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At 10:00 GMT, ECB President Mario Draghi is due to speak at the ECB conference hosted by the Institute for Monetary and Financial Stability, in Frankfurt. His comments can influence moves in EUR pairs.

At 12:30 GMT, US Retail Sales (MoM) (Feb) will be released, with an expected 0.3% from -0.3% previously. Retail Sales ex Autos (MoM) (Feb) is expected at 0.4% from 0.0% prior. Retail Sales Control Group (Feb) is expected to be 0.4% from 0.0% prior. It is expected that Auto sales will be a drag on the figures as demand caused by the hurricane season has been met, with CPI data showing a 0.2% fall in auto prices. This may lessen the expected bounce back from last month’s number. USD crosses may see increased volatility around this data release.

At 16:15 GMT, the ECB’s Coeure is due to make a scheduled speech and, as a member of the executive board, his comments could affect EUR crosses.

At 21:45 GMT, New Zealand Gross Domestic Product (QoQ) (Q4) is expected to be 0.7% against 0.6% previously. This data point has been trending lower since the high of 1.5% set in March 2013. The last four quarters have seen the numbers miss expectations on two occasions, and come in as predicted on the other two. Gross Domestic Product (YoY) (Q4) is expected to be 3.1% against 2.7% previously.

At 23:50 GMT, Foreign Investment in Japanese Stocks (Mar 9) will be released. The prior reading was ¥-463.4B. Foreign Bond Investment (Mar 9) will also be released, with a previous value of ¥-1,188.5B. JPY crosses may experience volatility as a result of this data.

Overshadowing the economic data yesterday was the sacking of US Secretary of State Tillerson. The President nominated current CIA Director Mike Pompeo to become the new Sec of State. The President also name-dropped Larry Kudlow to fill the vacancy left by Gary Cohn as his Chief Economic Advisor. On a more market-orientated level, President Trump has proposed a doubling of the $30B-a-year package of tariffs on Chinese goods to the US being presented to him by the US Trade Representative’s office. This would represent $60B in tariffs on more than 100 Chinese produced goods ranging from electronics to furniture, to toys. This is the latest escalation in the developing trade war as protectionist policy is rolled out in the US. US stocks declined on the Tillerson story and continued lower with the news on China. The S&P 500 erased gains to finish down -0.64% at 2765.3, with the Nasdaq suffering most, down -1.19% at 7046.5. USDJPY dropped from a high of 107.289 to 106.393, while EURUSD rose from 1.2340 to 1.24071. Gold pushed higher from 1317.50 to 1327.80.

The UK Budget Report was released yesterday. This is a mini-budget and outlines the government’s updated budget for the fiscal year, including infrastructure and spending projections, public finance forecasts and potential tax reforms. The OBR revised up their GDP forecast for 2018 from 1.4% to 1.5%, while the forecasts for 2019 and 2020 remained unchanged at 1.3%. A Budget Deficit of £45.2B is expected in 2017/18. UK Finance Minister Hammond said that the Government was making progress on improving the economy. EURGBP dropped in the lead up to this event and reached for a high of 0.88806 before selling off to 0.88541 afterwards.

US Consumer Price Index (YoY) (Feb) data was released, coming in as expected at 2.2%, against 2.1% previously. Consumer Price Index Ex Food & Energy (YoY) (Feb) data came in as expected, unchanged at 1.8%. Consumer Price Index Ex Food & Energy (MoM) (Feb) data came in as expected at 0.2%, against 0.3% previously. Consumer Price Index (MoM) (Feb) data came in as expected at 0.2%, against 0.5% previously. The results of the data showed that most of the releases came in as expected, painting a mixed picture and, ultimately, giving an unclear picture of inflation. USDJPY fell from 107.289 to 106.703 due to this data.

Bank of Canada Governor Poloz gave a speech titled “Today’s Labour Market and the Future of Work” at Queen’s University, in Ontario. He made the following comments: Canada may be able to handle more growth without inflation. The labour market has become a ‘good deal’ healthier over the past year but some slack still remains, and he expects increased investment and labour market churn to create more supply through higher productivity and employment. Canada is at a ‘sweet spot’ in the economic cycle, where investment and capacity-building usually take over as an engine of growth. EURCAD moved higher in reaction to the comments from 1.58968 to 1.60357.

BOJ Monetary Policy Meeting Minutes were released, providing key insights into how the decisions made by the Board were influenced by economic conditions. The key points were: Most members said momentum toward hitting price target was being maintained. Most members shared the view that the BOJ should persistently pursue powerful monetary easing. Some members said that the BOJ must monitor the positive impacts and side effects of policy, including the effect on the financial system. USDJPY rose from 106.527 to 106.742 as a result.

EURUSD is up 0.08% overnight, trading around 1.23399.

