Daily Pivots: (S1) 1.0543; (P) 1.0576 (R1) 1.0631; More.....

Intraday bias in EUR/USD remains neutral for consolidation above 1.0520 temporary low. As long as 1.0713 minor resistance holds, deeper decline is still expected. We're holding on to the view that fall from 1.0828 is resuming the larger down trend. Below 1.0520 will target a test on 1.0339 low. Decisive break there will confirm our bearish view and target parity. However, above 1.0713 will dampen out view and turn focus back to 1.0828 instead.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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Daily Pivots: (S1) 1.2401; (P) 1.2440; (R1) 1.2499; More...

GBP/USD is still bounded in range of 1.2346/2705 and intraday bias remains neutral at this point. Price actions from 1.1946 are viewed as a consolidation pattern, with rise from 1.1986 as the third leg. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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Daily Pivots: (S1) 1.0027; (P) 1.0073; (R1) 1.0098; More.....

Intraday bias in USD/CHF remains neutral for consolidation below 1.0118 temporary top. Near term outlook stays cautiously bullish as long as 0.9929 minor support holds. Fall from 1.0342 could have finished at 0.9860 already. Above 1.0118 will turn bias back to the upside for retesting 1.0342. However, break of 0.9929 will likely extend the decline from 1.0342 through 0.9860 low.

In the bigger picture, prior rejection from 1.0327 resistance argues that USD/CHF is staying in a medium term sideway pattern. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone. Meanwhile firm break of 1.0342 will target 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

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Dollar stays generally weak in early US session and receives no support from another round of solid economic data. Initial jobless claims rose 5k to 239k in the week ended February 11. But that was better than expectation of 245k. Continuing claims dropped 3k to 2.08m in the week ended February 4. Housing starts dropped -2.6% mom to 1.25m in January, above expectation of 1.23m. Building permits rose 4.6% mom to 1.29m, above expectation of 1.23m. Meanwhile, Philly Fed survey jumped sharply to 43.3 in February. The greenback weakens against all major currencies except Aussie and Kiwi today. Meanwhile Dollar trading down versus against all others except Euro and Yen. Recent hawkish comments from Fed provide little support. It seems that Dollar traders are more worried about the uncertainties over fiscal policies.

Fed Vice Fischer joined hawkish chorus

Fed vice chairman Stanley Fischer said in an interview that the development in the economy is "consistent" with Fed's expectation. And it's "moving closer to the 2% inflation" and "labor market would continue to strengthen. And, wage growth has "started happening". Fischer reiterated that "we expect interest rates to be gradual, and if they reach the level of previous years it will be a matter of years."

Yesterday, New York Fed president William Dudley said "we expect to gradually remove further monetary policy accommodation and snug up interest rates a little bit further in the months ahead". Boston Fed president Eric Rosengren sounded hawkish and said that "it will likely be appropriate to raise short-term interest rates at least as quickly as suggested by the Fed's current ... median forecast, and possibly even a bit more rapidly."

ECB accounts: outlook largely unaltered

The accounts of January ECB monetary policy meeting showed that policymakers believed "the fundamental picture remained largely unaltered." And, the central bank should "remain patient and maintain a 'steady hand'" in the face of "a high level of uncertainty." The accounts pointed to risks of "political environment at the global level and within the euro area." And, so far the progress was "insufficient to bring a "durable and self-sustaining" rise in inflation.

BoJ Kuroda: Low profitability in financial institution could price new crisis

BoJ governor Haruhiko Kuroda warned that "a new challenge has emerged in the form of low profitability at financial institutions," due to the plunge in interest rates. And, "a different kind of financial crisis could happen in the future." And, "for the financial system to ensure future stability, it is becoming more and more important in the long term to think about possible responses to low profitability at financial institutions."

Aussie job data mixed

Employment in Australia grew 13.5k in January, above expectation of 10.0k. However, that was solely driven by part-time jobs as full-time jobs contracted by -44.8k. Unemployment rate, on the other hand, dropped slightly to 5.7%. Consumer inflation expectations slowed to 4.1% in February.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.69; (P) 114.32; (R1) 114.80; More...

