USD/CAD has reversed directions, posting slight gains in the Wednesday session. Currently, the pair is trading at 1.3150. On the release front, Canada will release Housing Starts, which is expected to remain above the 200K level, with the estimate standing at 202 thousand. There are no major US events on the schedule. On Thursday, the US releases the weekly unemployment claims report, which is expected to rise to 249 thousand. As well, the weekly crude oil inventories report will be released. Another strong surplus is expected, with an estimate of 202 thousand.

America First! Trump's protectionist stance just a few weeks into his term is setting off alarm bells with close trading partners of the US, including Canada, Mexico and Japan. Trump has declared that he intends to revisit the NAFTA trade agreement, which has been an anchor of the US-Canada trade relationship for over 20 years. Trump didn't mince words last week when describing NAFTA, saying that "NAFTA has been a catastrophe for our country. It's been a catastrophe for our workers and our jobs and our companies." Although Trump is unlikely to unravel the agreement and his verbal salvos may be aimed more at Mexico than Canada, uncertainty over NAFTA's future can't be good news for Canada. Trump's protectionist stance has increased nervousness in the markets and could spell bad news for the Canadian currency if investors lose their appetite for risk.

President Donald Trump continues to create controversies on an almost daily basis, and his brash and undiplomatic style has not endeared him to the markets. Moreover, the lack of an economic policy from the new administration is a major source of concern and the the post-election euphoria which sent the markets higher has dissipated. The Federal Reserve, which had trumpeted that it was planning a series of hikes in 2017, was more cautious in its recent rate statement and is expected to adopt a wait-and-see attitude in the coming months. If the economy continues to grow, there is a strong likelihood of another rate hike in the first half of 2017, which is bullish for the dollar.

Daily Pivots: (S1) 1.0641; (P) 1.0695 (R1) 1.0734; More.....

Intraday bias in EUR/USD remains neutral as it's staying in range of 1.0619/0828. As noted before, choppy rise from 1.0339 is seen as a correction. Hence, in case of another rise, upside should be limited by 1.0872 resistance and bring fall resumption eventually. Break of 1.0619 will argue that the corrective rise is completed and turn bias to the downside for retesting 1.0339 low.

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) 1.2386; (P) 1.2466; (R1) 1.2585; More...

Intraday bias in GBP/USD remains neutral for the moment. Price actions from 1.1946 are viewed as a consolidation, no change in this view. 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) 0.9916; (P) 0.9961; (R1) 1.0021; More.....

USD/CHF is staying in the consolidation from 0.9860 and intraday bias remains neutral. With 1.0043 minor resistance intact, deeper decline is expected. Current fall from 1.0342 is seen as the third leg of the pattern from 1.0327. Below 0.9860 will target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. On the upside, break of 1.0043 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expecting the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359, after the consolidation completes.

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Daily Pivots: (S1) 111.78; (P) 112.18; (R1) 112.77; More...

With 113.44 minor resistance intact, deeper fall could still be seen in USD/JPY. But again, choppy decline from 118.65 is seen as a correction. Hence, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. Above 113.44 minor resistance will turn bias neutral first. Break of 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65 high.

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.

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Euro weakens broadly today as is trading in red against all other major currencies for the week. The common currency was weighed down by comments from ECB president Mario Draghi that the central bank won't react to recent spike in inflation. Meanwhile, markets are starting to get cautious on political uncertainties. Recent news from France are reminding traders there are two rounds of French presidential election on April 23 and May 7, as well as elections in the Netherlands and Germany. In addition, UK is set to trigger Article 50 for Brexit by the end of March. And there are uncertainties over US president Donald Trump's protectionist policies. Mild risk aversion is lifting the Japanese yen across the board.

BoJ Cautious on Global Developments

BoJ released the summary of opinions from the January 30-31 meeting today. The board generally saw improvements in exports, consumer spending and capital expenditure. One policy maker noted that Japan's economic recovery has "strengthened" since the second half of 2016. And, "positive synergy effects are being produced by improvement in overseas economies, economic stimulus measures by the government, and enhanced monetary easing." However, there was a tone a caution in general over political developments globally, including US president Donald Trump's policies and Brexit.

