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Currency pair EUR/USD

The EUR/USD broke below the support trend line (dotted blue) and is now testing the previous bottom (green). The support zone is a key decision level for a bullish bounce or bearish breakout and will decide whether USD strength or weakness will prevail.A bearish break makes a wave 4 (purple) pattern less likely.

The EUR/USD needs to break above the resistance trend lines (orange) beforea bullish breakout is likely. A bearish breakout would need to show strong bearish price action before continuation lower is possible.

Currency pair GBP/USD

The GBP/USD is in a triangle chart pattern with multiple support and resistance trend lines near it. Price will need to break the S&R to start a new trend.

The GBP/USD indeed completed a bearish ABC (orange) zigzag yesterday, which is probably part of a larger WXY correction (grey).Price could show bullish reversal if price manages to break above resistance (orange). A break below the 100% Fib shows bearishness.

Currency pair USD/JPY

The USD/JPY is probably in a wave 4 (blue) as long as price stays below resistance (red).

The USD/JPY could be building an ABC (green) correction within wave 4.

Dollar bulls were injected with a renewed sense of confidence on Tuesday after Federal Reserve Chairman Jerome Powell struck a careful but fairly upbeat tone during his congressional testimony.

Powell expressed optimism over the health of the US economy withinflation pushing towards the 2% target, while downplaying concerns of market volatility. He deftly maintained a safe distance when quizzed on whether the central bank would raise rates more than three times this year – ultimately preventing market fireworks. A key takeaway from the testimony was Powell’s statement that the US economic outlook “remains strong despite the recent stock market turbulence”. These hawkish remarks have not only reinforced market expectations over a rate hike in March, but stimulated speculation that the Fedmay raise interest rates four times this year.

Today’s main risk event for the Dollar will be the second estimate of the fourth quarter US GDP, which is expected to show that the US economy expanded 2.5%. A growth figure matching or exceeding market expectations could support the prospects of higher rates, consequently boosting the Dollar further.

Focusing on the technical picture, the Dollar bounced back to life against a basket of major currencies on Tuesday, with prices venturing towards the 90.40 region. A decisive breakout and daily close above the 90.55 lower high could signal the end of the downtrend on the daily charts, ultimately bringing bulls back into the game. The level of interest above 90.55 will be the 91.00 resistance level.

Equity bears inspired by Powell

Asian equities were depressed during early trading on Wednesday following Wall Street’s steep decline overnight.

Hawkish comments from Jerome Powell have rekindled interest rate hike fears and as such continues to pressure stock markets. European shares could edge lower as investors adopt a guarded approach with the caution potentially trickling back down into Wall Street later in the day. It is becoming increasingly clear that global stocks still remain highly sensitive to the prospects of rising inflation and interest rate fears. With Powell’s testimony fuelling market speculation of higher US interest rates this year, stock markets remain exposed to downside risks as equity bears lurk in the background.

Gold melts on Fed hike expectations

Gold found itself under severe selling pressure on Wednesday thanks to an aggressively appreciating US Dollar.

The yellow metal’s downside was fuelled by hawkish remarks from Federal Reserve Chairman Jerome Powell, which heightened speculations of higher US interest rates this year. Gold, which is zero-yielding, is likely to receive further punishment in a high interest rate environment. From a technical standpoint, Gold is bearish on the daily charts. Prices are trading below the 50 Simple Moving Average while the MACD has crossed to the downside. Previous support at $1324.15 could transform into a dynamic resistance that encourages a decline to $1310 and $1300, respectively. For bulls to jump back into the game, Gold prices need to break back above $1324.15.

Market movers today

Today, we publish the third paper in our series on inflat ion and what it means for markets. In t oday's piece we dive int o t he inflat ion development in t he Scandinavian count ries.

Today's main event is t he release of euro area HICP inflation at 11:00 CET . With Spanish HICP surprising slightly on the upside this morning and German HICP slight y lower than expected, we see risks for the euro area print tomorrow as balanced and stick to our forecast of 1.24% for headline and 1.05% for core.

Tier 2 releases today include German unemployment rate and the second release of US GDP growth for Q4.

More interesting is the EU's Chief Brexit negotiat or Michel Barnier, who is due to brief the permanent EU representatives on Brexit today. They are expected to adopt the withdrawal text , which will be published.

