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Daily Pivots: (S1) 0.8665; (P) 0.8712; (R1) 0.8756; More...

EUR/GBP is staying in consolidation below 0.8786 and intraday bias remains neutral first. We'd continue to expect strong support from 38.2% retracement of 0.8402 to 0.8786 at 0.8639 to contain downside. Above 0.8786 will target 0.8851 resistance and above. However, price actions from 0.8303 are seen as the second leg of the corrective pattern from 0.9304. Hence, we'd expect strong resistance from 100% projection of 0.8303 to 0.8851 from 0.8402 at 0.8950 to limit upside.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. 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. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

Daily Pivots: (S1) 1.3934; (P) 1.3986; (R1) 1.4071; More...

EUR/AUD is holding on to 1.3874 minor support and recovered. Intraday bias remains neutral for the moment. At this point, we're still favoring the case of medium term trend reversal defending key support level at 1.3671, on bullish convergence condition in daily MACD. Above 1.4183 will turn bias back to the upside for 1.4289 resistance. Sustained break there will affirm our bullish view and target 1.4721 key resistance next. However, break of 1.3874 will dampen our view and turn bias to the downside for 1.3624 low.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. We'd expect strong support from 1.3671 key level to contain downside and bring rebound. Up trend from 1.1602 should not be finished and will resume later. Break of 1.4721 resistance will indicate completion of such correction and turn outlook bullish for retesting 1.6587 high. However, sustained break of 1.3671 will invalidate our bullish view and would turn focus back to 1.1602 long term bottom.

Daily Pivots: (S1) 1.0690; (P) 1.0718; (R1) 1.0753; More...

EUR/CHF breached 1.0689 support briefly but recovered quickly since then. Intraday bias remains neutral for the moment. With 1.0689 minor support intact, we continue to favor the case of trend reversal, on bullish convergence condition in daily MACD, after defending 1.0620 key support level. That is, correction from 1.1198 could have completed. Above 1.0823 will target 1.0897 resistance next. However, firm break of 1.0689 support will dampen our view and turn focus back to 1.0629 low again.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. Decisive break of 1.0897 resistance should confirm that it's completed. And in that case, larger up trend is resuming for another high above 1.1198. Meanwhile, sustained trading below 38.2% retracement of 0.9771 to 1.1198 at 1.0653 will target 50% retracement at 1.0485.

Daily Pivots: (S1) 121.36; (P) 121.70; (R1) 122.27; More...

EUR/JPY recovered after breaching 121.18 resistance turned support and intraday bias remains neutral. No change in the bullish outlook for the moment and another rise is expected. Above 122.88 will target 124.08. Decisive break there will extend larger rise from 109.20 and target 126.09 key resistance next. However, firm break of 121.18 will likely extend the whole corrective pattern fro 124.08 with another falling leg towards 118.23 low again.

In the bigger picture, current development suggests that medium term rise from 109.20 is still in progress. Focus is now on 126.09 key resistance level. Sustained break will confirm completion of the whole decline from 149.76. And rise from 109.20 is of the same degree as the fall from 149.76. In such case, further rally would be seen to 104.04 resistance and possibly above before topping. Meanwhile, rejection from 126.09 will extend the fall from 149.76 through 109.209 low.

Daily Pivots: (S1) 138.73; (P) 139.67; (R1) 140.25; More...

GBP/JPY had another attempt at 138.53 support but rebounded from there again. The cross is staying in range of 138.53/142.79 and intraday bias remains neutral first. Price actions from 148.42 are viewed as a consolidation pattern. On the downside, break of 138.53 support will bring deeper decline to 136.44 support and possibly below. However, we'd expect strong support at 50% retracement of 122.36 to 148.42 at 135.39 to bring rebound. On the upside, above 142.79 will turn bias back to the upside for 144.77 and above.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. Main focus is on 38.2% retracement of 195.86 to 122.36 at 150.42. Rejection from there will turn the cross into medium term sideway pattern with a test on 122.36 low next. Though, sustained break of 150.42 will extend the rebound towards 61.8% retracement at 167.78.

Dollar is set to end the week as the worst performing major currency as post FOMC weakness continues. Meanwhile, Euro follows as the second weakest one after the positive impact of ECB and then Dutch election fades. Meanwhile, Australia dollar is leading the way high on solid risk appetite. And that is followed by Sterling which was lifted by hawkish BoE minutes yesterday. The forex markets are mixed elsewhere.