RBNZ Expected to Stand Pat

RBNZ rate decision is the focus in the upcoming Asian session. The central bank is widely expected to keep the OCR unchanged at 1.75% and maintain a neutral stance. As inflation is now back inside the target range, there is much less pressure for RBNZ to cut interest rate again. However, there is no clear sign of pick up in growth nor sustainability of inflation. Hence, the announcement could be a non-event. Meanwhile, RBNZ governor Grame Wheeler will step down when his term ends in September. The role is expected to be passed to a deputy before a permanent successor is appointed, in 2018. Markets are expecting RBNZ to stand pat throughout 2017.

NZD/JPY attempted to take out 83.36 resistance for the second time back in late January but failed again. The pair is trading back in range of 80.43/83.36. At this point, we're still favoring the case that medium term corrective fall from 94.01 has completed at 68.88 already. And another rise is in favor. Sustained trading above 83.36 will pave the way to retest 94.01 high. However, break of 80.43 near support will dampen our bullish view and would turn outlook bearish. In that case, NZD/JPY should target 55 week EMA (now at 78.02) and lower.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.78; (P) 112.18; (R1) 112.77; More...

With 113.44 minor resistance intact, deeper fall could still be seen in USD/JPY. But again, choppy decline from 118.65 is seen as a correction. Hence, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. Above 113.44 minor resistance will turn bias neutral first. Break of 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65 high.

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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Wednesday February 8: Five things we are talking about

With global data continuing to paint a mixed picture on the pace of inflation in the developed world has investors proceeding with caution, and for now, somewhat in a directionless manner.

Currently, capital markets lack conviction as they seek more details from the Trump administration on promised spending increases and tax cuts. While in Europe, the market is assigning a greater risk premium to European countries (Netherlands, France) where the rise of populism is gaining traction ahead of national elections.

Expect the market to focus on today's EIA oil inventory report (10:30 EST) and the RBNZ monetary policy decision (03:00pm EST).

1. Equities see the green light

In Japan, indices edged up overnight as the yen's (¥112.30) recent rise outright stalled, while upbeat earnings is helping shore up market sentiment. The Nikkei closed up +0.5%.

Note: Investors remain cautious ahead of this week's Abe-Trump summit starting Friday. Both trade and currency policy is expected to be high on the agenda.

In Hong Kong, stocks closed at their three-month highs, boosted by shares of China property developers and brokers. The Hang Seng index ended up +0.7%, while the Hong Kong China Enterprises Index gained +1.1%.

In Shanghai, stocks have rallied to a one-month, on the back of financials. The Shanghai Composite Index closed up +0.4%, it's highest since Jan. 11.

In Europe, equity indices are trading mixed. On the Eurostoxx 600, banking stocks once again are trading notably lower across the board, while energy stocks are also lower as oil trades near contract lows. On The FTSE 100, commodity and mining stocks are trading notably higher.

U.S equities are set to open in the black (+0.1%).

Index: Stoxx50 +0.5% at 3,251, FTSE flat at 7,184, DAX +0.3% at 11,586, CAC-40 +0.7% at 4,789, IBEX-35 +0.3% at 9,356, FTSE MIB +0.5% at 18,748, SMI +0.3% at 8,396, S&P 500 Futures +0.1%

2. Oil prices remain under pressure from bloated inventories

Ahead of the U.S open, global crude prices remain under pressure, extending yesterday's fall, as a massive increase in U.S. fuel inventories and a slump in Chinese demand would suggest that global crude markets remain oversupplied despite OPEC-led efforts to cut output.

Brent crude futures are trading at +$54.70 per barrel, down -35c, or -0.64%, from yesterday's close. U.S. West Texas Intermediate (WTI) crude is at +$51.68 a barrel, down -49c, or -0.94%.

Note: Yesterday's American Petroleum Institute (API) reported a massive inventory number - crude inventories rose by +14.2m barrels in the week to +503.6m, compared with market expectations for a +2.5m increase. While gas stocks rose by +2.9m barrels, compared with expectations for a +1.1m barrel gain.

Expect dealers to take direction from today's EIA report at 10:30am EST.