USDJPY is down -0.04% in early session trading at around 106.525.

GBPUSD is up 0.10% this morning, trading around 1.39731.

Gold is down -0.02% in early morning trading at around $1,326.07.

WTI is down -0.08% this morning, trading around $60.66.

AUDUSD is trading higher following the rebound on the 0.7715 significant support level. However, the bullish movement paused at the 40-day simple moving average near the 0.7900 psychological level during yesterday's session.

Looking at the momentum indicators, the RSI indicator is moving slightly above its neutral threshold of 50 and is sloping to the upside, suggesting that the market could keep moving higher in the near term. The MACD oscillator also supports this view as it is in the negative territory but is ready to surpass the zero line.

A move to the upside could see immediate resistance at the 40-day SMA at 0.7900 but should the market increase positive momentum above this area, the 0.7990 could be the next level in focus. A stronger barrier, though, could be found at the 0.8100 handle, which if broken would increase the chances for further gains.

In the wake of negative pressures, the market could meet support at the 23.6% Fibonacci of 0.7826 of the upleg from 0.6820 to 0.8135, which holds near the 20-day SMA. A successful close below this level could see a retest of the previous low of 0.7715, while in case of steeper declines, the pair could breach this trough, diving to the 38.2% Fibonacci mark at 0.7626.

Turning to the medium-term picture, the market seems to be in bullish mode given that the price has been trading in an ascending trend since January 2016 and tested the diagonal line several times in the past.

The euro has moved above the 1.2400 level against the greenback, following President Donald Trump firing of U.S Secretary of State, Rex Tillerson. The EURUSD pair yesterday broke from recent narrow trading-ranges on the news, and now looks to further bullish advancement above the key 1.2430 resistance level. EURUSD traders now look to the release of monthly CPI inflation figures from the German economy, and a key speech from ECB President Mario Draghi during today’s European session.

The EURUSD pair is strongly bullish whilst trading above the 1.2400 level, further upside towards the 1.2430 and 1.2510 levels seems possible.

Should the EURUSD pair move below the 1.2400 level, we may see a correction towards the 1.2382 and 1.2367 support levels.

The British pound has performed a bullish technical breakout against the greenback, following the unexpected departure of U.S Secretary of State Rex Tillerson from the Trump administration. The GBPUSD pair is currently sitting around the 1.3970 level, having traded close to the 1.4000 handle during today’s Asian trading session. Moving into the European trading session, key technical support is now found at the 1.3920 level, whilst the next upside hurdle remains the psychological 1.4000 level.

The GBPUSD pair is likely to advance further once clearly above the 1.4000 level. Upside targets are then found at the 1.4066 and 1.4149 levels.

Should the GBPUSD pair move below the 1.3966 level, we may see a strong price-action back towards the key 1.3920 support level.

A deluge of economic data will move the currency markets on Wednesday, with high-profile reports from Europe and the United States set to drive the headlines.

The economic calendar kicks off at 07:00 GMT with a report on German consumer inflation. Germany’s consumer price index (CPI) for February is expected to rise 1.4% annually. The harmonized index of consumer prices (HICP), which calculates inflation using a method consistent throughout the European Union, is expected to rise 1.2% year-over-year.

On the monetary policy front, European Central Bank (ECB) President Mario Draghi will deliver a speech at 08:00 GMT. Less than an hour after Draghi’s speech begins, ECB official Peter Praet will also deliver remarks. Other ECB policymakers scheduled to speak on Wednesday include Victor Constancio and Benoit Coeure.

Europe’s economic wire continues at 09:00 GMT with a report on Italian retail sales. Receipts at retail stores are forecast to fall 0.1% in January.

The European Commission’s statistics agency will report on industrial production at 10:00 GMT. Industrial output is expected to fall 0.4% in January. Output is expected to be 4.7% stronger than a year ago.

The same agency will report on Eurozone employment at 10:00 GMT. Employment in the currency region is expected to rise 0.3% in the fourth quarter and 1.6% annually.

Shifting gears to North America, the US Department of Commerce will report on retail sales at 12:30 GMT. The February data set is expected to show monthly growth of 0.3%.

The Department of Labor will release the latest producer inflation figures at 12:30 GMT. Factory gate prices are expected to rise 0.1% on month and 2.8% annually.

Rounding out the US release schedule are reports on business inventories and crude inventories. The US Energy Information Administration (EIA) is expected to show a weekly build of 1.5 million barrels in the week ending 10 March.

EUR/USD

After a bullish start to the week, the euro slammed on the breaks on Tuesday, with the EUR/USD hovering around 1.2400. Investors can expect further bullish upside insofar as prices hold above the 1.2300 handle.

