Sample Category Title

Investors viewed Fed Chair Janet Yellen's testimony before the Senate Banking Committee as modestly hawkish. As such, expectations for a March rate hike rose modestly while Treasury yields climbed higher. While reiterating that all meetings are 'live' for a rate hike, Yellen warned that waiting too long to remove accommodation would be unwise'. Meanwhile, she cautioned over the uncertainty over the economic policy under Donald Trump's administration. Yellen emphasized the Fed's monetary policy stance is not based on 'speculations' about fiscal policy. The economy's 'solid progress' is what is 'driving the policy decisions'.

As she testified before the Senate Banking Committee, Yellen reiterated the stance that 'waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession'. Again she noted the improvement in inflation and the labor market, the pillars of the FOMC's dual mandate. According to Yellen, 'incoming data suggest that labor market conditions continue to strengthen and inflation is moving up to +2%, consistent with the Committee's expectations. At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate'.

Despite the upbeat economic developments, US government new economic/fiscal policy presents uncertainty to the outlook. Yellen suggested that 'it is too early to know what policy changes will be put in place or how their economic effects will unfold'. She added that 'while it is not my intention to opine on specific tax or spending proposals, I would point to the importance of improving the pace of longer-run economic growth and raising American living standards with policies aimed at improving productivity'.

Market sentiment was buoyed by Yellen's speech. In Wall Street, financial stocks led the gains with the S&P financial sector adding +0.8%. Both the benchmark DJIA and S&P 500 indices added +0.3% for the day. US Treasury prices fell, sending yields higher. 2-year yields climbed +2 bps higher to 1.23% and while 10-year yields gained +3 bps to 2.47%. US dollar extended gains against major currencies on heightened rate hike expectations.

EUR/USD

The American dollar got a nice boost from FED's head Yellen, who reiterated in the Semiannual testimony before the Congress that "waiting too long to remove accommodation would be unwise," putting a March rate hike back on the table. Furthermore, she downplayed the uncertainty on fiscal policy as just one of the factors to take into consideration when deciding a rate hike. The EUR/USD pair fell down to 1.0560, its lowest in over a month, further weighed by soft data coming from the EU earlier in the day. Growth in the area decelerated during the last quarter of 2016, with German Q4 GDP printing 0.4%, below the 0.5% expected, but above a previously revised 0.1%, while for the EU, the preliminary growth estimation printed 0.4%. In the US, the January PPI increased by 0.6% when compared to December, and by 1.6% from a year earlier, beating expectations.

Technically, the EUR/USD pair reached a major support, the 23.6% retracement of the November/January decline, as the pair struggled two weeks around the level before being able to recover further. The ongoing political uncertainty in the EU alongside with soft data in one hand, and in the other rising inflation and a hawkish FED, the fundamentals have aligned with the technical picture in a bearish case for the pair, particularly on a bearish acceleration below the mentioned daily low. Technically, the 4 hours chart shows that a bearish 20 SMA, now around 1.0620 keeps capping the upside, whilst technical indicators have stabilized near oversold readings, as speculative interest has reached its first bearish target and left the price consolidating in a well-limited range below the 1.0590 level.

Support levels: 1.0560 1.0520 1.0470

Resistance levels: 1.0590 1.0625 1.0660

USD/JPY

The USD/JPY pair surged to 114.49, its highest since late January, reversing course following Yellen's hawkish statement before the US Congress. The FED's head woke up speculation of a March rate hike after saying that "at our upcoming meetings, the committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate." The USD/JPY pair traded with a soft tone at the beginning of the day, as risk aversion dominated the Asian session, following news that US President Donald Trump's national security advisor Michael Flynn quit, over his contacts with Russia, a clear sign of how vulnerable the pair is to any headline coming from the US new administration. The modest tone of worldwide equities is keeping the upside limited, and technically, a major resistance stands a few pips above the mentioned high, at 114.55, the 23.6% retracement of this year bullish run. A break above it could fuel the advance, but technical readings in the 4 hours chart, don't support the case, as the price is unable to advance beyond a bearish 200 SMA, whilst technical indicators are retreating within positive territory, not enough anyway to confirm a downward move.