Gold continues to hold firm near its three-month highs hit yesterday (+$1,235.78) on dollar strength amid political and economic uncertainty on both sides of the Atlantic - U.S and Europe.

The precious metal has gained nearly +5% over the last month, and nearly +7% since the year began.

3. Treasury, Bunds yields fall, Euro periphery spreads widen

Lower global oil prices is attracting buying interest in the U.S Treasury bond market, sending yields lower. While Euro political risks, especially the French election uncertainty, is also support demand for this week's Treasury auctions.

Note: U.S bonds continue to offer more attractive yields compared to bunds, JGBs and gilts. The U.S. Treasury Department is this week selling a total of +$62B of three-, 10- and 30-year securities in its quarterly refunding.

U.S 10's currently yield +2.4%, down from a yesterday's session high of +2.439%.

In Europe, the yield spread between 10-year French and equivalent German government bonds remains on a widening course, currently trading slightly over +78 bps on investors' mounting concern about who might win France's upcoming presidential election.

In Italy, the yield differential between 10-year Italian BTPs and 10-year German Bunds has topped +200 bps, amid the potential of an election in Italy and on concerns about the banking sectors (10-year BTP/Bund yield spread stood at around +162 bps in December).

4. Dollar finds support on rate differentials

Comments this week from Fed officials stating that next months FOMC meeting could be 'live' is providing the USD with support. The market believes that there is a potential for Yellen to surprise with some 'hawkish' comments at her semi-annual testimony to Congress.

Europe's single unit is softer by -0.3% overnight, trading atop of the €1.0650 level. Weighing on the EUR are concerns about the outcome of European elections (Netherlands and France) this year.

Note: Dealers are looking for a more technical breakdown, citing €1.0605 as key support for the time being.

Sterling (£1.2488) seems to be consolidating yesterday's gains after the BoE's Forbes suggested that U.K economy might soon need a rate "hike."

Note: The U.K's House of Commons is expected to vote on Article 50 Bill later day (expected in evening local time).

Elsewhere, the PBoC has weakened the Yuan slightly more aggressively overnight (¥6.8849 vs. ¥6.8604) to the lowest CNY setting in a fortnight.

Note: the PBoC also skipped its 'reverse repo' operations for the fourth straight session, though reiterated that banking system liquidity is at high level and that last week's +10bp increase in offer rates should not be interpreted as tightening.

5. Reserve Bank of India (RBI) surprises markets

In a surprise move overnight, the RBI kept its policy rate on hold (+6.25%, unanimous 6-0) for a second consecutive meeting, opting to wait for more clarity on the trend for inflation and on how a radical crackdown on "black money" or high value cash would impact the country's economic growth.

India policy makers also changed their stance to "neutral" from "accommodative", saying it would monitor inflation, despite calls for the central bank to support the economy that was dealt a blow when PM Modi abolished high-value notes in a bid to target unaccounted cash.

The decision has disappointed investors - India's benchmark 10-year bond yields have aggressively backed up +13 bps after the RBI signaled the end of the easing cycle.

The Japanese yen is showing little movement in the Wednesday session. Currently, USD/JPY is trading at 112.20. On the release front, it's a very light day. Japanese Economy Watchers Sentiment slipped to 49.8, pointing to pessimism among workers about economic conditions. There are no major US events on the schedule. On Thursday, the US releases the weekly unemployment claims report, which is expected to rise to 249 thousand.

Japanese Prime Minister Shinzo Abe will meet with President Trump in Washington on Friday, and the Japanese are hoping to sooth some ruffled furthers on the American side. Trump recently accused Japan of unfair trade practices in its ultra-loose monetary policy, which has kept the yen at low levels and helped boost Japanese exports. The Japanese have argued that they are not targeting the yen's value, but have their work cut out for them in trying to assuage Trump, who hasn't hesitated to fire verbal salvos at the United States' closest trading partners. Japan is heavily reliant on its export sector, and Abe will be hoping that Trump's protectionist rhetoric does not translate into actual moves against Japan, which can ill afford a trade war with the US.

