from the Fed during the year? The pressing question is how many rate hikes will we see in 2018. The current Fed projection remains at three hikes, but a robust US economy has raised speculation that the Fed could accelerate the pace to four hikes, which would be good news for the US dollar. Investors will be keeping a close eye on key US data, especially upcoming inflation indicators. If these numbers improve, we’re likely to see four rate hikes in 2018.

Markets:

The German Bund and US Note future started the new trading rather slowly amid an empty eco calendar. Many investors remain sidelined ahead of Wednesday’s FOMC decision. Deteriorating risk sentiment on stock markets failed to inspire safe haven flows. Trading dynamics changed around European noon when especially the Bund ceded ground via a sell-off in the UK gilt market. The move occurred after a breakthrough on a transition period and in EU-UK Brexit negotiations ahead of the EU Summit on Thursday and Friday. Reuters published an article quoting ECB sources that even the most dovish governors agree on ending APP this year with a first rate hike by mid-2019. This “consensus” scenario got a dent recently following the outcome of the “dovish” March ECB meeting, but didn’t accelerate the intraday sell-off. On the contrary, core bonds recovered most of the intraday losses at the start of US trading after a weak stock market opening and a similar rebound in UK Gilts. Changes on the German yield curve range between +0.1 bp and +1.2 bps with the belly of the curve underperforming the wings. The US yield curve shifts up to 1.2 bps (2-yr) higher, flattening the curve. 10-yr yield spread changes versus Germany narrow by 1 to 3 bps.

Sterling is king on currency markets today after chief negotiators Barnier and Davis reached a conditional deal on a transition period after Brexit. The two parties also reached complete agreement on the financial settlement and on EU citizens rights. Further negotiations in the Irish border remain required and EU Barnier repeated his mantra that “nothing is (legally) agreed until everything is agreed”. Nevertheless, the pound rallied with GBP/USD breaching through 1.40 and EUR/GBP diving towards 0.8750. Avoiding a hard brexit facilitates the BoE’s tightening process.

EUR/USD eked out some technically irrelevant gains today, returning north of 1.23. The move occurred mainly via GBP cross rates with cable outperforming GBP/EUR. The Reuters article mentioned above and weekend headlines by several ECB governors, showing more confidence in the EMU inflation outlook, provided marginal support.

European and US stock markets correct lower today. Asian risk sentiment was already slippery after rumours that Apple is developing and producing its own device displays for the first time. The German Dax underperforms with the 50d moving average dropping below the 200d moving average, painting a technical “death cross” on the charts, a bearish signal. US markets trade up to 1% lower (Nasdaq) as Brussels is preparing to hit big tech companies with a “digital tax” on EU turnover that will raise about €5bn a year according to draft proposals seen by the FT. Facebook underperforms after a data breach claim.

News Headlines:

Britain and the EU have agreed terms for a 21-month transition after Brexit, providing business with much stronger assurances that a cliff-edge will be avoided next year. UK yield increased up to 6.3 bps across the curve (10-yr) with EUR/GBP diving below 0.88, towards 0.8750.

The Belgian debt agency tapped OLO 79 (€0.95bn 0.2% Oct2023), OLO 80 (€1.7bn 0.8% Jun2028), OLO 84 (€0.57bn 1.45% Jun2037 and OLO 80 (€0.37bn 2.15% Jun2066). The combined amount sold (€3.58bn) was close to the upper bound of the intended €3-3.6 bn with a strong auction bid cover of 1.95. The Belgian debt agency now completed 42.2% (€13.08bn) of this year’s OLO funding plan (€31bn)

ECB policymakers are shifting their debate to the expected path of interest rates as even some of its most dovish rate setters accept that lucrative bond buys should end this year, sources close to the discussion said.

Last Friday, we mentioned that DOW should be close to a triangle breakout point. Now, it seems like traders have made up their mind for downside move. 24668.83 will now be the key focus. Break will resume the fall from 25449.15. Break should at least send the index to 23.6% retracement of 26616.71 to 23360.29 at 24128.80. That's slightly below 24217.76 resistance. It remains to be seen if the correction from 26616.71 will extend beyond 23360.29. And the momentum of the next move will be closely watched.

Cable eventually broke above 1.40 barrier on Monday after being congested under it for past four days. Fresh bullish acceleration on Monday was sparked by comments about UK and EU reached Brexit deal, and sent pound to new one-month high against the dollar at 1.4088. Break above daily cloud was strong bullish signal for continuation of recovery leg from 1.3711 (01 Mar low) which broke through initial targets at 1.4028/70 and eyes pivotal barrier at 1.4102 (Fibo 61.8% of 1.4345/1.3711 descend). Bullish daily techs underpin the advance with multiple bull-crosses (10/20; 10/30SMA & Tenkan/Kijun-sen) and fresh bullish momentum building on daily chart. Close above daily cloud will be bullish signal, but bulls may show hesitation 1.4102 Fibo barrier, as slow stochastic reversed from overbought territory and formed bearish divergence on daily chart. Strong bullish sentiment suggests limited downside before bulls continue, however, focus turns on Tuesday's UK inflation data, which could affect bulls if CPI falls below expectations (Feb f/c 2.8% vs 3.0% in Jan). Broken daily cloud top is expected to contain extended dips and keep fresh bulls in play, while return and close below would be negative signal.

Res: 1.4088; 1.5102; 1.4144; 1.4195
Sup: 1.4028; 1.3995; 1.3961; 1.3928

GBPUSD: The pair continues to retain its upside pressure rallying on Monday. Support lies at the 1.4000 level where a break will turn attention to the 1.3950 level. Further down, support lies at the 1.3900 level. Below here will set the stage for more weakness towards the 1.3850 level. Conversely, resistance stands at the 1.4100 levels with a turn above here allowing more strength to build up towards the 1.4150 level. Further out, resistance resides at the 1.4200 level followed by the 1.4250 level. On the whole, GBPUSD looks to follow through higher on its rally strength.

BoJ Governor Haruhiko Kuroda said ahead of G20 finance head meeting:-

• "There is a solid understanding among the global community that free trade is important"
• "I don't think protectionism will spread globally"

Now, let's see how many "like minded" people are there in the meeting.