Intraday bias in USD/JPY remains neutral for the moment and some more consolidations could be seen below 114.94 temporary top. With 113.24 minor support intact, further rise is still in favor. We're holding on to the view that correction from 118.65 has completed at 111.58. Break of 115.36 will confirm this bullish case and bring retest of 118.65 high. Meanwhile, below 113.24 minor support will dampen this bullish view and could extend the correction from 118.65. In that case, downside should be contained by 38.2% retracement of 98.97 to 118.65 at 111.13 and bring rebound.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

Economic Indicators Update

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USD/CAD has edged lower in the Thursday session. Currently, USD/CAD is trading at 1.3030. In economic news, there are no Canadian events on the schedule. In the US, it's another busy day, with three key events on the calendar - Building Permits, Philly Fed Manufacturing Index and Unemployment Claims. The markets are expecting unemployment claims to rise to 243 thousand.

All eyes were on Federal Reserve Chair Janet Yellen earlier this week, as she made her semi-annual appearance before Congress. In her testimony, Yellen was upbeat about the US economy. She noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen's next challenge can be considered an enviable task - when is the appropriate time to raise rates in order to cool down the economy - in June or as early as March? A rate hike appears to be just a question of time, as Yellen warned that "waiting too long to remove accommodation would be unwise". If the US economy stays on track in 2017, analysts expect two three small rate hikes. At the same time, the Fed needs to take into account the economic stance of the new administration, which remains unclear. President Trump has promised to outline a tax reform plan in a few weeks, but has left the Fed and the markets in the dark regarding economic policy. Unless the economy takes an unexpected turn downwards, it's very likely that the Fed will press the rate trigger by June.

With Europe still fuming at Britain for opting to leave the European Union, Canada is poised to take advantage of the situation. Canada and the EU have been working on a free trade agreement (CETA), and the House of Commons voted on Tuesday to adopt the agreement. The legislation now moves to the Senate, which is expected to stamp its approval in March. As well, the European Parliament voted 408-254 to ratify the agreement. CETA is expected to boost Canada-EU trade by 20 percent, which translates into $12 billion for the Canadian economy. Both sides have high hopes from the agreement. Canada is looking to reduce its dependence on the United States, which is the destination of 80 percent of Canadian exports. President Trump's protectionist stance has sent alarm bells off in Ottawa, with Trump declaring he would rip up NAFTA. Trump has since lowered the rhetoric, saying that he wants to "tweak" the agreement with Canada. Given Trump's unpredictability, Canada will be looking to build on CETA and conclude trade agreements with other countries. For the EU, this would mark the first trade agreement with a G-7 member and comes at a time when EU-US free trade talks have been suspended.

Despite a variety of upbeat comments from different Federal Reserve officials in recent days the Dollar Index appears to be at risk to dropping back below the psychological 100 level.

Why could this be? Perhaps investors are concerned that the Trump administration will turn their attention back towards barking at the strength of their currency. Either way, the weakness in the Dollar is providing the platform for strength across the majority of its major trading partners with the Euro, Japanese Yen, British Pound and Swiss Franc among others strengthening against the Greenback during trading today.

If you take a look at how the emerging market currencies in Asia are performing, it is hard to believe that the reason for the weakness in the Dollar is because investors are not as excited as they used to be around the prospect of higher interest rates in the United States. The Malaysian Ringgit, Indonesian Rupiah, Indian Rupee, New Taiwan Dollar and Philippine Peso all weakened against the USD on Thursday. It is mainly the emerging markets in Asia that are seen as being the most vulnerable to increased interest rates in the United States.

Are US equities overstretched?

While the USD is appearing fragile, the US markets are printing news highs and investors will be wondering whether this run continues when the American trading sessions get underway shortly. Investors have obviously bought into the news that President Trump is set to announce his tax plans in the next couple of weeks, although I personally believe that actions speak louder than words and investors still need full clarity on the fiscal campaign promises before pricing in further premiums into the equity markets.

Gold approaches $1240

It's very interesting in my eyes that investors are continuing to be enticed towards Gold, regardless of US stock markets maintaining their positions around record levels. Of course Dollar weakness helps Gold, but I am just wondering if investors are hedging towards the precious metal as a result of questions remaining in the background as to whether this stock market rally can really continue.

