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The Canadian dollar has started the week with slight gains in the Monday session. Currently, USD/CAD is trading at 1.3062, down 0.27% on the day. It’s a quiet start to the week, with no US or Canadian releases on the schedule. On Tuesday, Canada releases Wholesale Sales.

The Canadian dollar suffered its worst week since May 2016, sliding 2.7 percent. USD/CAD pushed above the 1.31 level earlier on Monday, as the pair trades at its highest level since June. The Canadian dollar lost more ground on Friday, after Canadian Manufacturing Sales declined for the third time in four months. The key indicator declined 1.0%, missing the estimate of -0.8%. In the US, the week ended on a mixed note. Construction data disappointed, as Building Permits dropped to 1.30 million, shy of the estimate of 1.30 million. Housing Starts followed a similar trend, falling to 1.24 million and missing the forecast of 1.29 million. There was better news from consumer confidence, as UoM Consumer Sentiment improved to 102.0, beating the estimate of 99.3 points. This marked the first time that the indicator has been over the symbolic 100 level since October 2017.

Canadian policymakers continue to cast a nervous eye towards the Trump White House. The latest worry is the steel tariffs that the US has imposed, with the European Union threatening to retaliate against a host of US products. Although Canada was exempted from the tariffs, this could prove temporary, and the threat of a global trade war is not good news for Canada. Added to this mix is rising uncertainty over the NAFTA agreement. The US is demanding far-reaching concessions from Canada and Mexico, and the protectionist Trump administration could decide to exit NAFTA, which has been a key driver of economic growth for Canada. With the Federal Reserve poised to raise interest rates later this week for the first time in 2018, the fragile Canadian dollar could find itself mired in more headwinds.

Daily Pivots: (S1) 1.3893; (P) 1.3936; (R1) 1.3986; More....

GBP/USD rises to as high as 1.4087 so far today as boosted by Brexit news. Break of 1.3995 confirms resumption of rebound from 1.3711. Also, it affirms the case that correction from 1.4345 has completed. Intraday bias is back on the upside for 1.4144 resistance first. Break should confirm this bullish view and send GBP/USD through 1.4345 to resumer larger up trend. On the downside, break of 1.3888 minor support is needed to indicate completion of the rebound. Otherwise, further rise will now be in favor.

In the bigger picture, as long as 1.3038 support holds, medium term outlook in GBP/USD will remains bullish. Rise from 1.1946 is at least correcting the long term down from 2007 high at 2.1161. Further rally would be seen back to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. However, GBP/USD fails to sustain above 55 month EMA (now at 1.4259) so far. Break of 1.3038 support, will suggest that rise from 1.1946 has completed and will turn outlook bearish for retesting this low.

Sterling soars today on news that EU and UK has finally agreed on the Brexit transition deal. The pound is now set to take on 1.4144 resistance against dollar and 0.8686 against Euro. While notable weakness is seen in Euro against Sterling, it's actually performing quite well elsewhere. The common currency is clearly also blessed by the Brexit news. On the other hand, Yen and Swiss Franc suffer most on solid market sentiments. Dollar is also under pressure and even weakens against commodity currencies. Though, strength of CAD and AUD against Dollar is so far limited and markets quickly remember that the worry of trade war remains.

Brexit transition deal agreed, legal texts to be presented to EU leaders later this week

EU Chief Negotiator Michel Barnier and UK Brexit Secretary David Davis confirm in a press conference that the deal for transition period is agreed. Barnier announced that the legal text of Brexit has been agreed, even though there are still works today, in particular regarding Irish border. And, a new text of draft Brexit withdrawal agreement published. (The new, color-coded text can be found here). He will present the document to MEPs and to the commission, and then to EU leaders during the summit on Friday. Be after all, he also emphasized that the transition agreement will only take effect if the final agreement is made.