GBP/USD

Cable’s ascendancy continued on Tuesday, with prices coming to within a few pips of the psychological 1.4000 level. Price action over the past two days suggest a re-test of the 26 February high is a possibility once prices cross the psychological barrier.

USD/JPY

The dollar’s momentum versus the yen went through a series of volatile swings on Tuesday. The USD/JPY touched a two-week high near 107.20 before a sharp decline dragged prices back toward the mid-106.00 region, where they are now. Despite the pullback, the pair is exhibiting stronger momentum, which suggests a return to Tuesday’s high is a possibility.

Currency pair GBP/USD

The GBP/USD has broken above the long-term resistance trend line (dotted red), which makes a bullish continuation likely within wave 5 (blue).Price will need to stay above the support trend lines (blue) otherwise the uptrend is in danger.

The GBP/USD is showing strong bullish momentum, which is typical for a wave 3 (orange). As long as the bearish retracement stays above the previous tops (green lines), the current wave pattern is probably a wave 4 (orange) and a bullish continuation is likely.

Currency pair EUR/USD

The EUR/USD is now testing the resistance trend line (red) of a triangle chart pattern. A bullish breakout could confirm the expected uptrend within waves 5 (pink/purple).

The EUR/USD bullish breakout above resistance (red) could start a potential wave 3 (green) of wave 3 (blue).

Currency pair USD/JPY

The USD/JPYcould be close to starting an uptrend but a breakout above the resistance is needed before that becomes more likely. A break below support (blue) could see price test the previous bottom.

The USD/JPY could have completed a wave 5 (green) of wave 1 (blue) and is now building a potential bearish ABC (green) within wave 2 (blue).

Market movers today

In the US, retail sales numbers for February are due for release. Retail sales fell unexpectedly in January, pointing to a slowdown in consumer spending. Yet, we think this was a fluke, as consumer confidence remains extremely high.

In Germany, Angela Merkel will be sworn in as chancellor of the new grand coalition government today.

In the Scandi countries, we get Swedish inflation figures and HOX house price data for February and the Danish central bank is due to publish its outlook for the Danish Economy (see overleaf).

Selected market news

Another one bites the dust. Donald Trump fired his Secretary of State Rex Tillerson and appointed CIA director Mike Pompeo in his stead. Rex Tillerson and Gary Cohn were some of the more mainstream officials. Tillerson stood for relatively traditional foreign policy and Cohn for orthodox economic policy.

Birds of a feather flock together. Trump is surrounding himself with likeminded people, which translates into a preference for unorthodox hawks. Peter Navarro and Wilbur Ross are China and trade hawks and Pompeo is a foreign policy hawk. Our FX valuation models provide the means to run scenario analysis for tariffs and trade restrictions as they are based on terms of trade and the price ratio of tradables versus non-tradables. We document the effects, which are significant, in our piece published this morning.

Reflation scare recedes further. US core consumer price inflation came in as expected, moderate and unchanged at 1.8% y/y. To an extent, it corroborated the weakish wage figure from the jobs report. Unchanged CPI and lacklustre wage growth took some of the shine off the US reflation story. Further discussion on fixed income reactions follows below. We discuss US inflation on in our recent thematic piece.

Daily Pivots: (S1) 147.90; (P) 148.63; (R1) 149.52; More....

GBP/JPY's corrective recovery from 144.97 is still in progress. Further rise could be seen but upside is expected to be limited by 150.92 (50% retracement of 156.59 to 144.97 at 150.78 to bring fall resumption. Break of 144.97 will extend the decline from 156.59 to 143.51 medium term fibonacci level next.

In the bigger picture, the case for medium term reversal continues to build up. There is bearish divergence condition in daily MACD. 146.96 support was taken out. And GBP/JPY was rejected by 55 month EMA. Break of 38.2% retracement of 122.36 to 156.59 at 143.51 will pave the way to 61.8% retracement at 135.43 and below. This will now be the preferred case as long as 150.92 resistance holds.

Daily Pivots: (S1) 131.30; (P) 131.86; (R1) 132.61; More....

At this point, we'll stay cautious on strong resistance from 38.2% retracement of 137.49 to 129.34 at 132.45 to finish the corrective rise from 129.34. Below 130.95 minor support will turn bias to the downside for retesting 129.34. Break of 129.34 will resume the whole decline from 137.49 to 126.61 medium term fibonacci level. Nonetheless, sustained break of 132.45 will target 61.8% retracement at 134.37 first, before resuming the fall from 137.49.

In the bigger picture, current development argues that rise from 109.03 (2016 low) has completed at 137.49, on bearish divergence condition in weekly MACD. Deeper fall should be seen to 38.2% retracement of 109.03 to 137.49 at 126.61 first. On the upside, break of 137.49 is needed to confirm medium term rise resumption. Otherwise, risk will now stay on the downside even in case of strong rebound.