Turkish Lira resumes its weakness

After the USDTRY fell to its lowest level since early January during trading this week, the Turkish Lira appears to have reversed its momentum, with the Lira falling against the Dollar today. While there is an obvious argument that after such aggressive punishment in recent years that the Lira is oversold, it is too difficult to ignore all the different problems that the Turkish economy is facing. Whether it is social, economic or political, Turkey is continuing to face an undeniable number of problems that will make investors nervous about touching the Lira.

While we have seen the carry-trade idea help the previously oversold Brazilian Real and Russian Ruble, I doubt at this present time that the Turkish Lira can benefit from a carry trade. Although the interest rate policy in Turkey is high in comparison to other emerging market economies and this is what is thought to have attracted investors towards the Brazilian Real and Russian Ruble, the combination of different issues plaguing Turkey is going to prevent the Lira from rebounding much further in my current view.

Thursday February 16: Five things the markets are talking about

"Waiting too long to tighten would be unwise; more policy adjustments will likely be needed if the economy remains on track"

A number of Fed officials chimed in Tuesday and Wednesday to reinforce Ms. Yellen's message that they expect to raise short-term interest rates in coming months, perhaps as soon as March.

In two days of congressional testimony, Yellen said the Fed likely would raise its benchmark fed-funds rate at one of "our upcoming meetings" if the economy continued to improve as expected.

The argument for a rate hike in March has gained this week, supported by yesterday's U.S CPI and core retail sales printing double the market consensus. The OIS market has lifted pricing for a March 15 rate hike to +42% from +30% a couple of days ago.

Surprisingly, this week's "big" dollar gains have been almost been wiped out in the overnight session as the reflation trade rally that has sent stock prices to record highs has been cut short as the yen jumped and Treasuries prices climbed for the first time in five-days.

1. Mixed results from Stocks

Technical indicators are showing that global equities are currently "overbought," especially in the U.S and some Asian markets, and this has given some investors food for thought in the overnight session.

In Japan, stocks retreated as a pause in the weakening of the yen (¥113.66) has given some investors an excuse to book profits, though financials extended their outperformance on rising U.S. yields. The Nikkei share average fell -0.5% after scaling near six-week highs earlier this week.

In Hong Kong, stocks closed at an 18-month high on demand from China. The benchmark Hang Seng index added +0.5%, the highest since August 2015, while the Hong Kong China Enterprises Index gained +0.2%.

Note: Chinese investors, including mutual funds and major insurers, have been steadily increasing their allocations, as regulators on the mainland tighten investments in wealth management products and other risky assets.

In China, stocks posted modest gains as higher commodity prices and infrastructure spending continued to boost shares of firms in the materials sector. The Shanghai Composite Index added +0.5%.

In Europe, equity indices are trading lower after a raft of corporate earnings pre-market, and a relatively mixed session in Asia overnight. Banking stocks trading mixed in the Eurostoxx; while commodity and mining stocks are trading notably lower in the FTSE 100.

U.S futures are set to open in the red (-0.2%).

Indices: Stoxx50 -0.4% at 3,315, FTSE -0.4% at 7,273, DAX -0.2% at 11,777, CAC-40 -0.3% at 4,912, IBEX-35 -0.3% at 9,559, FTSE MIB -0.4% at 18,978, SMI -0.4% at 8,449, S&P 500 Futures -0.2%

2. Oil prices steady despite record U.S. inventories

Oil prices are steady ahead of the U.S open. A record crude and gas inventories in the U.S is dragging on prices, but, that been counterbalanced though OPEC supply cuts helping to support the market.

Brent crude is up +10c at +$55.85 a barrel, while U.S light crude (WTI) has gained +10c to +$53.21.

Note: OPEC has agreed to cut output by almost -1.8m bpd during the first half of 2017, with industry data showing that most producers are sticking to the deal (+93% compliance).

Despite this, inventories remain bloated and supplies high, especially in the U.S. This week's EIA report showed that crude and gasoline inventories soared to record highs last week as refineries cut output and gasoline demand softened.

Crude inventories rose +9.5m barrels, while gasoline stocks rose by +2.8m barrels.

Note: Both Brent and WTI crude has traded within a +$5 per barrel price range so far this year.