We have a lot on the plate in the Scandies today. In Norway, retail sales in January and the quarterly wage statistics for Q4 are due out today. In Sweden, we have Q4 GDP, retail sales and Sweden's National Housing Board is due to publish a report on the Swedish housing market . In Denmark, the second release of GDP will give more detail on what drove growth in Q4.

Selected market news

Stock markets sold off, bond yields rose and the USD strengthened on the back of the new Fed Chairman Jerome Powell's first testimony. Powell gave a positive view on the economy and said his personal out look for the US had strengthened since the December meeting. It opens up for the Fed eyeing four hikes instead of three in 2018. See Flash Comment US: Powell says 'personal outlook has strengthened', 27 February 2018.

Chinese official PMI manufacturing for February fell more strongly than expected, pointing to a slowdown in the Chinese economy, see chart. The index fell to 50.3 (consensus 51.1) from 51.3. It is the lowest level since July 2016. While the drop is bigger than expected it is broadly in line with our out look for a slowdown in the Chinese economy this year, which is engineered by financial tightening to reduce leverage and cool the housing market . The months around the Chinese New Year always create some distortion so the weakness of the data should be taken with a grain of salt . Tomorrow, private Caixin PMI data is due out .

In Japan, preliminary industrial production for January also disappointed. The numbers showed a decline of 6.6% m/m (consensus -4.0% m/m) after a rise in December of 2.9% m/m. It was the biggest monthly drop since 2011. Japanese retail trade also fell more than expected.

While the data out of Asia probably exaggerates the weakness, it is more evidence that the global business cycle reached a peak in early 2018 and is set to lose a bit of steam during the year after finishing 2017 on a very strong note. We still expect global growth to be robust , though and underpin decent profit growth.

Headlines/Economic Data

General Trend:

Asian equity markets and financials generally track declines in the US

Real Estate stocks decline after rise in US Treasury yields

Hong Kong Exchanges [388.HK] FY17 results beat ests

Asian currencies trade generally weaker after Tuesday’s gains in the US dollar

China says Feb PMIs weighed down by Lunar New Year Holiday: Manufacturing PMI hits lowest since July 2016 and has biggest m/m drop in 6-years

Japan Jan prelim industrial production has largest m/m decline since 2011

BoJ trims purchases of over 25-year JGBs in daily operation

Hong Kong issues initial 2018 GDP growth and inflation forecasts

Q4 Capex data due out of Japan and Australia on Thursday

Japan

Nikkei 225 opened -0.4%; closed -1.4%

TOPIX Iron & Steel Index -2.3%, Real Estate -1.5%, Securities -1%

Japanese mega banks trade broadly lower, track earlier declines in US financial sector

Fast Retailing [9983.JP] Declines over 1% (scheduled to report Feb sales on Friday, March 2nd)

(JP) JAPAN JAN PRELIM INDUSTRIAL PRODUCTION M/M: -6.6% V -4.0%E; Y/Y: 2.7% V 5.3%E

(JP) JAPAN JAN RETAIL SALES M/M: -1.8% V -0.6%E;RETAIL TRADE Y/Y: 1.6% V 2.5%E

(JP) Japan Jan Housing Starts Y/Y: -13.2% v -4.7%e; Construction Orders Y/Y: +0.9% v -8.1% prior

(JP) BOJ announcement related to daily bond buying operation: Reduces buying in over 25-year JGBs

(JP) Japan FY18 general budget bill is expected to pass the lower house as early as today, which would secure legislation by the end of the current fiscal year ending March

(JP) Bank of Japan (BOJ) Gov Kuroda: Reiterates BOJ easing is to reach price target

Looking Ahead: Japan Q4 Capex data due for release on Thursday

(JP) BoJ Gov Kuroda said to give speech in the lower house on Friday March 2nd, which is expected to focus on his reappointment –Japanese Press

Korea

Kospi opened -0.4%

(KR) South Korea Mar Business Manufacturing Survey: 82 v 77 prior; Non-Manufacturing Survey: 82 v 78 prior

(KR) According to analysts Bank of Korea (BOK) is expected to raise rates in May or July - Korean press

China/Hong Kong

Hang Seng opened -0.7%, Shanghai Composite -0.9%

Hang Seng Energy Index -2.9%, Information Tech -2.5%, Financials-1.7%, Services -1.5%, Property/Construction -1.6%

Shanghai Composite Property index moves between gains and losses

(CN) US President Trump:China and others take advantage of US in trade - China Daily