According to Barnier, EU nationals arrive in the UK during the transition will have the same rights as those arrived before. UK will not participate in EU decision making during the period, but it have to follow EU rules. Regarding Irish border, Brainier reiterated that both sides are committed to the joint position of avoiding a hard border, as published in a report back in December. The so called regulatory alignment solution will be part of the agreement as a fall back option.

UK Brexit secretary David Davis sad the implementation phase (transition period) will provide certainty for the short term. And trade deals will be agreed this time, with a joint committee of UK and EU representatives working to resolve all differences. While UK will follow EU rules, on foreign policy, UK will go on their own. Davis also confirms that the transition period will end on December 31, 2020.

Germany to work with China on steel over capacity, still considers Americans as allies

Unilateral tariffs and trade war is set to be an important top in G20 meeting in Argentina. Ahead of the meeting, German Chancellor Angela Merkel and Chinese President Xi Jinping discussed the issue of over capacity in steel markets in a telephone call.. Merkel's spokesman  Steffen Seibert said that the two leaders "discussed the problem of global overcapacities in the steel market and backed continued efforts to work toward solutions in the framework of the G20 Global Forum". And, he added that "they emphasized the importance of close multilateral cooperation on trade."

The Chinese state news agency Xinhua also reported Xi telling Merkel that both countries should become advocates for new-type international relations". The report added that "China-Germany relations will steadily proceed far as long as they adhere to equality and mutual respect, understand and care for each other's core interests and major concerns, and properly control and handle their differences."

Separately, German Finance Minister Olaf Scholz will meet US Treasurer Steven Mnuchin at G20 finance head meeting in Buenos Aires. Scholz told the press that "we must think about how we can ensure growth for the future and of course also how we can keep one of the most important resources for future wealth -- the possibility to trade freely -- stable." And, that's why it would be difficult if protectionism played a bigger role now again."

On the other hand, German Economy Minister Peter Altmaier will meet with US Commerce Secretary Wilbur Ross this week, and "anyone in Washington who is willing to talk." US steel and aluminum tariffs is the main focus on the trip for Altmaier. He warned that "what's dangerous about the current situation is that it threatens a spiral of one-sided measures that contradict the idea of free trade." And, "that would counter what we've done for the past 60 years. Altmaier also emphasized that "Americans are still our allies" and he'd want to prevent a trade war.

EU published retaliation list, up to EUR 6.4b of US imports

EU published a list of products for retaliation over US steel and trade tariffs last Friday. The total value of US imports to EU could add up to EUR 6.4b in total. There are two parts in the list. Part A includes goods that are worth EUR 2.8b and EU aim to impose 25% tariff. Part B include products that could be tariffed after three years. It's believed that EU will notify the WTO as soon as possible within a 90-day deadline. For the time being, according to WTO rules, EU can only retaliate up to the amount of EU's steel exports to the US, and thus that EUR 2.8b amount. But EU is making itself ready for further action, playing by the WTO book. Here is the list of products in case you're interested.

45 trade groups warn Trump: Don't do something commercially meaningless and penalize Americans

45 trade groups wrote an open letter to Trump trying to stop him from starting a trade war with China. In a joint open letter, the group urged Trump's administration to take "measured, commercially meaningful actions consistent with international obligations" and warned Trump not to "penalize the American consumer and jeopardize recent gains in American competitiveness." It's clear to the group of businesses what Trump is trying to do regarding tariff on China is not commercially meaningful. Additionally, the group warned that "imposition of unilateral tariffs by the Administration would only serve to split the United States from its allies".

Here is a copy of the letter. And here is more detailed comments earlier, with the list of the trade groups.

