Sample Category Title

GBP/USD - 1.2412

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2437

Kijun-Sen level                    : 1.2458

Ichimoku cloud top              : 1.2567

Ichimoku cloud bottom        : 1.2543

Original strategy :

Sell at 1.2500, Target: 1.2365, Stop: 1.2535

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.2500, Target: 1.2365, Stop: 1.2535

Position : -

Target :  -

Stop : -

As cable has dropped sharply since yesterday, suggesting top has been formed at 1.2616 and the selloff from there is likely to bring retracement of recent upmove, hence further weakness to 1.2360-65 (50% Fibonacci retracement of 1.2109-1.2616) would be seen, however, loss of near term downward momentum should prevent sharp fall below 1.2335 support and reckon 1.2300-05 (61.8% Fibonacci retracement) would hold from here, bring rebound later.

In view of this, we are looking to turn short on recovery as the Kijun-Sen (now at 1.2486) should limit upside and bring decline. Above 1.2500-10 would defer but only break of previous support at 1.2539 would abort and signal the fall from 1.2616 has ended instead, bring rebound to 1.2560-65 first.

EUR/USD - 1.0753

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.0771

Kijun-Sen level                  : 1.0806

Ichimoku cloud top             : 1.0867

Ichimoku cloud bottom      : 1.0848

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As the single currency has fallen again after brief recovery, suggesting the fall from 1.0906 is still in progress and downside risk remains for this fall to extend weakness towards support at 1.0719, however, near term oversold condition should prevent sharp all below 1.0695-00 and reckon 1.0670 would hold from here, risk from there is seen for a rebound to take place later.

In view of this, would not chase this fall here and would be prudent to stand aside in the meantime. Above 1.0780 would bring recovery to 1.0800 but only break of resistance at 1.0827 would signal low is formed, bring a stronger rebound to 1.0850 later.

USD/JPY - 111.00

Most recent candlesticks pattern   : N/A

Trend                      : Down

Tenkan-Sen level              : 110.97

Kijun-Sen level                  : 110.75

Ichimoku cloud top             : 110.73

Ichimoku cloud bottom      : 110.47

Original strategy  :

Sold at 111.20, Target: 110.20, Stop: 111.35

Position :  - Short at 111.20

Target :  - 110.20

Stop : - 111.35

New strategy  :

Exit short entered at 111.20,

Position :  - Short at 111.20

Target :  -

Stop : -

As dollar found support at 110.72 and has rebounded, suggesting near term upside risk remains and above 111.32 resistance would bring test of 111.48-51 (previous resistance and 50% Fibonacci retracement of 112.90-110.11), however, break there is needed to signal low is formed at 110.11, bring retracement of recent decline to 111.80-85 (61.8% Fibonacci retracement) but price should falter below previous support at 112.26, bring retreat later.

In view of this, we are exiting our short position entered at 111.20 and stand aside for now. Below 110.72 would bring weakness to 110.50 but break of said support at 110.11 is needed to confirm recent decline has resumed and extend weakness to 109.95-00 but loss of downward momentum should prevent sharp fall below 109.70-75 and reckon 109.50 would hold.

GBP/USD is almost unchanged in the Wednesday session. In North American trade GBP/USD is trading at the 1.24 line. On the release front, British Net Lending edged up to GBP 4.9 billion, matching the forecast. In the US, Pending Home Sales jumped to 5.5%, well above the forecast of 2.3%. Crude Oil Inventories posted a gain of 0.9 million, shy of the forecast of 1.2 million. On Thursday, the US releases Final GDP and unemployment claims.

It's "B" day in Brussels, as the UK formally gave notice to the European Union of its intent to leave the bloc. The pound posted considerable losses in the Tuesday session, but is steady on Wednesday. However, actual negotiations between the parties may not commence until June, according to recent statements from EU policymakers. The negotiations are supposed to be conducted over a two-year period, and promise to be tough and perhaps acrimonious. The EU has no intentions to "go easy" on the UK and give it a sweet deal, since this would provide ammunition to euro-skeptics on the continent who also want to quit the EU. For its part, the British government needs to reach what it considers a fair deal, and has threatened to leave the EU without a deal if the EU is intransigent in the negotiations. This scenario. labeled "hard Brexit", would likely take a toll on the British economy and could send the pound on its heels.