(CN) China Commerce Ministry (MOFCOM): China will take necessary measures to protect legal (trade) rights

(CN) China planning to reduce itsannual budget-deficit target to 2.9% of GDP, compared to the 3% set in the pasttwo years - financial press

(CN) CHINA FEB GOVT OFFICIAL MANUFACTURING PMI:50.3 V 51.1E (lowest level since July 2016); NON-MANUFACTURING PMI: 54.4 V 55.0E (4-month low),Composite PMI: 52.9 v 54.6 prior

(CN) China PBoC Open Market Operation (OMO): Skips v skips prior injection of reverse repo operations (2nd consecutive skip)

USD/CNY (CN) PBOC SETS YUAN REFERENCE RATE AT 6.3294 V 6.3146 PRIOR

(CN) China said to cut gasoline and diesel prices for March

(HK) Hong Kong Q4 GDP q/q: 0.8% v 0.7%e; 2017 GDP Y/Y: 3.8% v 3.7%e

(HK) Hong Kong Financial Sec Chan: Gives initial 2018 outlook: GDP 3-4%; CPI 2.2%, underlying CPI 2.5% - budget address

(CN) China Finance Ministry (MOF) sells 5-year bonds: avg yield 3.6566% v 3.69%e; bid to cover 3.13x

China electric vehicle (EV) firm Nio said to hire bankers for planned 2018 IPO in the US, to raise up to $2.0B - financial press

Looking ahead: China Feb Caixin Manufacturing PMI due for release on Thursday

Australia/New Zealand

ASX 200 opened -0.2%; closed -0.7%

ASX 200 REIT Index -1.5%, Telecom -2.6%, Consumer Discretionary -1%, Resources -1.1%, Financials -0.6%

Retailer Harvey Norman [HVN.AU] declines over 12% as H1 profits declined and revenues missed ests

Virgin Australia, VAH.AU Reports H1 (A$) underlyingpretax 102.5M v 107Me; Rev 2.79B v 2.8Be; Confirms that there is no intentionto privatize the company, announces share buyback priced at A$0.30/share

(AU) Australia Treasury Sec Fraser: Wage growth is starting to lift, a sharpcorrection in housing is not likely

(NZ) RBNZ Deputy Gov Bascand: RBNZ initiatives will strengthen disclosureregime; insurance sector can improve disclosure performance (update)

(AU) Australia sells A$1.0B v A$1.0B indicated in 2.25% Nov 21, 2022 bonds, avgyield 2.3582% v 2.2218% prior, bid to cover 4.10x v 3.53x prior

(AU) Australia Jan Private Sector Credit M/M:+0.3% v 0.4%e; Private Sector Credit Y/Y: 4.9% v 5.0%e

Pilbara Minerals, PLS.AU Enters into broad-based strategic relationship POSCO; includes long-term offtake and A$79.6M equity investment in Pilbara at A$0.97/shr

(AU) NAB now sees RBA raising rates one time by 25bps in Q4 2018 (prior view of 2 rate hikes)

Looking Ahead: New Zealand Q4 Terms of Trade due for release on Thursday, along with Australia Q4 Capex

Other Asia

(TH) Bank of Thailand Feb Policy Meeting Minutes: Reiterates policy should remain accommodative; Volatile movements are expected for Baht currency (THB)

(ID) Indonesia Central Bank (BI): Have been intervening in the market since this morning; Rupiah has weakened on Fed Powell's hawkish comments

(IN) India Feb PMI Manufacturing: 52.1 v 52.4 prior (7th month of expansion)

State Bank of India [SBIN.IN]: Raises interest rates on term deposits below INR10M by 10-50bps; for bulk deposits+25-75bps

Looking ahead: India Q4 GDP due later today

North America

US equity markets ended broadly lower: Dow -1.2%, S&P500 -1.3%, Nasdaq -1.2%, Russell 2000 -1.5%

S&P500 Real Estate -2.1%, Consumer Discretionary -2.1%

(US) Fed Chair Powell: Developments since the Dec meeting have increased his confidence that inflation is moving towards target; Further gradual increases in the federal funds rate will best promote attainment of both of our objectives;policy will remain data dependent

(CA) Canada Fin Min Morneau: Have budget room for all eventualities, interest rates in Canada are still accommodative

(US) OPEC reportedly schedules meeting with US shale producers in Houston next Monday – press