Just a few weeks on the job, President Donald Trump continues to create controversy and his protectionist rhetoric is not endearing him to the markets. Moreover, the lack of an economic policy from the new administration is a major source of concern and the the post-election euphoria which sent the markets higher has dissipated. The Federal Reserve, which had trumpeted that it was planning a series of hikes in 2017 (the same sound track we heard at the start of 2016), was more cautious in its recent rate statement and is expected to adopt a wait-and-see attitude in the coming months. If the economy continues to grow at a brisk clip, there is a strong likelihood of another rate hike in the first half of 2017, which is bullish for the dollar. On the other hand, if Trump makes good on his promises to "make America first" and implement protectionist policies, the greenback could lose ground against major currencies such as the yen.

India Central Bank again keeps policy steady and switches to neutral stange

Notes/Observations

India Central Bank (RBI) surprises market with another pause opting to wait for more clarity on inflation trends and on how a radical crackdown on "black money" was impacting economic growth.

Overnight:

Asia:

PBOC again skipped OMOs for 4th consecutive trading day. PBoC stated that overall liquidity in banking system was staying at relatively high level

BOJ Jan 31st opinions noted that it should be prudent about changing policy hastily as concerns about its ability to control yield curve could grow. CPI likely to rise as output gap tightened but would take time to accelerate and very unlikely inflation expectations would pick up significantly

Japan 2016 Current Account surplus the highest since 2007

Europe:

BOE's Forbes (hawk): UK economy might soon need a rate increase

IMF annual review of Greece that the country's debt remains "highly unsustainable," with little prospect of growth picking up again without debt relief and major overhauls to the pension and tax systems

Energy:

Weekly API Oil Inventories: Crude: +14.2M v +5.8M prior (3rd straight build and largest since Feb 2015; 2nd largest build on record)

Economic data

(JP) Japan Jan Eco Watchers Current Survey: 49.8 v 51.8e; Outlook Survey: 49.4 v 51.5e

(TH) Thailand Central Bank (BOT) left its Benchmark Interest Rate unchanged at 1.50% (as expected)

(FR) Bank of France Business Sentiment: 101 v 103e

(CZ) Czech Jan Unemployment Rate: 5.3% v 5.4%e

(IS) Iceland Central Bank (Sedabanki) left its 7-Day Term Deposit Rate unchanged at 5.00%

(IN) India Central Bank (RBI) left its Repurchase Rate unchanged at 6.25% (not expected); changed its policy stance to neutral from accommodative

Fixed Income Issuance:

(IN) India sold total INR100B vs. INR100B indicated in 3-month and 6-month Bills

(FI) Finland opened its book to sell EUR-denominated 5-year and 30-year bonds

(DK) Denmark sold total DKK2.31B in 2021 and 2027 Bonds

(SE) Sweden sold total SEK3.0B vs. SEK3.0B indicated in 2022 and 2026 bonds

(GR) Greece Debt Agency (PDMA) sold €1.138B vs. €875M indicated in 13-Week Bills; Avg Yield: 2% v 2.70% prior; Bid-to-cover: x v 1.3x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

[Stoxx50 +0.5% at 3,251, FTSE flat at 7,184, DAX +0.3% at 11,586, CAC-40 +0.7% at 4,789, IBEX-35 +0.3% at 9,356, FTSE MIB +0.5% at 18,748, SMI +0.3% at 8,396, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading mixed after a generally positive end to the Asian session overnight; Market participants cautious over political uncertainty over France's upcoming presidential elections; Banking stocks once again trading notably lower across the board; Energy stocks also trading lower as oil trades near contract lows; shares of Vinci and Sanofi leading the gains in the Eurostoxx after releasing their respective year-end results; commodity and mining stocks trading notably higher in the FTSE 100 as copper trades sharply higher intraday.