BoJ: Needs to explain the difference between normalization and tightening

BoJ summary of opinions at March 8-9 policy meeting showed no change in the board's stance on monetary policy. Generally speaking "powerful monetary easing" will be maintained as it's "still a long way" to meet 2% inflation target. There were concerns of Yen's appreciation and stocks' decline as they would "constrain wages and prices" and risk delaying of meeting price target. CPI is expected to "continue on an uptrend" towards 2%, "mainly on the back of an improvement in the output gap and a rise in medium- to long-term inflation expectations." The board also saw the need to explain the difference between "normalization" and "tightening" even though it's not in the phase to consider normalization. That is, normalization is "gradually reducing the degree of monetary accommodation". On the other hand, tightening " aims at reducing the positive output gap." So we'll likely hear more rhetorics from BoJ Governor Haruhiko Kuroda ahead regarding exit. Yet he'll repeat and repeat that it's not there for exit yet.

BoJ's government debt holdings jumped to record high in the period of October to December 2017. By the end of December, holdings jumped 6.8% yoy to JPY 449T. That equaled to 41.1% of all Japanese government debt. Insurance and pensions holdings was a distant second, at JPY 21.6T only. Overseas holdings also rose to JPY 122T, a record high.

Released from Japan, trade balance showed JPY -0.2% deficit in February, versus expectation of JPY -0.1T.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3893; (P) 1.3936; (R1) 1.3986; More....

GBP/USD rises to as high as 1.4087 so far today as boosted by Brexit news. Break of 1.3995 confirms resumption of rebound from 1.3711. Also, it affirms the case that correction from 1.4345 has completed. Intraday bias is back on the upside for 1.4144 resistance first. Break should confirm this bullish view and send GBP/USD through 1.4345 to resumer larger up trend. On the downside, break of 1.3888 minor support is needed to indicate completion of the rebound. Otherwise, further rise will now be in favor.

In the bigger picture, as long as 1.3038 support holds, medium term outlook in GBP/USD will remains bullish. Rise from 1.1946 is at least correcting the long term down from 2007 high at 2.1161. Further rally would be seen back to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. However, GBP/USD fails to sustain above 55 month EMA (now at 1.4259) so far. Break of 1.3038 support, will suggest that rise from 1.1946 has completed and will turn outlook bearish for retesting this low.

Economic Indicators Update

Euro follows Sterling higher on news of Brexit transition agreement. The optimistic development now leaves Dollar, Yen and Swiss Franc in misery going into US session. In particular, it now looks like EUR/USD has defended 1.2251 minor support well. And the correction from 1.2445 might be finished with three waves down to 1.2257. Focus is immediately back on 1.2235 minor resistance now. Break will bring stronger rise to 1.2412/45 resistance zone.

EUR/CHF looks set to end days of dull trading and have a take on 1.1740.

EU Chief Negotiator Michel Barnier and UK Brexit Secretary David Davis confirm in a press conference that the deal for transition period is agreed.

Barnier announced that the legal text of Brexit has been agreed, even though there are still works today, in particular regarding Irish border. And, a new text of draft Brexit withdrawal agreement published. (The new, color-coded text can be found here). He will present the document to MEPs and to the commission, and then to EU leaders during the summit on Friday. Be after all, he also emphasized that the transition agreement will only take effect if the final agreement is made.

According to Barnier, EU nationals arrive in the UK during the transition will have the same rights as those arrived before. UK will not participate in EU decision making during the period, but it have to follow EU rules. Regarding Irish border, Brainier reiterated that both sides are committed to the joint position of avoiding a hard border, as published in a report back in December. The so called regulatory alignment solution will be part of the agreement as a fall back option.

UK Brexit secretary David Davis sad the implementation phase (transition period) will provide certainty for the short term. And trade deals will be agreed this time, with a joint committee of UK and EU representatives working to resolve all differences. While UK will follow EU rules, on foreign policy, UK will go on their own. Davis also confirms that the transition period will end on December 31, 2020.

Copper price fell sharply on Monday, extending pullback from last week’s spike high at $3.1905, to nearly fully retrace $3.0540/$3.1905 recovery leg on dip to $3.0570 so far.

The metal maintained bearish bias from last Wednesday’s upside rejection and came under increased pressure on rising concerns that tensions between US and China could turn into trade war and could seriously affect demand.