Support levels: 113.95 113.40 113.00

Resistance levels: 114.55 114.90 115.40

GBP/USD

The Pound fell to a daily low of 1.2443, but not because of Yellen's hawkish stance before the Senate Banking Committee, but because of shockingly highs wholesale inflation figures. In fact, such low was achieved during the London session, with the pair confined to a tight 50 pips range afterwards, with the Sterling still reluctant to give up to dollar's strength. UK CPI rose 1.8% in January when compared to a year earlier, its highest level in almost three years, even despite the MoM reading came in at -0.5%. Producer price inflation (input prices), meanwhile, surged to 20.5% from a revised previous 17% and well ahead of its 18.5% consensus forecast, due to rising energy costs. Output prices also rose by more-than-expected, but at a slower pace, up by 3.5% YoY from previous 2.8% and against an expected advance of 3.2%. It won't take long until producers pass rising cost on to consumers, with CPI now seen rising beyond 3.0% during the upcoming months. The big question is how tolerant the BOE will be and for how long. The pair maintains the neutral stance seen on previous updates, although there's an increasing bearish potential, as in the 4 hours chart, the price is now below a bearish 20 SMA, the Momentum indicator turns lower around its 100 level, whilst the RSI indicator consolidates around 43. The pair has an immediate Fibonacci support at 1.2430 which if broken, can lead to a steady decline down to 1.2346, February low. The pair needs to firm up beyond 1.2540, on the other hand, to gain some bullish traction during the upcoming sessions.

Support levels: 1.2430 1.2390 1.2345

Resistance levels: 1.2500 1.2535 1.2585

GOLD

An early advance in gold prices was quickly reversed post-Yellen, with the commodity closing the day marginally higher at $1,228.50 a troy ounce. Risk aversion dominated the Asian session, with most local share markets closing in the red, amid Trump's security advisor resignation. Slackened physical demand from retailers, weighed on the commodity, but it was increasing speculation of an upcoming US rate hike this March what sent the bright metal lower. Technically, the commodity maintains the positive tone seen on previous updates, as the price remained above a bullish 20 DMA, whilst technical indicators turned flat well above their mid-lines, paring the downward correction from overbought conditions seen at the beginning of the week. In the shorter term, and according to the 4 hours chart, technical indicators are hovering around their mid-lines, whilst the price struggles around a bearish 20 SMA. A major Fibonacci resistance stands at 1,230.00, with an upward acceleration beyond it exposing this month high of 1,244.42.

Support levels: 1,221.80 1,210.10 1,200.00

Resistance levels: 1,230.00 1,237.10 1,244.70

WTI CRUDE

Crude oil prices made little progress this Tuesday, with West Texas Intermediate futures settling at $53.16 a barrel, ahead of US stockpiles reports. Crude advanced at the beginning of the day up to 53.70, but eased on the back of dollar's strength, still trapped between lingering concerns about rising US production and OPEC's compliance with its commitment to cut output. Upcoming US data could trigger some sharp moves either side of the board, particularly if stockpiles present another large build. From a technical point of view, the commodity presents a neutral stance in the daily chart, moving back and forth around a horizontal 20 DMA, and with technical indicators heading nowhere around their mid-lines. Shorter term, the 4 hours chart shows that the price remains stuck within a congestion of moving averages, but that technical indicators are entering bearish territory, indicating that the commodity may fall, particularly on a break below 52.60, the immediate support.

Support levels: 52.60 52.00 51.40

Resistance levels: 53.70 54.40 55.20

DJIA

US indexes closed at record highs for a fourth consecutive session, with the DJIA reaching a new milestone right ahead of the close, settling at 20,504.27, up by 92 points or 0.45%. The Nasdaq Composite added 18 points and closed at 5,782.57, while the S&P gained 0.40%, to 2,337.58. The banking sectors led the way higher on hopes US President Trump will cut corporate taxes, with  JP Morgan Chase leading winners' list within the Dow, up by 1.71%, and Goldman Sachs up 1.34%, closing at an all-time high. Apple also closed at an all-time high, up daily basis by 1.28%. The DJIA presents a strong bullish tone in the daily chart, as technical indicators keep heading north, although the RSI stands at 79, indicating extreme overbought conditions. Back in December, the indicator reached 86 before correcting lower, which means that current reading is hardly a sign of upward exhaustion. In the 4 hours chart, the index is far above its moving averages, with the 20 SMA heading sharply lower around 20,320, reflecting the buying fever around US equities, whilst technical indicators also head north in extreme overbought territory, with no aims to changing course. 