In other markets, the boost from FOMC to stocks was rather short lived as major indices ended mixed overnight. DJIA closed down -15.55 pts, or -0.07%, kept well below historical high at 21169.11. S&P 500 also closed down -3.88 pts, or -0.16%, at 2381.38, well below historical high at 2400.98. NASDAQ, on the other hand, attempted to hit record high at 5911.79 but reached 5911.48 only and closed at 5900.76, up 0.71 pts or 0.01%.

Treasury yields stabilized with TNX ended up 0.014 at 2.522. Meanwhile, WTI crude oil extends this week's consolidation and hovers around 49. Gold rebounded strongly on Dollar weakness and is back at around 1230.

ECB Nowotny: Could raise deposit rate earlier than prime rate

There has been some recent speculations that ECB would raise interest rate before ending the quantitative easing program. ECB governing council member Ewald Nowotny said in a newspaper interview that the central bank "will decide when the time comes". He explained that "there is the American model to end the bond purchases first. Whether this model can be applied to Europe on a like-for-like basis would need to be discussed." Meanwhile, "the structure of the interest rates does not always need to remain constant." And, "the ECB could also raise the deposit rate earlier than the prime rate."

The result of the Dutch elections was welcomed by European leaders in general. European Commission President Jean-Claude Juncker responded to the result of Dutch election and said that "the people of the Netherlands voted for "free and tolerant societies in a prosperous Europe". German Chancellor Merkel noted that she believed "many people are [glad] that a high turnout led to a very pro-European result". Centrist French presidential candidate Emmanuel Macron described it as "a breakthrough for the extreme right is not a foregone conclusion". Dutch Mark Rutte retained power and his pro-EU centre-right VVD remained the biggest party. Meanwhile, the anti-EU PVV party received just 13% of the vote share. The next closely-watched political event is the French presidential election is scheduled on April 23.

The Queen gave Royal Assent to Brexit bill

In UK, the Queen has given her Royal Assent to the Brexit bill. And, Prime minister Theresa May is reading to trigger Article 50 for Brexit negotiation with EU. Brexit Secretary David Davis said that "by the end of the month we will invoke Article 50, allowing us to start our negotiations to build a positive new partnership with our friends and neighbors in the European Union, as well as taking a step out into the world as a truly Global Britain."

Sterling remains supported by the hawkish BoE minutes released yesterday. To our, and the market's, surprise, BOE's Kristin Forbes voted in favor of a 25 bps rate hike. While this had not altered the decision of keeping the Bank rate unchanged at 0.25%, the overall message sent to the public has now become more hawkish. The members voted unanimously to leave the government bond purchases at 435B pound and corporate bond purchases at up to 10B pound. Adding to the rising speculations of tightening is the minutes, which suggested that some of those who voted for unchanged policy believed 'it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted'. More in Forbes' Dissent Would Unlikely Speed Up BOE's Rate Hike Schedule

On the data front...

New Zealand business NZ manufacturing index rose to 55.2 in February. Eurozone will release Trade balance in European session. In US session, Canada will release manufacturing shipments. US will release industrial production, capacity utilization, U of Michigan sentiment and leading indicators.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 138.73; (P) 139.67; (R1) 140.25; More...

GBP/JPY had another attempt at 138.53 support but rebounded from there again. The cross is staying in range of 138.53/142.79 and intraday bias remains neutral first. Price actions from 148.42 are viewed as a consolidation pattern. On the downside, break of 138.53 support will bring deeper decline to 136.44 support and possibly below. However, we'd expect strong support at 50% retracement of 122.36 to 148.42 at 135.39 to bring rebound. On the upside, above 142.79 will turn bias back to the upside for 144.77 and above.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. Main focus is on 38.2% retracement of 195.86 to 122.36 at 150.42. Rejection from there will turn the cross into medium term sideway pattern with a test on 122.36 low next. Though, sustained break of 150.42 will extend the rebound towards 61.8% retracement at 167.78.

Economic Indicators Update

The Fed is hiking, core inflation is heading higher and the job market is robust. So bond yields are going higher, right? At least these are some of the typical arguments we hear for being short duration in fixed income now. As it has been in the past when the Fed is hiking and unemployment going lower. However, history suggests that this can be a dangerous analysis.

We find that there is mainly one key driver for a bond bear market: whether the cycle is accelerating or not. Below we use the US ISM index as a gauge of this. As the chart below shows, over the past 25 years the 11 bear markets have all taken place while ISM was rising. The level has not been important. A high level of ISM is not enough to push yields higher if ISM is moving lower. Actually, a rise in ISM has been a necessary, but not always sufficient, condition for a bear market.