(US) Weekly API Oil Inventories: Crude: +0.9M v-0.9M prior

Looking Ahead: US Q4 GDP revision due for release , along with Q4 Consumer Spending and Feb Chicago PMI, Weekly DoE Crude Oil Inventories

Europe

(UK) Feb Lloyds BusinessBarometer: 33 v 35 prior

(UK) Feb BRC Shop Price Index Y/Y: -0.8% v -0.6%e

Looking Ahead: Euro Zone Prelim Feb CPI due for release

Levels as of 01:00ET

Nikkei225 -1.4%, Hang Seng -1.4%; Shanghai Composite -0.7%; ASX200 -0.7%, Kospi -1.1%

Equity Futures: S&P500 -0.1%; Nasdaq100 -0.1%,Dax -0.1%; FTSE100 -0.2%

EUR 1.2215-1.2239; JPY107.53-107.07; AUD 0.7799-0.7781;NZD 0.7242-0.7220

Apr Gold 0.0% at $1,318/oz; Apr Crude Oil -0.6% at $62.66/brl; May Copper -0.3% at $3.17/lb

Daily Pivots: (S1) 148.80; (P) 149.30; (R1) 149.78; More...

GBP/JPY weakens mildly today but it's staying in range above 147.95. Intraday bias remains neutral as consolidation could extend. But with 151.90 resistance intact, deeper decline is expected. Below 147.95 will resume the fall from 156.59 and target 146.96 support next. Considering bearish divergence condition in daily MACD, firm break of 146.96 will be another sign of medium term trend reversal. On the upside, break of 151.19 will indicate short term bottoming and turn bias back to the upside for rebound.

In the bigger picture, the case for medium term reversal continues to build up on loss of medium term momentum as seen in weekly MACD. Also, firm break of 146.96 will indicate rejection by 55 month EMA (now at 154.60) and add to that case of reversal. In that case, deeper fall would be seen to 38.2% retracement of 122.36 to 156.59 at 143.51 and then 61.8% retracement at 135.43. Meanwhile, break of 156.59 will extend the rise from 122.36 to 61.8% retracement of 195.86 to 122.36 at 167.78.

For the 24 hours to 23:00 GMT, the AUD declined 0.73% against the USD and closed at 0.7793.

LME Copper prices declined 1.2% or $83.0/MT to $7028.0/MT. Aluminium prices declined 0.7% or $16.0/MT to $2172.5/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7792, with the AUD trading marginally lower against the USD from yesterday’s close.

Data released overnight indicated that Australia’s private sector credit climbed less-than-anticipated 0.3% on a monthly basis in January, compared to market expectations for a gain of 0.4%. The private sector credit had registered a similar rise in the previous month.

Elsewhere in China, Australia’s largest trading partner, the NBS manufacturing PMI declined to a 19-month low level of 50.3 in February, more than market expectations of a fall to a level of 51.1. In the previous month, the NBS manufacturing PMI had recorded a reading of 51.3. Moreover, the nation’s NBS non-manufacturing PMI fell more-than-expected to a level of 54.4 in February, hitting its lowest level since October 2017. The PMI had registered a reading of 55.3 in the prior month, while markets were anticipating it to ease to a level of 55.0.

The pair is expected to find support at 0.7764, and a fall through could take it to the next support level of 0.7735. The pair is expected to find its first resistance at 0.7838, and a rise through could take it to the next resistance level of 0.7883.

Moving ahead, Australia’s AiG performance of manufacturing index for February, slated to release overnight, will garner a lot of market attention.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR declined 0.77% against the USD and closed at 1.2236, after Germany's annual inflation growth missed market expectations in February.

Data revealed that Germany's flash consumer price index (CPI) registered a rise of 1.4% on an annual basis in February, falling short of market expectations for a gain of 1.5%, thus suggesting that persistently sluggish inflation readings will weigh on the European Central Bank's (ECB) decision to pare back its extraordinary stimulus anytime soon. The CPI had recorded an advance of 1.6% in the previous month.

Separately, the Euro-zone's final consumer confidence index eased to a level of 0.1 in February, confirming the preliminary print. In the previous month, the index had registered a revised level of 1.4.

Other data showed that the region's economic sentiment indicator dropped to a 3-month low level of 114.1 in February, compared to market consensus for a fall to a level of 114.0. In the prior month, the index had registered a revised reading of 114.9. Additionally, the region's business climate indicator fell to a level of 1.48 in February, hitting its lowest level since October 2017. The index had registered a revised level of 1.56 in the prior month, while markets were expecting it to ease to a level of 1.47.