Gold prices are firmer (+0.2% to +$1,235.01 an ounce) as the dollar drifts down from it one-month highs prints in yesterday's session on upbeat U.S. data that improved the prospects of an interest rate hike by the Fed next month.

3. Sovereign bond yields fall

U.S. bond yields have eased overnight, taking with it Bunds, Gilts and JGB's.

Yesterday, the yield on the U.S 10's backed up +3bps to trade through +2.5% for the first time in two-weeks, supported by stronger U.S data and a somewhat more "hawkish" Fed Chair that has indicated March is a live meeting for another rate hike.

Note: March future probabilities have rallied to +42%, while May is now above +50%. The yield on U.S 10's has fallen -1bps to +2.49%.

Also keeping pressure on global yields are upcoming elections in the Netherlands, France, Germany and possibly Italy - investors are interested in "safe" government bonds particularly with anti-EUR and anti-EU sentiment on the increase throughout the continent.

Yesterday's U.S TIC data saw the first net decline in U.S holdings in three-months, although China holdings of U.S treasuries rose for the first time in seven-months to +$1.07T (In January, China sold the biggest amount of U.S debt in six-years).

Earlier this morning, Spain delivered another "solid set" of bond auctions results. Periphery countries products, like Spain, have felt the pressure from general spread widening to bunds.

Nevertheless, Spanish bonds seem to have done a good job of distinguishing themselves from Italy and France - dealers believe the risks for Spanish bonds remain much smaller compared to Italy, or France.

4. Dollar knocked back after 10 days of gains

The 'mighty' dollar has broken its near two-week winning streak overnight, falling back against a number of G7 (EUR, JPY, GBP, CAD etc.) and EM currencies after hitting its highest in a month yesterday.

Yesterday, the greenback found traction after the second round of somewhat more 'hawkish' Fed chair Yellen testimony, along with stronger U.S CPI and retail sales data. However, with U.S yields under pressure overnight the dollar has lost some of this support.

USD/JPY has dipped to ¥113.60 area as dealers reacted to comments from Bank of Japan's (BOJ) Governor Kuroda in which he noted that low interest rates could sow the seeds of a new financial crisis. GBP (£1.2508) is trading through the psychological £1.25 level, being dragged higher mostly on technicals (weaker shorts have been stopped out on this run up).

The EUR has edged up over +0.3% to €1.0632, recovering from a five-week trough of €1.0520 touched yesterday. The market is waiting for the ECB minutes release at 07:30 EST for direction.

5. Aussie jobs report beat expectations, but details disappointing

Australia employment data was mixed overnight - the unemployment rate was lower than expected (++5.7% vs. +5.8%), while the employment change slightly higher (+13.5k vs. +10ke).

However, all of the jobs growth last month came from part-time employment, which surged by +58.3k, offsetting a sharp decline in full-time workers, which tumbled by +44.8k. The labor participation rate also ticked lower to +64.6% vs. +64.7% prior. The growth in total hours worked remains weak, largely due to the split in hiring that's been seen over the past year.

Aussie short-term yields retreated, with 3-year's down about -3bps to +2.03% and the Aussie to AUD$0.7698.

Five consecutive sessions of new record highs would appear to be the trigger for some profit taking in US equity markets, with all three major indices currently on course to open in the red on Thursday.

There's been a strong focus on the US over the last couple of days and for a change, the attention has been more so on the central bank and interest rates as opposed to its extremely active and often controversial new President. Fed Chair Janet Yellen concluded her two days of testifying before Congress with an appearance before the House Financial Services Committee on Wednesday and while much of the rhetoric was broadly similar to that of the day before and more time was spent discussing other matters such as regulation, it's clear that her comments struck a chord with investors.

Rate hike expectations have become much more hawkish over the last couple of days, with expectations of a March rate hike having risen from around 13% to 31% yesterday and around 27% today, while a rate hike in May is now above 50%. Markets are also pricing in an almost 50% chance of three rate hikes by December so it's clear that the Fed's message, combined with the economic data we've had over the last couple of days, is getting through to investors. Yellen and her colleagues, many of whom have made appearances in recent days, have largely been sticking with the message from previous meetings, that three rate hikes is likely this year and it's reasonable to expect the next at one of the upcoming meetings. Prior to the last couple of days, March seemed off the table but it would appear it's suddenly become a “live” meeting once again.