In addition to negative fundamentals, technical studies are in firm bearish setup and maintain strong pressure.

Eventual break below $3.0540 pivot could spark fresh weakness towards next key supports at $3.0250/18 (09 Feb low / rising 200SMA), violation of which would expose psychological $3.00 support.

Meanwhile, bears may show stronger hesitation at key $3.0540 support, but limited upside action could be expected, with former support at $3.10 zone, expected to cap.

Res: 3.0862, 3.1000, 3.1140, 3.1207
Sup: 3.0570, 3.0540, 3.0415, 3.0250

Spot Gold extended weakness from the previous week and hit new 2 ½ week low at $1307 on Monday.

The yellow metal remains under pressure on stronger dollar, as market are anticipating 0.25% increase on FOMC meeting this week but persisting concerns about the US politics may obstruct bulls.

Bearish techs keep near-term focus at the downside for test of key support zone between $1304 and $1301 (consisting of 100SMA / 01 Mar spike low and daily cloud base).

Hawkish Fed on Wednesday could spark fresh bearish acceleration through $1304/01 pivots, which could extend towards $1286 (Fibo 61.8% of $1236/$1366 rally).

Meanwhile, limited recovery could be expected as a cluster of daily MA’s between $1321 and $1329 weighs heavily and is expected to cap stronger upticks.

Res: 1314, 1318, 1321, 1323
Sup: 1307, 1304, 1301, 1293

The euro has moved higher against the greenback during today’s European trading session, as the U.S dollar index sheds intraday gains. The EURUSD pair has found strong intraday resistance from the 1.2305 level, with price-action currently trading back around the 1.2290 price-zone. The overall trade-weighted basket of euro currencies remains under selling pressure, with the EURGBP pair falling to three-week trading lows today creating further headwinds for the single currency.

The EURUSD pair remains bearish whilst trading below the 1.2305 level, intraday support is found at the 1.2278 and 1.2257 levels.

Should the EURUSD pair move strongly above the pivotal 1.2305 level, buyers may test towards 1.2334 and 1.2382 resistance areas.

The British pound has moved sharply higher against the U.S dollar, hitting 1.4050, as reports surface that the United Kingdom and EU have agreed to the initial terms of a transitional Brexit deal. The GBPUSD has moved strongly above the key 1.4000 level, a technical resistance area the pair has previously struggled to break above recently. Medium-term Stochastic and RSI indicators are turning higher, pointing to continued intraday sterling gains.

The GBPUSD pair remains intraday bullish whilst trading above the 1.3973 level, further upside towards 1.4068 and 1.4146 seems possible.

A sustained move below the 1.4000 level may lead to a GBPUSD price-correction, with sellers again targeting the key 1.3973 level.

WTI oil price eased on Monday and trading within narrow consolidation under new two-week high at $62.52, posted on strong rally last Friday.

Friday's bullish acceleration was capped by ascending 55SMA and Fibo 61.8% of $64.22/$69.94 bear-leg and today's consolidation is limited by daily cloud top (currently at $62.26).

Concerns over increased US drilling activity (report on Friday showed the number of US oil rigs increased by four, to bring the total number of active rigs to 800).

Rising US production could overshadow recent positive signals on expectations for increasing global oil demand and further obstruct near-term bulls.

Daily techs are in mixed mode and lacking stronger bullish momentum which keeps the risk of recovery stall in play while 55SMA caps.

Initial support at $61.87 (20SMA) holds for now and keeps downside risk limited.

Break here would signal stronger correction of $60.11/$62.52 upleg and expose key near-term support at $61.23 (daily cloud base), loss of which will be bearish.

Bullish scenario sees lift above daily cloud as minimum requirement, with break and close above 55SMA to signal continuation of recovery phase from $60 zone base, towards initial barrier at $63.21 and $64.00 zone seen in extension.

Res: 62.26, 62.61, 63.00, 63.21
Sup: 61.87, 61.47, 61.23, 60.80