Daily Pivots: (S1) 119.64; (P) 119.93; (R1) 120.32; More...

Intraday bias in EUR/JPY remains on the downside as the decline from 124.08 extends. Such choppy fall is seen as a corrective move. Hence, we'd expect strong support from 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) to bring rebound. On the upside, above 120.54 minor resistance will turn bias back to the upside for 123.30/124.08 resistance zone.

In the bigger picture, price actions from 109.20 medium term bottom are seen as part of a medium term corrective pattern from 149.76. There is prospect of another rise towards 126.09 key resistance level before completion. But even in that case, we'd expect strong resistance between 126.09 and 141.04 to limit upside, at least on first attempt. Nonetheless, decisive break of 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) will argue that rise from 109.20 is completed and turn outlook bearish for 61.8% retracement at 114.88 and below.

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Daily Pivots: (S1) 1.0642; (P) 1.0655; (R1) 1.0670; More...

EUR/CHF is staying in range above 1.0635 and intraday bias remains neutral. Neutral term outlook stays bearish as long as 1.0749 resistance holds and deeper decline is expected. Decisive break of 1.0620 key support level will confirm resumption of whole fall from 1.1198. In that case, next downside target will be 1.0485 fibonacci level. Break of 1.0749 will raise the chance of medium term reversal and turn focus back to 1.0897 key resistance.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. Such correction is still in progress. Sustained trading below 38.2% retracement of 0.9771 to 1.1198 at 1.0653 will target 50% retracement at 1.0485. On the upside, break of 1.0897 resistance is needed to confirm completion of such fall. Otherwise, outlook will stay bearish.

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Daily Pivots: (S1) 1.3948; (P) 1.4001; (R1) 1.4057; More...

With 1.4075 minor resistance intact, intraday bias in EUR/AUD remains on the downside for the moment. Current fall from 1.4721 is seen as part of the larger decline from 1.6587. Next target is key support level at 1.3671. As the fall from 1.6587 is seen as a corrective move, we'd expect downside to be contained by 1.3671 to bring reversal. On the upside, above 1.4075 minor resistance will turn intraday bias neutral first. Break of 1.4289 resistance will indicate short term bottoming and turn bias back to the upside for 1.4721 resistance.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a consolidative pattern. While further fall cannot be ruled out, we'd expect strong support above 1.3671 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 outlook bullish for retesting 1.6587 high.

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Daily Pivots: (S1) 0.8500; (P) 0.8570; (R1) 0.8608; More...

EUR/GBP dips further today but it's staying in range above 0.8469. Intraday bias remains neutral for the moment. Structure of the rise from 0.8469 affirmed our view that it's a corrective move. And this, in turn, affirmed the view that fall from 0.8851 is the third leg of the corrective pattern from 0.9304. Overall, we'd expect upside to be limited by 50% retracement of 0.8851 to 0.8469 at 0.8660 in case the consolidation from 0.8469 extends. On the downside, break o.8469 will target 0.8303 low next.

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).

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The financial markets are lacking clear direction for the moment. DJIA hit new record high at 20155.35 overnight but pared back much gain to close at 20090.29, up only 0.19%. Treasury yields dropped rather notably with 10 year yield closed down -0.024 at 2.389 as recent consolidation extends. Dollar index reached as high as 100.72 but failed to break through 55 day EMA and retreated, currently at 110.40. Dollar's rebound lost momentum as weighed down mildly by dovish comments from a Fed official. Meanwhile, Sterling regained footing after hawkish comments from BoE policy maker. Some more time is needed for the markets to seek clarity on the directions.

Fed Kashkari Indicated He's Patient on Hike

Minneapolis Fed President Neel Kashkari's views expressed in an unusual blog post "Why I Voted to Keep Rates Steady" indicated that he's in no rush to hike interest rate. He pointed out that monetary policy has been accommodative for several years without rapid tightening of job market, nor sudden surge in inflation. And hence, "this suggests monetary policy has only been moderately accommodative over this period." And, job markets has "improved substantially" and the US is "approaching maximum employment". However, "we aren't sure if we have yet reached it. We may not have." He concluded by noting that "from a risk management perspective, we have stronger tools to deal with high inflation than low inflation."