Upcoming scheduled US earnings (pre-market) include Allergan, Alaska Air, ArcBest, Arch Coal, Axalta Coating, Brink's Company, Broadridge Financial Solutions, Carlyle Group, Cognizant Technology, Euronet Worldwide, Exelon, Goodyear Tire, Genesee & Wyoming, Humana, Jacobs Engineering Group, Louisiana-Pacific, Owens Corning, Performance Food Group, Time Warner, Voya Financial, and Walker & Dunlop.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Air France AF.FR +4.3% (Jan metrics), Carlsberg CARLB.DK -2.7% (FY16 results), Hermes RMS.FR -1.5% (Q4 sales), Redrow RDW.UK +4.0% (H1 results), Schibsted SCH.NO -0.4% (Q4 results), Tomtom TOM2.NL -8.0% (Q4 results)]

Energy: [Gas Natural GAS.ES -0.6% (FY16 results), Tullow Oil TLW.UK -5.0% (FY16 results), Vestas VWS.DK +3.2% (FY16 results, share buyback)]

Financials: [Sampo SAMAS.FI +1.3% (Q4 results)]

Healthcare: [Lundbeck LUN.DK -2.2% (FY16 results), Sanofi SAN.FR +2.6% (Q4 results)]

Industrials: [ABB Ltd ABBN.CH -2.2% (Q4 results), Konecranes KCR1V.FI -7.3% (Q4 results), Maersk MAERSKB.DK -4.0% (FY16 results), Syngenta SYNN.CH +1.4% (FY16 results), Vinci DG.FR +3.7% (FY16 results)]

Materials: [Kemira KRA1V.FI +1.1% (Q4 results), Rio Tinto RIO.UK +1.1% (FY16 results)]

Technology: [OSRAM Licht OSR.DE flat (Q1 results), Sophos SOPH.UK +5.6% (To acquire the commercial software products business of Invincea; Q3 results)]

Telecom: [Swisscom SCMN.CH +1.4% (FY16 results)]

Speakers

BOE agents summary: Consumer spending has been resilient but expected to slow

German DIHK Chambers of Commerce raised Germany 2017 GDP growth forecast from 1.2% to 1.6%with Export growth forecast raised from 2.0% to 3.0%

Thailand Central Bank policy statement noted that today's decision to keep policy steady was again unanimous. Reiterated that current rate remained accommodative for economy and that inflationary pressure remained low. Domestic economic recovery was doing better than expected (exports were clearly recovering) but recent THB currency (Baht) was not good. Economy may grow at a faster pace in 2017 but faces many uncertainties

India Central Bank (RBI) Statement changed its policy stance to neutral from accommodative. It remained committed to bring inflation closer to 4.0% in calibrated manner on a durable basis. Forecasted inflation between 4.0-4.5% range in Apr-Sept 2017 period and between 4.5-5.0% range in Oct '17 thru Mar '18 period

India Central Bank (RBI) Gov Patel post rate decision press conference reiterated MPC commitment to achieving the 4% inflation target while keeping growth in mind

RBI Dep Gov Acharya stated that change in policy stance premised on global inflation risks that are picking up

RBI Dep Gov Gandhi stated that govt remove limits on cash withdrawals from savings accounts in two stages with withdrawals to be increased to INR50K later in Feb and no limits after Mar 13th

Currencies

Recent commentary from Fed officials that the March FOMC meeting could be ‘live' has continue to provide the USD with support. Some dealers noting that there was the potential for Yellen to surprise hawkish next week at her semi-annual testimony to Congress

EUR/USD was softer by 0.4% to test under 1.0650 level. Dealers were looking for more technical breakdown in the pair and cited the 50Day moving average at 1.0605 as key support for the time being.

The GBP/USD was consolidating its recent gains after BOE's Forbes on Tuesday noted that the UK economy might soon need a rate hike. GBP/USD hovered around the 1.25 level. UK House of Commons expected to vote on Article 50 Bill later day (expected in evening local time).

EUR/CHF cross dipped below the 1.0640 level for a 7-Month low as risk aversion lent support as political risks continued to be a concern

Fixed Income:

Bund futures trade at 163.73 up 35 ticks taking out yesterday high as futures post another 3 week high. Continued upside targets 164.28 then 164.45. Support remains at 162.92 followed by 162.44 then 161.63.

Gilt futures trade at 125.52 up 29 tracking Bunds higher but off session highs. BoE agents summary did note that Gilt and Corporate Bond plans remain unchanged. Analysts see support moving to 124.378 then 124.38 followed by 123.81 , 123.17. Resistance lies just above highs at 125.73 followed by 126.00. Short Sterling futures trade flat to 1bp higher with Jun17Jun18 remaining steady at 18/19bp.