An acceleration in the cycle has also been a key ingredient in the latest ‘reflation' selloff in bonds. ISM has increased sharply over the past three-five months. It's also been a key ingredient in the reflation case we have pushed since November. Here we presented a checklist of four key factors for reflation with acceleration in the cycle being a key factor. Rising commodity price inflation was another one.

With this in mind, we see three reasons investors should be careful with short duration positions currently:

1. We are close to a peak in ISM manufacturing

2. Headline inflation is heading lower from here

3. Short duration is a crowded trade

For the 24 hours to 23:00 GMT, the AUD declined 0.42% against the USD and closed at 0.7669.

LME Copper prices rose 1.0% or $61.0/MT to $5911.0/MT. Aluminium prices rose 1.7% or $32.0/MT to $1895.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7684, with the AUD trading 0.2% higher against the USD from yesterday’s close.

The pair is expected to find support at 0.7656, and a fall through could take it to the next support level of 0.7628. The pair is expected to find its first resistance at 0.7714, and a rise through could take it to the next resistance level of 0.7744.

Next week, market participants will focus on the Reserve Bank of Australia’s (RBA) March meeting minutes, along with Australia’s house price index for 4Q and Westpac leading index for February.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR rose 0.38% against the USD and closed at 1.0771, after the Dutch Prime Minister, Mark Rutte's party won over anti-Islam lawmaker, Geert Wilders, in an election that many viewed as a defeat for the forces of political populism.

The Euro was boosted further, after the Euro-zone's final consumer price index (CPI) climbed 2.0% on an annual basis in February, confirming the preliminary print and maintaining its highest level in four-years. The CPI had registered a rise of 1.8% in the previous month.

The greenback lost ground against most of its key peers, as the US Federal Reserve's slightly cautious tone continued to weigh on investor sentiment.

In economic news, housing starts in the US jumped 3.0% on a monthly basis, to an annual rate of 1288.0K in February, climbing to a four-month high level, as unseasonably warm weather boosted the pace of single-family homebuilding to its strongest level in nearly a decade. Investors had envisaged housing starts to rise to a level of 1264.0K, following a revised level of 1251.0K in the prior month. On the other hand, the nation's building permits fell more-than-expected by 6.2% MoM, to an annual rate of 1213.0K in February, compared to market expectations of a fall to a level of 1268.0K and following a revised level of 1293.0K in the prior month.

Other economic data revealed that the number of Americans filing for fresh jobless claims eased to a level of 241.0K in the week ended 11 March 2017, compared to market consensus for a drop to a level of 240.0K and following a level of 243.0K in the prior week. Further, the nation's JOLTS job openings rose to a level of 5626.0K in January, after recording a revised reading of 5539.0K in the prior month, while markets anticipated an advance to a level of 5556.0K.

In the Asian session, at GMT0400, the pair is trading at 1.0772, with the EUR trading marginally higher against the USD from yesterday's close.

The pair is expected to find support at 1.0726, and a fall through could take it to the next support level of 1.0680. The pair is expected to find its first resistance at 1.0796, and a rise through could take it to the next resistance level of 1.0820.

Going ahead, investors will keep a close watch on the Euro-zone's trade balance and construction output data, both for January, slated to release in a few hours. Moreover, in the US the flash Michigan consumer confidence index for March, along with industrial as well as manufacturing production data, both for February, will keep investors on their toes.

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

For the 24 hours to 23:00 GMT, the GBP rose 0.53% against the USD and closed at 1.2353, after a Bank of England (BoE) policymaker surprised investors by voting to raise interest rates by 25 basis point, while some others indicated that they were also leaning towards raising interest rates in the foreseeable future.

The BoE, in its latest monetary policy meeting, maintained the benchmark interest rate steady at a record low of 0.25% in an 8-1 vote, with Kristin Forbes voting to raise borrowing costs immediately. Further, the central bank decided to leave the bond-purchase programme unchanged at £435.0 billion. The minutes from the meeting suggested that it would not take much for 'some'other officials to join her if inflation or economic growth rise significantly. Moreover, policymakers felt there were signs that consumers were turning more cautious as inflation rose while pay growth, which has been slowing in recent months, had turned out to be 'notably weaker'.

In the Asian session, at GMT0400, the pair is trading at 1.2352, with the GBP trading a tad lower against the USD from yesterday's close.

The pair is expected to find support at 1.2269, and a fall through could take it to the next support level of 1.2185. The pair is expected to find its first resistance at 1.2406, and a rise through could take it to the next resistance level of 1.2459.

Moving ahead, traders will look forward to the BoE's quarterly bulletin report, set to release in a few hours.

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