Support levels: 20,489 20,432 20,385

Resistance levels: 20,550 20,600 20,650

FTSE 100

The FTSE 100 lost 10 points this Tuesday, closing the day at 7,268.58, despite a strong earnings report from TUI, as the travel firm added 5.18%, after the company reported that its first-quarter losses had narrowed. Royal Bank of Scotland was the best performer, up 5.29% as the banking sector benefited from improving sentiment, while Rolls Royce Holding topped losers' list, down 3.0% after reporting a pre-tax loss of £4.6bn. The index recovered some ground in after-hours trading, maintaining its positive tone in the daily chart, as it's still holding well above its moving averages, while technical indicators continue consolidating within positive territory. Shorter term, the 4 hours chart shows that the index remains above a bullish 20 SMA, but technical indicators are heading marginally lower, still within positive territory. The Footsie needs to break above 7,298, Monday's high to gather some upward strength, and advance up to 7,354, the record high posted last January.

Support levels: 7254 7,208 7,163

Resistance levels: 7,298 7,354 7,390

DAX

European equities closed mixed, but not far from their daily opening levels, with the German DAX down 2 points to 11,771.81, on poor local data, as GDP and ZEW sentiment survey disappointed, and a persistent cautious mood ahead of FED's Yellen testimony. Banks and automakers were the best performers, with Deutsche Bank up 1.77% and Commerzbank adding 1.76%. Volkswagen added 0.94%, but only eight out of thirty components closed in the green. In the daily chart, the index stands at the lower end of its weekly range, still above its 20 DMA and far above a bullish 100 DMA, but technical indicators continue to lack enough strength to confirm an upward extension, with the Momentum still stuck around 100 and the RSI flat around 62. In the 4 hours chart, technical indicators are barely retreating from overbought readings, whilst the 20 SMA maintains its bullish slope above the 100 SMA, both over 100 points below the current level.

Support levels: 11,745 11,694 11,640

Resistance levels: 11,815 11,854 11,891

STOCKS

Sharp rise seen in the Dow Jones. Nikkei, Dax and Shanghai are potentially bullish. Nifty may face some rejection in the near term.

Dow (20504.41, +0.45%) has risen sharply and is headed towards 20600-20800 levels as mentioned yesterday. While the Dollar Index continues to strengthen above 101, we could see some more rise in the Dow Jones in the near term.

Dax (11771.81, -0.02%) is almost flat. A break above 11820, could take it higher towards 11930-12000 levels in the medium term. The index looks potentially bullish for the near term.

Nikkei (19473.50, +1.22%) has opened higher today possibly because of some recovery in the Dollar-Yen. The broad sideways range of 18600-19600 is still intact and Nikkei may test the 19600-resistance in the next couple of sessions. A break above 19600 is important to turn further bullish in the medium term towards 19900-20100 levels.

Shanghai (3216.80, -0.04%) could test immediate resistance on the daily candles and see slight dips before rallying towards 3300. Overall it may move up along the trend-line resistance.

Nifty (8792.30, -0.14%) has paused near 8800 levels and is hanging around without any clear direction just now. There is room for consolidation for another 2-session after which it has to resolve on either side. A rise if seen could take it to another 100-200 points higher towards 8900-9000 followed by a sharp correction. Else the index could come off from current levels to re-test 8700 and lower in the medium term.

COMMODITIES

Gold (1226.46) is in a shallow corrective mode in the range of 1220-1240 but may test the medium term support near 1215-10 in the next few sessions.

Silver (17.9240) remains in an uptrend with no real momentum. Unless a sharp break above 18.10 is seen soon, a correction to 17.50 may emerge in the next few sessions.

Brent (55.66) and WTI (52.89) are trading exactly at the midpoint of their respective ranges of 53-58 and 50-55 with no directional bias and this horizontal movement may continue for a few more days.

It turned out to be a false breakout for Copper (2.746) above the major resistance of 2.80 and it may remain stuck in the range of 2.70-85 for the next 5-10 days.

FOREX

Dollar has been boosted by the Fed Chair Yellen stating that more rate hikes could be appropriate in the coming months and the hikes wouldn’t be dependent on Trump administration’s fiscal policies.

Dollar Index (101.27) has broken above the immediate resistance of 101.00 and opened up 101.75-102.00 for the current week where a small correction can be expected.

Euro (1.0572) has been in a gradual decline for the last few sessions and may test the support near 1.0530-00 levels by the end of this week.

Dollar-Yen (114.40) has broken above the resistance of 114.30 but the required momentum to take it higher to 115-116 is yet to be visible. The near term trend remains firmly up which may push it higher slowly.

Pound (1.2455) has weakened a bit due to the broader Dollar strength but the horizontal movement in the narrowed range of 1.2400-1.2600 continues which at most may expand to 1.2350-1.2700. Repeat - from a larger perspective, it must be noted that any Brexit related issues are not impacting the currency that much.

Aussie (0.7669) remains in the contracting range of 0.76-0.77 for the 10th session but may break out of the range soon enough. Repeat - while the trend is still up, the proximity of the major resistance near 0.7750-0.7800 warrants caution as the chances of a sudden reversal can’t be ruled out.

There is some scope of Dollar Rupee (66.92) testing lower levels of 66.80 today before again bouncing back towards 66.90/95. Crucial movement would be a break on either side of the 66.80-67.07 region which would decide the further course of the movement.

INTEREST RATES

Overall the yields are mixed. US yields are rising and could find some resistance above current levels while the Japanese yields have some more room on the upside. The German yields could see some fall in the near term.

The US yields continue to rise towards resistance. The 5Yr (1.97%) is up from 1.92% while the 10YR (2.48%) and the 30YR (3.07%) have also moved up from 2.44% and 3.04/5 respectively. The 30Yr may face immediate resistance at 3.10% while the 10Yr also has resistance at 2.50%. The yields are expected to fall in the coming sessions.

The US 10-5YR (0.51%) has not been able to see a bounce from levels near 0.5250% and is now heading towards 0.50% or even lower.

Sharp rise in the US-Japan 10YR (2.38%) from levels near 2.28% has pulled up Dollar-Yen (114.38) from levels near 113.25 seen yesterday. While the spread moves up further, the currency pair could see a rise in the near term.

The Euro has been coming off as indicated by the fall in the German-Us 2YR (-2.04%) and the German-US 10Yr (-2.12%) and unless we see a pause in the spreads, it is difficult for the Euro to pause just now. Near term looks bearish. (Also refer to FOREX section above)

EURUSD - With the pair closing further lower on Tuesday, more decline is envisaged in the days ahead. On the upside, resistance comes in at 1.0550 level with a cut through here opening the door for more upside towards the 1.0500 level. Further up, resistance lies at the 1.0450 level where a break will expose the 1.0400 level. Conversely, support lies at the 1.0600 level where a violation will aim at the 1.0650 level. A break of here will aim at the 1.0700 level. Its daily RSI is bearish and pointing lower suggesting further weakness. All in all, EURUSD faces further downside pressure but with caution.

Yesterday we featured this EUR/GBP swing low support level:

'With daily support having held, if this intraday zone holds, I'm happy to look for longs on any retests back into or around it.'

As you can see, we were looking for the level to hold, from where we would take an entry off an intraday retest.

Well look at this:

EUR/GBP 15 Minute:

'Find good levels and you can't go wrong!'

The Japanese yen is almost unchanged in the Monday session. Currently, USD/JPY is trading at 113.40. On the release front, Japanese Revised Industrial Production dropped to 0.7%, but still beat the forecast of 0.5%. In the US, we'll get a look at PPI and Janet Yellen testifies before Congress on the semi-annual Monetary Policy Report. If Yellen reiterates that the Fed plans several rate hikes this year, the US dollar could make gains. On Wednesday, the US releases retail sales and CPI reports, and Yellen will continue her testimony before the US Senate.

President Shinzo Abe met with President Trump last week, and Abe waxed positive about his summit with Trump. Abe said the two leaders had agreed to have their finance leaders discuss currency issues that have caused tensions between the US and Japan. Trump recently charged that Japan was manipulating its currency to gain a trade advantage. The Japanese government has countered that its ultra-accommodative monetary policy was aimed at curbing deflation. Still, Abe and BoJ Governor Haruhiko Kuroda will have to keep a close eye on the yen – if the dollar pushes past 120 yen, Trump could express his displeasure with the exchange rate in order to protect US exporters.

President Donald Trump has promised to cut taxes and spend big on infrastructure structures, but he has not released any details in this regard, much to the consternation of the markets. Last week, Trump said that the administration was working on a "phenomenal" tax plan, which would be released in a few weeks, although he gave no details. Trump's plan is expected to lower taxes for both corporations and individuals, although tax reform promises to be a slow and daunting task. The markets are looking for some details regarding Trump's plans for the US economy, and if Trump's plan to reform the US tax code seems feasible, the markets could rally and push the US dollar to higher levels.

USD/CAD has edged upwards in the Tuesday session. Currently, the pair is trading at 1.3030. On the release front, there are no Canadian events on the schedule. In the US, we'll get a look at PPI and Janet Yellen testifies before Congress on the semi-annual Monetary Policy Report. If Yellen reiterates that the Fed plans several rate hikes this year, the US dollar could make gains. On Wednesday, the US releases retail sales and CPI reports, and Yellen will continue her testimony before the US Senate.

Canadian Prime Minister Justin Trudeau jetted back to Ottawa after meeting President Trump in Washington on Monday. It was "mission accomplished" for the Canadian leader, who was looking for reassurances from Trump that he would not tear up NAFTA, the trade agreement which is the bedrock of the trade relationship between the two countries. After the leaders met, Trump said his biggest concern with NAFTA was with Mexico rather than its northern neighbor. Trump stated that the US has a "very outstanding trade relationship with Canada. We'll be tweaking it." Although Trudeau could do without the tweaking, Trump's comments come as an enormous relief. Given that 80 percent of Canadian exports go to the US, any significant protectionist measures from the US could have drastic negative implications for the Canadian economy.

Will Donald Trump break radio silence and provide details about his economic stance? Trump has promised to cut taxes and spend big on infrastructure structures, but he has not released any details in this regard, much to the consternation of the markets. Last week, Trump said that the administration was working on a "phenomenal" tax plan, which would be released in a few weeks, although he gave no details. Trump's plan is expected to lower taxes for both corporations and individuals, although tax reform promises to be a slow and daunting task. The markets are looking for some details regarding Trump's plans for the US economy, and if Trump's plan to reform the US tax code seems feasible, the markets could rally and push the US dollar to higher levels.

Daily Pivots: (S1) 1.0572; (P) 1.0615 (R1) 1.0639; More.....

With 1.0713 minor resistance intact, intraday bias in EUR/USD stays mildly on the downside. Corrective rise from 1.0339 should have completed at 1.0828 already. Decline from there should target a test on 1.0339 low first. Decisive break there will confirm resumption of medium term down trend. On the upside, however, above 1.0713 minor resistance will delay the bearish case and turn bias neutral first.

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.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Daily Pivots: (S1) 1.0026; (P) 1.0048; (R1) 1.0077; More.....

With 0.9985 minor support intact, intraday bias in USD/CHF stays cautiously on the upside. Sustained trading above 55 day EMA (now at 1.0038) will pave the way for a test on 1.0342 high. On the downside, below 0.9985 minor support will turn focus back to 0.9860 short term bottom instead.

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.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box

Daily Pivots: (S1) 113.37; (P) 113.77; (R1) 114.13; More...

A temporary top is in place at 114.16 with 4 hour MACD crossed below signal line. Intraday bias in USD/JPY is turned neutral first. We're still favoring the case that correction from 118.65 has completed at 111.58. Above 114.16 will target 115.37 resistance first. Break will confirm this bullish case and bring retest of 118.65 high. Meanwhile, below 112.85 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.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box