There's also been a lot of economic data to take on board over the last couple of days but in the main, this has supported the hawkish argument with CPI inflation exceeding expectations and being above the Fed's inflation target and retail sales also outperforming. There's less data to contend with in today's session but there are a few releases of note including jobless claims, Philly Fed manufacturing index, building permits and housing starts. No Fed officials are due to appear today but I would expect it will still be a lively session, regardless.

The Japanese yen has posted gains losses in the Thursday session. Currently, USD/JPY is trading at 113.60. On the release front, there are no economic events in Japan. BoJ Governor Haruhiko Kuroda will deliver remarks at an event in Tokyo. In the US, it’s another busy day, with three key events on the calendar – Building Permits, Philly Fed Manufacturing Index and Unemployment Claims.

The spotlight was on Fed chair Janet Yellen earlier this week, as she made her semi-annual appearance before Congress. In her testimony, Yellen was upbeat about the US economy. She noted that inflation is moving towards the Fed’s 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen has an enviable task – when is the appropriate time to raise rates in order to cool down the economy – in June or as early as March? A rate hike is a question of “when” rather than “if”, as Yellen warned that “waiting too long to remove accommodation would be unwise”. At the same time, the Fed needs to take into account the economic stance of the new administration, which remains unclear. President Trump has promised to outline a tax reform plan in a few weeks, but has left the Fed and the markets in the dark regarding economic policy. Unless the economy takes an unexpected turn downwards, it’s very likely that the Fed will press the rate trigger by June.

The Japanese economy has been improving, with real GDP coming in at 1 percent in 2016. The economy has recorded four consecutive quarters of growth and inflation continues to point upwards. However, the new administration of Donald Trump could be a major challenge for Japan. Trump has paraded the motto of “America first” and withdrew the US from the Trans-Pacific Partnership, a trade agreement in which Japan is a major partner. Trump has charged that Japan is manipulating its currency to gain an unfair trade advantage, and this disputed threatened to sour the recent meeting between Prime Minister Shinzo Abe and Trump in Washington. However, the two leaders agreed that their finance ministers would conduct bilateral talks to discuss currency policy. Abe has dodged a bullet for now, but if the yen falls below the 120 level, the war of words over exchange rates could be renewed. As well, Trump remains concerned about the huge US trade imbalance with Japan and will want to make changes in the US-Japan trade relationship. Japan is heavily dependent on its export sector, and any protectionist moves by the US, such as import taxes, could weaken the Japanese economy.

EUR/USD has ticked higher in the Thursday session, as the pair trades at 1.0640. On the release front, the ECB releases the minutes of its January monetary policy meeting. It’s another busy day in the US, with three key events on the calendar – Building Permits, Philly Fed Manufacturing Index and Unemployment Claims.

The spotlight was on Fed chair Janet Yellen earlier this week, as she made her semi-annual appearance before Congress. In her testimony, Yellen was upbeat about the US economy. She noted that inflation is moving towards the Fed’s 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen has an enviable task – when is the appropriate time to raise rates in order to cool down the economy – in June or as early as March? A rate hike is a question of “when” rather than “if”, as Yellen warned that “waiting too long to remove accommodation would be unwise”. At the same time, the Fed needs to take into account the economic stance of the new administration, which remains unclear. President Trump has promised to outline a tax reform plan in a few weeks, but has left the Fed and the markets in the dark regarding economic policy. Unless the economy takes an unexpected turn downwards, it’s very likely that the Fed will press the rate trigger by June.

Across the pond, ECB President Mario Draghi can sleep easier, as the eurozone has been showing signs of recovery in recent months. The economy is expanding at a moderate rate, and inflation is pointing higher. This is good news for the ECB, which can now focus on possibly tightening monetary policy. If the ECB feels that the economic numbers will continue to point in the right direction, the central bank could taper its asset-purchase program or raise interest rates, which are currently at zero. ECB head Mario Draghi will likely remain cautious, with Brexit negotiations looming and elections in France and Germany coming up. Still, if the eurozone economy continues to grow and inflation levels move higher, we could see the ECB change its monetary stance later in the year. The ECB hold its next policy meeting on March 9, and if economic data remains steady, there will be pressure on the ECB to tighten monetary policy.