President Donald Trump found himself on the short end of the stick in the rough-and tumble politics in Washington, as his bill to replace the Affordable Care Act was pulled before prior to a vote. This was a humiliating setback for Trump, given that the Republicans enjoying a majority in Congress. The bruising defeat has sent the US dollar sharply lower and market jitters higher. Trump's administration has stumbled out of the starting gate, and after more than two months in office, he has yet to provide any details over even an outline of economic policy. The inquiry into the Trump administration's links with Russia is gathering steam, and is another cause for concern for nervous investors. Trump has said he will now focus on tax reform, but he has his work cut out, trying to convince a skeptical Congress and general public that he can deliver the goods and push his tax legislation through Congress.

Pending home sales bounced back a robust 5.5 percent in February, as contract signings rose in all regions. Mortgage purchase applications are also rising. The positive reports bode well for home sales this spring.

Broad-Based Strength in Pending Home Sales

Pending home sales, which are contract signings that lead closings by one to two months, jumped 5.5 percent in February, recouping all of January's 2.8 percent loss.

Strength in contract signings was broad-based, as all regions posted a gain on the month. Notably, pending home sales in the Midwest surged 11.4 percent, ending a three month string of declines. The South also saw a solid increase of 4.3 percent.

Mortgage Purchase Applications Trend Higher

The resurgence in pending sales was likely influenced by unusually mild winter weather, which boosted contract signings in the Midwest. Weather provided less help in the West, where sales are being held back by exceptionally tight inventories.

Mortgage applications fell 0.8 percent in the week ending March 24, as refinance applications fell further. Purchase applications rose 1.2 percent, marking the fourth gain in the past five weeks.

Brexit proceeds on schedule: UK invokes Article 50 of the Lisbon Treaty, officially beginning the two-year negotiation of the terms of separation

• Today, the President of the EU council, Donald Tusk, received a letter from UK Prime Minister Theresa May that officially declares the UK's intent to part ways with the EU.
• Negotiations on the terms of the breakup between the UK and EU can now officially proceed over the next two years, with the hope that an agreement will be reached by the deadline of April 2019.
• Market reaction has been relatively muted this morning, with early weakness in the GBPUSD unwinding following news of the delivery of the UK's letter to the EU.

A long road ahead for the UK and EU

• Negotiations on the terms of the breakup between the two parties are likely to begin slowly, as both sides take the time to form an internal agreement on their initial bargaining positions.
• There are a number of important issues that will have to be ironed out between the two parties. One early hurdle is the question of who is responsible for payment of the legacy costs of the UK's exit from the EU. These costs are estimated to be as much as €60 billion by the EU, while the UK thinks they should be responsible for much less (about £3 billion). An amicable agreement on this front will help set the tone of negotiations on other matters.
• Another early issue will be the status of UK and EU citizens. Optimistically, an early agreement that recognizes the rights of each party's citizens would further help set an optimistic tone for negotiations on other matters such as market access and financial services passporting.
• One of the most contentious points will be how much access to the EU's single market the UK will be allowed. Perhaps most importantly, the UK would like to maintain passporting rights to the EU for its financial services sector, but the EU has made it clear that it would like much of the euro-oriented financial trade to occur within the EU. Reduced access to the EU will hurt the UK's financial services industry.
• There is no doubt that the EU has the upper hand in negotiations, being the larger economy. However, it is still in their interest to reach some sort of amicable agreement, setting the stage for trade negotiations with the UK after April 2019, (although it is possible that the EU will relax its stance on this point and agree to some sort of trade framework before then). It should be noted that negotiating a new trade agreement between the UK and EU within the next two years is a lofty goal, as trade agreements between the EU and other nations have historically taken many years before being ratified by EU parliaments.

Economic costs of Brexit to be borne primarily by the UK

• The UK economy has performed well following the referendum, with household consumption remaining resilient despite increasing uncertainty about the future of the UK. Nevertheless, rising inflation is expected to take a bite out of the purchasing power of UK households this year and next, which should result in a gradual deterioration in consumer spending. Similarly, the Eurozone has proven resilient as well, with growth firming in the second half of last year despite fears of a break-up of the EU.
• Although the total economic costs of this breakup are still unknown and will ultimately depend on the new relationship between the UK and the EU, we anticipate that the long-run growth of the UK economy is likely to slow by about 0.3 percentage points as a result of Brexit beginning in 2019. This is due mainly to a slower migration of workers to the UK, and a slower pace of business investment that could dampen productivity growth.

Still a lot of unanswered questions

• The future of the UK remains unclear. Yesterday the Scottish Parliament voted to hold a second referendum on remaining a part of the UK, with the intent of calling the referendum within the next 18 months. Ultimately the UK parliament has the final say on whether another referendum will be held and when, and the current government has no inclination to discuss the future of the UK while negotiating the breakup terms with the EU. Both Scotland and Northern Ireland voted to remain as part of the EU in the UK referendum last June, and both may seek to ensure that the UK does its best to avoid a hard breakup with the EU.
• While unlikely, the UK may decide to walk back on Brexit and remain within EU. There is some uncertainty about the legality of the UK referendum with Britain, and it's unclear if an invocation of Article 50 by an EU member state is irrevocable.
• Perhaps the most important unknown is what the new trade arrangement between the UK and the EU will ultimately look like. Both parties are at the start of a long and bumpy journey that could result between either of two extremes of a new trading relationship that is very similar to the current one, or a devolving situation where tariffs are reimposed according to WTO rules.

On the 4h chart of USD Index we see price trading within a higher degree three wave decline so bearish breakdown in March may be wave C as part of a big contra-trend move. That said, current bullish price activity may be the first signs of a new reversal to the upside being made and a suggestion that the previous three wave decline is completed. As such, more gains may be in for the USD index. A minor five wave move to the upside will be a confirmation, that bulls are in play.

USD Index, 4H

Headlines

European stock markets opened stronger after yesterday's WS gain, but had difficulties to safeguard them. US stock markets opened flat to 0.25% lower.

Theresa May has started the two-year countdown to Brexit as she formally notified the EU of Britain's intention to quit. The PM called it a "great turning point in our national story", but her letter and statement to MPs marked a new tone of conciliation and compromise, promising to approach talks in a spirit of "respectful, sincere co-operation".

Manuel Valls, the former French prime minister, will vote for Emmanuel Macron in the upcoming presidential election, the biggest Socialist party name to abandon the ruling party's official candidate in favour of the centrist frontrunner.

Greece has agreed with its lenders on key labour reforms, spending cuts and energy issues, moving closer to clinching a deal before a meeting of euro zone finance ministers on April 7, sources close to the talks said.

ECB policymakers are wary of making any new change to their policy message in April after small tweaks this month upset investors and raised the spectre of a surge in borrowing costs for the bloc's indebted periphery. One ECB source said the bank has been overinterpreted by markets at its March 9 meeting.

Rates

Anxious ECB Lifts Bund

Global core bonds traded with an upward bias today with Bunds outperforming US Treasuries after Reuters quoted sources indicating that the ECB is wary of changing its message again after the "overinterpretation" of the March policy message. At the time of writing of writing, German yields decline by 5.5 bps (5-yr) to 2 bps (30-yr). Changes on the US yield curve range between - 1.8 bps (30-yr) and -2.4 bps (2-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany are nearly unchanged with Greece outperforming (-19 bps) on supportive talk pointing in the direction of a bailout review agreement at the April 7 Eurogroup meeting.

Intraday, the Bund traded with an upward bias from the start of European trading despite the strong equity market opening and rising oil prices. Given the empty eco calendar, we think that technical end-of-quarter buying was at play. Eventually, oil prices and stocks also could built on their positive momentum. Just ahead of US dealings, the Bund really started outperforming as Reuters quoted ECB sources who indicated that the central bank was surprised by the market reaction after the March ECB meeting given the marginal changes. They are wary of making new changes in April as markets would interpret them as an approaching normalisation of monetary policy. The article states that the ECB wants to reassure investors that their easy monetary policy is far from ending. Additionally, a further rise in yields would hurt countries like Spain, Italy and Portugal where debt payments are a major cost item and rising yields would curb spending and thwart growth. Chicago Fed Evans repeated earlier comments in the US session, saying that he backs 1 or 2 more rate hikes this year.

The Finnish debt agency successfully tapped the on the run 7-yr RFGB (€1B 0% Sep2023). The auction bid cover was decent at 1.57. Later today, the US Treasury ends its refinancing operation with a $13B 2-yr FRN auction and a $28B 7-yr Note auction. Currently, the WI of the latter trades around 2.22%.

Currencies

EUR loses interest rate support

The dollar rebounded yesterday as the reflation trade resumed after strong US data. Today, the picture for the dollar was again more diffuse. EUR/USD declined further below the 1.08 handle, but the move was inspired by a decline in EMU yields rather than by outright USD strength. USD/JPY traded with a slight negative bias as there was little follow-through price action on yesterday's US risk-on trade. The pair struggles not to give away the 111 level.

Overnight, Asian equities showed only modest gains despite yesterday's rebound in the US. Oil traded off the recent lows and so did the dollar. USD/JPY tried to extend gains north of 111. EUR/USD hovered in a tight range in the low 1.08 area.

European equities had some catching up to do on WS gains yesterday. However, there were no real follow-through gains. Without important eco data on the agenda, technical considerations prevailed for EUR/USD trading. Yesterday's late session USD rebound probably wrong-footed EUR/USD longs who took their position on recent speculation that the ECB might scale down policy stimulation sooner than expected. So, USD strength triggered (stop-loss) euro weakness.

There were also no important eco data in the US. However, early in US trading interest rate markets also faced a repositioning. After the recent narrowing of US/EM (German) interest rate differentials, spreads widened again. The trend already started this morning, but accelerated on rumours that ECB sources said that markets had over-interpreted changes to the March ECB statement. The subsequent decline in European yields (and US-EMU interest rate differentials) also further changed the balance between the euro and the dollar. EUR/USD filled bids in the 1.0740 area and trades currently in the 1.0750/50 area. We see it as a correction on 'excessive' euro strength of late, rather than outright USD strength. The price action of USD/JPY apparently confirms this view. The pair dropped back below the 111 handle as yesterday's risk-on rebound slows today. In this respect the jury remains out whether the dollar will be able to profit from a continuation of the reflation trade.

Sterling shows no clear pattern as 'real' Brexit starts

The UK finally triggered article 50 of the Lisbon treaty, starting the official procedure to leave the EU in two years' time. Investors had plenty of time to adopt positions for this event. Still, some last-minute reposition had to be done. Sterling was quite aggressively sold in (thin) Asian markets this morning, but rebounded going in to the official announcement of Brexit. The statement of Theresa May and the first answer of EU's Tusk were quite conciliatory. EUR/GBP filled bids in the 0.8625 area after the Brexit statements, but regained some ground afterward. The pair trades currently in the 0.8662 area. We are reluctant to make any direct link between the Brexit communication and the performance of sterling today. Euro weakness also played a role. The swings in cable were more modest. Contrary to a decent performance against a weak euro, sterling is trading rather soft against the dollar (1.2420 area).

Trumpmania is taking a break from dominating the global media headlines as UK Prime Minister Theresa May is the talk of the town after she finally invoked Article 50, effectively providing a letter to the European Union telling Europe that the United Kingdom wants a divorce.

The financial markets from the perspective of global stocks have performed somewhat mixed on this historic day, alternating between both buying and bearish momentum but there are some signs of investors searching for safety assets with the Japanese Yen noticeably higher against its major trading partners and Gold showing more marginal gains. We have seen time and time again in recent times that the Japanese Yen becomes a trader's best friend in times of uncertainty and depending on how stubborn the prolonged negotiations take between Theresa May and her EU counterpart, perhaps Brexit uncertainty will be viewed as another reason for investors to hedge on Gold this year after the precious metal has already gained just over $100 since the opening day of trading in 2017.

EURUSD suffers as trading progresses

While all eyes are understandably on the British Pound, it is the Euro that looks set to be a surprise contender for the loser of the currency markets today following the Eurodollar succumbed to selling pressure above 1.08 to looking at risk to slipping below 1.07. You could on one hand say that investors are pricing in the likelihood that Europe itself is going to enter its own period of uncertainty by losing a member of the European Union, while others could say that the losses in the Eurodollar represents a withdrawal of gains after spiking heavily as trading for the week commenced after President Trump was defeated in his quest at replacing Obamacare.

I personally stand by my view that the Euro is grossly oversold, or you could say underbought on an economic basis but the political risks around Europe this year does also support the bias that the Euro remains at risk especially if Marine Le Pen's campaign to win the election in France achieves a bid.

GBPUSD encounters a tug of war

The British Pound is as you would expect where all the major action is happening, but there are signs of a somewhat tug of war taking place with the GBPUSD alternating between both buying and selling momentum after suffering late in trading yesterday and overnight.

It is no hidden secret at all that the market is short on the Sterling with short options on the Pound recently at historic levels, but traders still need to be careful and inherit appropriate risk management strategies whether that is hedging towards the Japanese Yen or whatever because it is not unknown for the market to suddenly bounce the other direction if the currency encounters a sudden squeeze.

Talks of ECB's tapering have been looming of late, thanks to Eurozone's improving economic developments, especially in Germany, adverse effects of negative deposit rates on financial institutions, bigger-than-expected targeted longer-term refinancing operations (TLTROSs) take-up last week, as well as the asset buying program's ongoing deviation from its capital key. Bundesbank president Jens Weidmann has been vocal about less expansionary policy and a review to the forward guidance, while other members of the Governor Council reiterated the need to maintain accommodative measures to boost inflation.

No change to ECB policy throughout the year

We expect ECB's monetary policy and QE measures to stay the same throughout the year. That is, ECB should keep the main refi rate, marginal lending rate and the depo rate 0%, 0.25% and -0.40%, respectively. Meanwhile, the central bank would continue the asset purchase program at the pace of 80B euro per month until the end of this month and then continue the program at a pace of 60B euro per month from April 2017 until the end of December 2017, or beyond, if necessary. QE tapering would likely begin in early 2018 and end by the first half of the year. ECB might begin raising the depo rate in 2Q18.

Some hawkish comments recently

Austrian central bank president Ewald Nowotny sent quite hawkish comments earlier this month, suggesting that ECB would decide only whether to raise rates or end QE first. He added that "the structure of the interest rates does not always need to remain constant… The ECB could also raise the deposit rate earlier than the prime rate", whilst affirming that the forward guidance that bond purchases would continue until the end of the year would be maintained.

Separately, Bundesbank president Jens Weidmann noted on Monday that he would like to see a "less expansive stance". Weidmann a week ago raised the question "whether the ECB council should slowly start considering an exit from the very easy policy and make its communication somewhat more symmetric". By contrast, Belgian central bank governor Jan Smets saw no urgency "to revisit what we have decided". As he noted in a Reuters interview, the "forward guidance is clear and we have to stick to that" and "if other views have been expressed on this issue, they are reflecting a minority position. Our decision is clear and I would like to stick to that steady hand approach".

However, ECB's chief economist Peter Praet reiterated that "a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term remains valid".

Eurozone underlying inflation stays weak

Markit's PMI data signaled that Eurozone's GDP growth might accelerate in 1Q17, from +0.4% in both 3Q16 and 4Q16. Moreover, expansion should be broadly based, spanning across manufacturing and services activities. Region-wide inflation accelerated to +2% y/y in February, exceeding ECB's target of "close to, but below, +2%" for the first time since 2013. However, core inflation, excluding energy and seasonal food products, at +0.9% for the month, has stayed below +1% since 2014.

Germany showed solid improvements

Inflation in Germany outperformed. Headline HICP soared to +2.2% y/y, highest in more than 4 years, in February, from +1.9% a month ago. The report triggered Weidmann to call for ECB's upgrade of inflation forecasts (current HICP forecasts: +1.3% for 2017, +1.5% for 2018 and +1.7% for 2019). Separately, IFO's confidence indices for the country rose across all aspects in March. The business climate index added +1.3 points to 112.3 while the expectations index gained +1.7 points to 105.7. Moreover, the current assessment index added +0.9 point to 119.3. All indices came in better than market expectation. Germany's GDP expanded +1.9% last year, compared with US' growth of +1.6%.

But peripherals still suffering

However, the improvement mainly concentrated in core economies, in particular Germany, while most peripheral economies continued to suffer. For instance, annual inflation rate in Ireland came in at +0.3%, Malta at +1.2% and Slovakia at +1.3%. France, being the second largest economy in the Eurozone, registered an annual HICP at +1.4% for the month. Continuous pleasant surprises in both soft and hard data might give ECB more confidence in considering QE tapering and/or rate hike. Meanwhile, German officials would from time to time pressure the central bank to move in such direction.

Bigger-than-expected TLTROSs take-up

Last week, over 400 banks took up 233.5B euro of 4-year loans in the fourth and the final allotment of TLTROS, a program that allows Eurozone commercial banks to borrow money from the ECB at very favorable rates, almost doubled consensus of 125B euro. This resulted in rising ECB's balance sheet by a significant amount, mimicking the effects of QE.

Separately, some technical constraints have made it challenging for QE to extend beyond this year. The central bank would find it difficult to continue the program without significantly exceeding the capital key limits (% of the total ECB capital determines its monthly purchase). Besides, tapering, some Eurozone stakeholders have been talking about raising the deposit rate, which currently stays at -0.4%. Some have suggested hiking interest rates before tapering. It is true that negative deposit rate is squeezing banks' profit margins because they can't generally pass the cost to their customers.

No tapering until 2018

Although upbeat growth outlook and technical constraints signal that the ECB might need to consider QE tapering, we expect the actual implementation would not begin until 2018. As we mentioned above, underlying inflation pressure has remained subdue, suggesting that the region has not yet achieved a self-sustained inflation rate. Meanwhile, the unemployment rate remains elevated despite decline from record highs. Wage growth pressure remains weak with ECB's indicator of pay settlements easing to 1.4% in 4Q16 from 1.5% in the prior quarter while nominal unit labor costs rising merely 1% last quarter. However, the improved economic outlook and technical constraints facing ECB in adopting QE are inevitably triggering ECB to consider tapering. We expect tapering to begin in early 2018 and end by 1H18. Meanwhile, ECB might begin raising the depo rate in 2Q18. That means we do not rule out the possibility of a rate hike before QE ends.