Wednesday's liquidity report showed Tuesday's excess liquidity rose to €1.319T up €2B from €1.317T prior. Use of the marginal lending facility rose to €245M from €106M prior.

Corporate issuance saw $3.15B come to market via 3 issuers headlined by by Citigroup $750M offering. Week to date issuance stands at $9.35B with Feb issuance at $20.85B

Looking Ahead

(UK) House of Commons votes on Article 50 Bill (expected in UK evening)

05:30 (DE) Germany to sell €3.0B in 0.25% 2027 Bunds

05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.25B in 5-year and 7-year bonds

06:00 (PT) Portugal Q4 Unemployment Rate: No est v 10.5% prior

06:00 (BR) Brazil Jan IBGE Inflation IPCA M/M: 0.4%e v 0.3% prior; Y/Y: 5.4%e v 6.3% prior

06:00 (CL) Chile Jan CPI M/M: +0.2%e v -0.20% prior; Y/Y: 2.5%e v 2.7% prior, CPI Ex Food and Energy M/M: 0.2%e v 0.1% prior

06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

06:00 (RU) Russia to sell combined RUB40B in 2022 and 2031 OFZ Bonds

06:00 (CZ) Czech Republic to sell Bond

06:30 (CL) Chile Central Bank's Traders Survey

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Feb 3rd: No est v -3.2% prior

07:00 (UK) PM May weekly question time in House of Commons

08:00 (HU) Hungary Central Bank (NBH) Jan Minutes

08:15 (CA) Canada Jan Annualized Housing Starts: 200.0Ke v 207.0K prior

10:00 (PL) Poland Central Bank Gov Glapinski post rate decision press conference

10:00 (PT) Portugal PM at Debate in Parliament

10:30 (US) Weekly DOE Crude Oil Inventories

12:00 (CA) Canada to sell 30-Year Real Return Bonds

13:00 (US) Treasury to sell $23B in 10-Year Notes

15:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave Official Cash Rate unchanged at 1.75%

News and Events:

Swiss people to draw their economic future

Next Sunday, the Swiss will vote on a key matter that could redefine Switzerland’s economic landscape. Back in September 2016, the Socialist Party, the Swiss Trade Union Federation and the Green Party successfully collected the 50,000 signatures required to put this game changing corporate tax reform to a nationwide vote. The voting results will be published on Sunday February 12th throughout the afternoon.

In a nutshell, the Corporate Tax Reform Act III (RIE III in French) is aimed at normalising the Swiss corporate tax system that is currently offering important benefits to foreign companies. Indeed, the current system allows holding companies and companies that make most of their revenue abroad to pay little or no income tax at both the canton and municipal levels. This system has been creating strong incentives for foreign companies to relocate their head office to Switzerland but at the same it has led to a growing number of discontent countries, mostly from the European Union, which accuse the country of depriving them of up to CHF 36.5bn in tax revenue each year. Over the last few years, Brussels has placed increasing pressure on the Swiss government to abolish these special tax regimes, threatening to re-establish trade-tariff and put the country on the tax haven blacklist.

Sunday’s vote is extremely polarised as the referendum committee - mostly left-wing parties - argue that the adoption of the new system would drive down tax revenue by CHF 2.7bn each year, which would pass on the tax burden to citizens. On the other hand, central and right wing parties believe that this is the only solution to save the 150,000 jobs directly related to those companies which benefit from these preferential tax rates. There has been harsh confrontation between the two camps and the results of the voting will likely be a coin toss. The stakes are high for the 8.5mio inhabitants as a substantial part of Switzerland’s success is due to these special tax regimes.

Looking at the persistent strength of the Swiss franc over the last few weeks, it seems that the market is widely underestimating the negative effects of a “no” vote to this Corporate Tax Reform Act. EUR/CHF is once again challenging the 1.06 support area this morning, keeping the SNB on its toes.