The US Dollar advanced against its major peers, after the Federal Reserve Chair, Jerome Powell, conveyed an upbeat picture of the US economy and signalled that the Fed remains on course for gradual interest rate hikes.

The new Fed Chairman, in a testimony before Congress, noted that the US economic outlook had brightened in the past few months, on the back of stronger economic fundamentals and the passage of a $1.5 trillion tax cut plan. Further, he pledged to “strike a balance” between the risk of an overheating economy while sticking with a plan to gradually raise short-term interest rates as recent data has strengthened prospects of higher inflation. Commenting on the latest stock market rout, Powell stated that these developments would not weigh heavily on the US economy.

On the macro front, the preliminary durable goods orders in the US slid 3.7% on a monthly basis in January, dropping by the most in 6 months and higher than market expectations for a fall of 2.0%. In the previous month, durable goods orders had climbed 2.8%. Further, the nation's advance goods trade deficit surprisingly widened to $74.4 billion in January, while investors had envisaged the nation's advance goods trade deficit to remain steady at a revised level of $72.3 billion registered in the prior month.

On the other hand, the US CB consumer confidence index jumped more-than-estimated to a level of 130.8 in February, surging to a 17-year high level, as optimism over employment prospects improved. Market participants had anticipated the index to rise to a level of 126.5, after recording a revised reading of 124.3 in the prior month.

In the Asian session, at GMT0400, the pair is trading at 1.2224, with the EUR trading 0.1% lower against the USD from yesterday's close.

The pair is expected to find support at 1.2177, and a fall through could take it to the next support level of 1.2131. The pair is expected to find its first resistance at 1.2308, and a rise through could take it to the next resistance level of 1.2393.

Going ahead, traders would focus on the Euro-zone's flash inflation numbers for February as well as Germany's GfK consumer confidence index for March and unemployment rate data for February, all slated to release in a few hours. Moreover, the second estimate of the US 4Q GDP and pending home sales data for January, will pique significant amount of market attention.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

Daily Pivots: (S1) 131.29; (P) 131.52; (R1) 131.96; More....

EUR/JPY's decline continues today and intraday bias stays on the downside. Current development indicate medium term topping at 137.49, on bearish divergence condition in daily MACD. Deeper fall should be seen to 126.61 medium term fibonacci level next. On the upside, though, break of 133.05 will indicate short term bottoming and bring stronger rebound.

In the bigger picture, current development argues that rise from 109.03 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.

For the 24 hours to 23:00 GMT, the GBP declined 0.39% against the USD and closed at 1.3910.

In the Asian session, at GMT0400, the pair is trading at 1.3901, with the GBP trading 0.06% lower against the USD from yesterday's close, after overnight data revealed that Britain's GfK consumer confidence index declined to a level of -10.0 in February, at par with market expectations, amid concerns over Brexit uncertainty. In the previous month, the index had registered a level of -9.0.

Also, the nation's Lloyds business barometer eased to a level of 33.0 in February, compared to a reading of 35.0 in the prior month.

The pair is expected to find support at 1.3840, and a fall through could take it to the next support level of 1.3780. The pair is expected to find its first resistance at 1.3979, and a rise through could take it to the next resistance level of 1.4058.

With no further macroeconomic releases scheduled in UK today, investor sentiment would be determined by global macroeconomic events.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

Daily Pivots: (S1) 0.8772; (P) 0.8808; (R1) 0.8830; More...

Range trading continues in EUR/GBP inside 0.8686/8928. Intraday bias remains neutral. Also, outlook stays mildly bearish with 0.8928 resistance intact. On the downside, firm break of 0.8686 will resume whole decline from 0.9305. As 61.8% retracement of 0.8312 to 0.9305 should then be taken out too, deeper decline would be seen to retest 0.8303/8312 support zone. Nonetheless, on the upside, break of 0.8928 will indicate near term reversal and turn outlook bullish for 0.9304 resistance.

In the bigger picture, there are various ways to interpret price actions from 0.9304 high. But after all, firm break of 0.9304/5 is needed to confirm up trend resumption. Otherwise, range trading will continue with risk of deeper fall. And in that case, EUR/GBP could have a retest on 0.8303. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside.