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Nasdaq is turning sharply down from the highs and now trading at 5400 figure where we see a trendline of an ending diagonal. A break lower and daily close beneath 5400 will definitely suggest much lower levels ahead, possibly with a sharp price moves which is normally the case after that an ending diagonal.

Nasdaq, 1H

Headlines

US equities opened higher, but slid into the red, as all - time highs (NASDAQ) seem one step too far in a news - poor session. European equities traded positive but lost a large part of the gains since the US open.

The latest data on the UK's inflation showed consumer prices (2.3% Y/Y) rose at their fastest rate in three and a half year in February. After last week's more hawkish than expected comments from the Bank of England, today's figures will raise further questions over whether the Bank will raise rates to try to temper rising prices.

The US current account deficit shrank to $112.4bn in Q4 2016, the Commerce Department said. That was better than a deficit of $129bn the market was expecting and compares to a shortfall of $116bn in the third quarter. The deficit represents 2.4% of GDP, compared with 2.5%in the previous quarter.

The European Union will hold a summit of leaders to conclude its response to the UK's notification of exit on April 29, in the middle of France's presidential elections, Donald Tusk has said..

The Mexican peso hit its strongest level since the US election on Tuesday morning, as the dollar's recent slide continued to benefit emerging market currencies. Donald Trump's pre - election promises to tear up free trade agreements and build a wall on the US - Mexican border battered the Mexican currency, but it has recovered as the new administration's softened its rhetoric.

Rates

Bunds cannot find their composure

Today, in a session again devoid of US and EMU economic data, the Bund came under more downside pressure and the German yield curve bear steepened, as lingering doubts on the timing and sequence of the ECB exit policy triggered selling. Fresh French election news (see below) and growing chances on a solution for Greece played a role too. Even the unexpected rise in UK inflation was a good reason enough to sell Bunds. Bunds bottomed when US traders joined the fray. US Treasuries, which held up well in the morning session, started to rally but the reaction of the Bund was tepid. Towards the closing of our report, the Bund finally shows signs of recovering some lost ground. Weakening equities probably play a role. At the time of writing, US yields are flat (2 - yr) to - 0.9 bp lower, while German yields are 5.1 bps (2 - 5 - yr) to 2.1 bps (30 - yr) higher. In the intra - EMU bond market 10 - yr yield spreads versus German Bunds are 4 (France/Ireland, Portugal) to 7 bps (Italy) lower. Belgian spread is 1 bp lower, suggesting that indeed the TV debate helped French bonds outperform.

Intraday, the Bund opened weak and declined after a brief uptick due to a mild risk - on sentiment linked to a strong performance of centrist Macron at the first French election debate. This lowered further the (already) unlikely chance that Le Pen would win the election. The French - German spread declined 5 bps, even if it had to give back some of the initial narrowing. Signals that Greece was coming closer to secure an agreement with its creditors on the rescue package also might have contributed to the mild risk on. Underlying sentiment on German bonds already deteriorated in previous sessions, as some ECB governors continued to discuss various possible changes to the future exit policy of the ECB. Some saying rates might be hiked before the end of QE, some saying rates will be hiked after the end of QE, but not as long after than previously thought. This is spoiling the positive Bund sentiment and is reflected in an underperformance versus US Treasuries and sometimes in a bear flattening of the curve.

Currencies

Trade-weighted dollar drops below 100 level

Today, the euro initially profited as polls showed a receding chance of a Le Pen victory in the French Presidential election race. Later in the session, dollar softness returned as investors took profit on 'the US reflation trade'. European rates rose more than US ones and equities fell prey to intraday profit taking. In this move, USD/JPY dropped to the 112.15 area. EUR/USD settled north of 1.08. The trade - weighted dollar dropped below the psychological barrier of 100.

Overnight, Asian equity sentiment remained constructive. The dollar traded mixed. Recent Fed comments confirmed investor perception that the Fed normalisation will be gradual. USD/JPY reversed an early session dip, trading in the 112.80 area. The pattern of EUR/USD is slightly different. The euro regained ground as Macron solidified his lead over Le Pen after the first French election debate. EUR/USD was well bid and traded in the 1.0775/80 area start in Europe.

Declining chances of a Le Pen victory in France supported a risk - on trade in Europe with French assets outperforming. Interest rate differentials between the US and Germany narrowed further and triggered broad - based euro strength. EUR/USD rebounded temporary north of 1.08 around noon. USD/JPY didn't profit from the European risk - on trade or higher core yields. The pair even reversed an earlier uptick and returned to the mid 112 area. Euro (and sterling) strength was the dominant factors on the FX market.

The US Q4 current account deficit substantial smaller than expected. The dollar gained very temporary a few ticks but the report was no game changer at all for the dollar. The 10 - year interest rate differential between US and Germany dropped below 200 bps. USD/EUR and USD/JPY soon drifted back south. US equities opened in positive territory, but soon reversed the initial gains. Still this was a negative rather than a positive for the dollar. USD/JPY dropped to the low 112.15 area (currently 112.25). EUR/USD trades in the 1.0815 area. The US - driven reflation trade shows some fatigue and this is currently weighing on the dollar.

Sterling jumps as UK inflation surpasses 2.0% barrier

Early in European trading, sterling gained a few ticks against the dollar but ceded ground against a broadly stronger euro. The euro rallied as polls showed that Macron took the lead in the presidential race after yesterday's TV debate. EUR/GBP filled offers in the 0.8725 area. However, mid - morning, the focus turned to the UK side of the story as the UK inflation jumped to 2.3%, well above the BoE inflation target. Core inflation (2.0% Y/Y) was also well above the consensus. Last week, some BoE members warned that they could consider a rate hike of inflation and/or growth would accelerate. UK yields and sterling jumped higher upon the release. EUR/GBP dropped to the 0.8655 area. Overall euro strength prevented further EUR/GBP losses. The pair trades currently in the 0.8670 area. The combination of sterling strength and USD softness also propelled cable. The pair returned to the upper half of the 1.24 big figure (currently 1.2465).

EUR/GBP - 0.8677

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term down

Original strategy  :

Buy at 0.8620, Target: 0.8750, Stop: 0.8580

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.8620, Target: 0.8750, Stop: 0.8580

Position : -

Target :  -

Stop : -

 
The single currency met renewed selling interest at 0.8727 today and has slipped again, retaining our view that further consolidation below resistance at 0.8788 would be seen and initial downside risk remains for pullback to 0.8645-48 (38.2% Fibonacci retracement of 0.8422-0.8788), however, reckon downside would be limited to 0.8615-20 and bring another rise later, break of 0.8760 would suggest the pullback from 0.8788 has ended, bring retest of this level, above there would extend the rise from 0.8403 low to 0.8800 but loss of upward momentum should prevent sharp move beyond 0.8825-30 and price should falter well below 0.8850.

In view of this, we are looking to buy euro on subsequent pullback as 0.8615-20 should limit downside. Below 0.8605 (50% Fibonacci retracement of 0.8422-0.8788) would defer and suggest top is possibly formed, risk test of 0.8560-65 (61.8% Fibonacci retracement) but support at 0.8547 should remain intact. 

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.3295

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term up

 
New strategy             :

Sell at 1.3400, Target: 1.3240, Stop: 1.3460

Position: -

Target:  -

Stop:-

As the greenback has fallen again, adding credence to our view that top has been formed at 1.3535 and consolidation with downside bias is seen for further weakness to 1.3235-40 (61.8% Fibonacci retracement of 1.3056-1.3535) but reckon previous resistance at 1.3210 would hold due to loss of downward momentum and 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 sell on subsequent recovery as 1.3390-00 should limit upside. Above previous support at 1.3421 (now resistance) would suggest low is formed instead, bring a stronger rebound to 1.3450 and possibly test of resistance at 1.3479, however, only break of 1.3495 resistance would indicate the pullback from 1.3535 has ended and bring retest of this level later.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

It continues to be a quiet week for USD/JPY, as the pair is currently trades at 112.20 in the North American session. On the release front, US Current Account posted a deficit of $112 billion, well below the estimate of $129 billion. FOMC member William Dudley spoke at an event in New York City, but did not discuss monetary policy. Later in the day, Japan will release the minutes of its January policy meeting. We'll also get a look at Trade Balance, with the market expecting the trade surplus to jump to JPY 0.55 billion.

With the Fed's quarter-rate point behind us, what's next for Janet Yellen & Co.? The CME Group has priced a rate hike in May at just 6%, while a June move is priced at 54%. With a dearth of key fundamentals in the US this week, the markets are left to monitoring comments from FOMC members who will be speaking this week, including Fed Chair Janet Yellen on Thursday. On Monday, Chicago Fed President Charles Evans said he expects the Fed to raise rates two more times this year. This echoes the Fed's projection in its rate statement. Although three rate hikes in 2017 would be no small feat, market players want four hikes, and have reacted with disappointment to the Fed's more cautious approach. This has sent the US dollar lower, and the Japanese yen took full advantage, gaining 1.9% last week.

Donald Trump's protectionist stance has sent off alarm bells in Japan, which is heavily dependent on its export sector. Immediately after taking office, Trump pulled the US out of the Trans-Pacific Partnership deal, an enormous free-trade agreement which Japan had enthusiastically supported. Japan has embarked on finding other trading partners in order to lessen its dependence on the US. Japanese Prime Minister Shinzo Abe met with EU President Donald Tusk, and the two discussed the Japanese-EU trade agreement, which was supposed to be finalized in 2015. With Europe still fuming over the 'Brexit burn' delivered by Britain, there is likely more appetite on the part of the EU to conclude an agreement with Japan, the world's third largest economy.

Upbeat Canada's Retail Sales in Jan (2.2% m/m vs 1.1% f/c and core retail sales at 1.7% vs 1.1% f/c) sent loonie to fresh three-week high against the greenback at 1.3261 on Tuesday.

The move was also supported by sinking US dollar after Fed officials signaled that US central bank won't accelerate the monetary tightening pace and will stick to gradual tightening policy, meaning two more rate hikes this year.

USDCAD accelerated reversal from daily high at 1.3362 after data and fully retraced 1.3274/1.3376 recovery rally of past three days, confirming an end of corrective phase and signaling continuation of larger downmove from 1.3533 (09 Mar peak).

Fresh weakness probes below pivots at 1.3281/70 (top of thick daily cloud / daily Kijun-sen line), looking for daily close below, to confirm strong bearish stance for extension towards next target at 1.3208 (Fibo 61.8% of 1.3008/1.3533 rally).

Daily technicals are gradually moving into bearish setup that would be supportive for further weakness.

Broken 100 and 20 SMA's (at 1.3296 and 1.3335 respectively) offer good resistances, with 20 SMA expected to cap extended upticks.

Res: 1.3296; 1.3335; 1.3352; 1.3376
Sup: 1.3261; 1.3208; 1.3182; 1.3132

The current account deficit narrowed further in the last quarter of 2016 as a strong increase in primary income offset an increase in the goods deficit. The current account deficit decreased $3.6 billion.

Current Account Deficit Helped by Primary Income Surplus

The current account deficit, the broadest measure of the country's external sector, which includes trade in goods as well as services, improved by $3.6 billion during the last quarter of 2016. As we pointed out during the release of the third quarter current account numbers, the improvement in the current account during the third quarter was a one-off event due to the strong increase in soybeans exports from the United States to the rest of the world as U.S. farmers took advantage of the smaller soybean crops exported from large South American producers.

For the fourth quarter, we were expecting a reversal from this soybean effect and a worsening of the current account deficit. However, we were not counting on a strong performance from a surplus in primary income. The surplus in primary income was $19.9 billion during the quarter while the deficit in goods was also a strong $17.5 billion.

Overall, exports of goods and services plus income receipts increased $4.0 billion during the quarter as primary income receipts increased $4.4 billion. The main driver of this improvement in primary income receipts was an increase in investment income. Meanwhile, exports decreased $3.4 billion during the quarter. It is here that we see the enormous impact of the "soybean play" we commented on during the release of the current account deficit during the third quarter. The performance of exports of goods was driven by a decrease of $8.4 billion in exports of foods, feeds, and beverages, which was largely explained by a drop in soybeans exports.

From the imports side, goods increased by $14.1 billion. This rise was mostly due to an increase in industrial supplies and consumer goods with the exception of food and automobiles. However, this increase in the importation of goods was offset by a strong decrease in primary income payments, which declined by $15.4 billion. This strong decrease in primary income payments was due to a $19.9 billion decline in direct investment income.

Overall Current Account Result for 2016

The preliminary current account deficit for 2016 was $481.2 billion compared to a deficit of $463.0 billion during 2015. As a percentage of current-dollar GDP, the deficit was 2.6 percent, the same percentage of GDP that was recorded in 2015. For the year as a whole, the $18.2 billion increase in the deficit was due to a $16.2 billion increase in the deficit on secondary income, a decrease of $12.8 billion in services surplus and a $1.8 billion decrease in primary surplus income.

Spot Gold regained strength and bounced from overnight session low at $1226 that was hit on strong bearish acceleration in Asia. Fresh bulls broke above Monday's high at $1235 and cracked target at $1237 (Fibo 61.8% of $1263/$1194 downleg). Strong bullish signal will be generated on break and close above the latter, for extension towards $1244 (08 Feb former high) and double Fibonacci barrier at $1247/48 (Fibo 76.4% retracement of $1263/$1194 and 50% retracement of $1375/$1122 descend). Daily Kijun-sen line which held downside attempts during past two days, is now offering solid support at $1229, guarding pivotal support at $1218 (top of thickening daily cloud) that continues to underpin recovery from $1194 (10 Mar trough).

Res: 1235; 1237; 1244; 1247

Sup: 1232; 1229; 1221; 1218

The GBP/JPY got a backwind by renewed GBP strength and currently we can see nice intraday rejections off the supporting trend line. Two POC zones that might spur additional buying interest are 139.50-65 (EMA89, H4, 50.0). H4 camarilla is breakout point which we already covered in Price Action Trading School and on subsequent retests we might see another rejection. If the pair retraces deeper to POC2 zone pay attention to 139.20-35 (H3, 78.6, trend line). Target is Weekly camarilla H4 140.75.

• Nominal retail sales surged 2.2% in January following a 0.4% dip in December.
• Auto sales were, as expected, a large contributor (+3.8%) but sales excluding autos also bounced-back 1.7% following a 0.5% dip in December.
• Sale volumes posted a strong 1.3% gain to reverse the 1.0% drop in December.
• 'E-commerce' sales rose 17.2% from a year-ago in January

Our Take:

The 1.3% bounce-back in retail sale volumes in January more-than-reversed the 1.0% decline in December that in turn had marked only the first dip in six months. The measure in January is already 3.3% (at an annualized rate) above its Q4 average. Employment gains have been solid, as has household income growth (with the latter in part supported by increased federal government child tax benefit payments that began in the summer). Interest rates remain at extremely low levels and consumer confidence jumped to a more-than seven year high in February with increasing optimism about the economic outlook seemingly outweighing uncertainty about the future of Canada's trading relationship with the United States. In terms of 'hard' data, auto sales in February, by our estimate, ticked higher from what were already highly elevated levels in January (with sales over the two months pacing well-above the fourth consecutive annual auto sales record posted in 2016). In short, there is little to suggest that consumer spending is slowing from levels that already accounted for a record share of GDP in 2016.

Strong retail numbers for January followed earlier solid increases in sale volumes in both the manufacturing (+0.7%) and wholesale (+3.4%) sectors. As a whole, the data suggests stronger economic momentum in the second half of 2016 may have carried over more significantly than we previously assumed into early 2017. Data to-date suggests January GDP growth may have matched the solid 0.3% December increase which would leave Q1 growth tracking closer to a 2½% to 3% range than the 1.9% pace projected in our current forecast.