French elections becomes a referendum on EU membership

The French presidential election narrative has quickly shifted from a debate over domestic policy to a clear referendum on EU membership. By re-defining the vote as a question of EU participation, Marine Le Pen has deftly tilted the advantage in her favor. Le Pen has forced the French population to look away from some of her more controversial ideology to weigh only the headline agenda. One that has had growing popularity and the ability to skillfully address many of the core issues French civilians are concerned with (such as security and national identity). While the left struggles to find a scandal-free candidate (Macron forced to deny an extramarital affair and Fillion faces abuse of public funds charges), the National Front will focus on hammering home the benefits of a “return to monetary sovereignty.” The evolution of a French EU referendum has significantly increased the political risk and will weigh on the euro. We remain constructive on EURUSD but see upside contained by the French election outlook and possible “Frexit.”

Japan: Best current account surplus in nine years

The Japanese current account surplus released this morning for December marks the biggest surplus since 2007. Today’s data is also the 30th positive surplus in a row. The data shows an increase of 20.65 trillion yen (around $183 billion). Last year, lower energy prices as well as a stronger yen drove down import prices. Looking deeper into the 2016 account surplus, the lion’s share seems to stem from direct investment account.

On the political front, Donald Trump has made his position very clear and will fight against such massive trade surpluses from Japan and China. Foreign exchange rates will be a key topic when Trump meets his Japanese counterpart Shinzo Abe, in a few days time. In our view, Trump's decision to weaken the greenback was a tactical shot at Japan as it continues to battle with its constantly appreciating currency.

The currency war is only gearing up. The BoJ has decided to defend the flat rate on 10-year JGBs despite rising US rates. We reaffirm our bearish position on USDJPY.

Today's Key Issues (time in GMT):

• Dec Household Consumption (MoM), last 0,30%, rev 0,50% SEK / 08:30
• Dec Household Consumption (YoY), last 3,30% SEK / 08:30
• Feb 8 RBI Repurchase Rate, exp 6,00%, last 6,25% INR / 09:00
• Feb 8 RBI Reverse Repo Rate, exp 5,50%, last 5,75% INR / 09:00
• Feb 8 RBI Cash Reserve Ratio, exp 4,00%, last 4,00% INR / 09:00
• Jan Light Vehicle Car Sales YoY, exp 0%, last -1% RUB / 09:23
• Feb 7 FGV CPI IPC-S, exp 0,65%, last 0,69% BRL / 10:00
• Jan IBGE Inflation IPCA MoM, exp 0,42%, last 0,30% BRL / 11:00
• Jan IBGE Inflation IPCA YoY, exp 5,40%, last 6,29% BRL / 11:00
• Feb 3 MBA Mortgage Applications, last -3,20% USD / 12:00
• Feb 6 CPI WoW, last 0,10% RUB / 13:00
• Feb 6 CPI Weekly YTD, last 0,60% RUB / 13:00
• BOE Deputy Governor Jon Cunliffe speaks in Birmingham GBP / 13:00
• Jan Housing Starts, exp 197.3k, last 207.0k CAD / 13:15
• Currency Flows Weekly BRL / 14:30
• Feb 3 DOE U.S. Crude Oil Inventories, exp 2500k, last 6466k USD / 15:30
• Feb 3 DOE Cushing OK Crude Inventory, exp -500k, last -1245k USD / 15:30
• Feb 9 RBNZ Official Cash Rate, exp 1,75%, last 1,75% NZD / 20:00
• RBNZ's Wheeler news conference on policy statement NZD / 21:00
• Dec Building Permits MoM, last -9,20% NZD / 21:45
• Jan Foreign Direct Investment YoY CNY, exp 1,40%, last 5,70% CNY / 23:00

The Risk Today:

EUR/USD's selling pressures have increased. It seems that strong hourly resistance area is given around 1.0800. The road is wide-open towards hoourly support at 1.0581 (16/01/2016 low) and 1.0454 (11/01/2017 low). Expected to see continued consolidation. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD is still trading below resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should keep bouncing lower towards support given at 1.2254 (19/01/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY is slowly pushing lower towards support at 111.36 (28/11/2016 low). Hourly resistance is given at 115.62 (19/01/2016 high). The break of hourly support given at 112.57 (17/01/2017 low) has confirmed bearish pressures. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF's momentum is still bearish despite ongoing increase. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that the road is clearly wide-open for further decline if the pair fails to break and to hold above parity. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.