BoE Forbes: Rates Could Rise Soon

Sterling recovers after some hawkish comments. BoE policy maker Kristin Forbes said "if the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in bank rate." She noted that it's "increasingly difficult" for her to justify "tolerating" a "large and likely overshoot of inflation". Meanwhile, "the forecasted sharp deterioration in unemployment and growth in the immediate aftermath of the referendum has not transpired." Swaps are pricing in around 30% of a BoE rate hike by year end.

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.

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8500; (P) 0.8570; (R1) 0.8608; More...

EUR/GBP dips further today but it's staying in range above 0.8469. Intraday bias remains neutral for the moment. Structure of the rise from 0.8469 affirmed our view that it's a corrective move. And this, in turn, affirmed the view that fall from 0.8851 is the third leg of the corrective pattern from 0.9304. Overall, we'd expect upside to be limited by 50% retracement of 0.8851 to 0.8469 at 0.8660 in case the consolidation from 0.8469 extends. On the downside, break o.8469 will target 0.8303 low next.

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).

Economic Indicators Update

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Calm Before another Storm?

Markets seem to have weathered the initial wave of Eurozone politically-induced risk aversion. Euro bond yield stabilised after a recent sell-off in France and peripheral markets, and major equity indexes closed flattish on either side of the pond.

These are only the initial tremors, as the market is turning its focus on to potential event risk in France and Germany. Consider the double-barrelled risks from both President Trump's delaying his economic agenda, and from China re-entering the risk fray, as their foreign reserve data recently fell below the psychological USD3tn, which wobbled the markets. Given the current level of Investor anxiety, it will not take much of an event for investors to reinstate the distinctly risk-averse mindset that gripped the market yesterday.

Australian Dollar

The Australian dollar was hit hard overnight after Chinese reserves data came in below the psychological 3 trillion level. While the broader USD caught a tailwind, commodity currencies, which have been holding up well, versus more general USD moves of late, have been hit hard as there remain some concerns that China might reduce their purchases of commodities. However, there are heightened risks, especially as the market is conceding, and if reserves fall further in China, it will weigh on Chinese traders.

Yesterday's RBA statement was very neutral, as expected, with AUD trading higher after the release. However, I think that was more position related as traders were leaning for a dovish bias, or at least expecting the central bank to acknowledge headwinds from recent weakness in GDP and inflation.

With Fed-speak not letting go of a March rate hike as the Fed are stubbornly behind the curve and in danger of falling even more so, the dollar bulls are digging in for a real battle zone at the current significant technical levels.

The oil patch offered little support for commodity currencies this morning, as WTI is getting hammered after US crude oil inventories increased an eye-watering 14,227 million barrels, the second largest buildup in US history.

At stake too, according to a Bloomberg report, are “cracks appearing in Australia's trillion dollar debt pile,” as Australian households struggle to pay down personal debt.

Euro

Coming off overnight lows, the Euro is trading poorly with an offered tone in early Asia trade. While it is premature to draw any definitive conclusion, the political landscape in both France and Italy are coming under immense scrutiny from investors, which should keep EURO upticks limited. If we factor in a possibly divisive German election, risks are rising immensely on the European political stage.

Chinese Yuan

In my view, the breach of 3 trillion is not in itself a significant incidence.But the trend is worrying , and if there is anything that the PBOC policy makers can take away from this reserve erosion, it is a fact the current financial market model they rely on is stale and in need of an overhaul.

These financial market woes are nothing new to mainland policymakers who continue to find themselves in a terrible place. Despite their heavy-handed interventions, the reserve data clearly signals greater than anticipated capital flight and highlights the ineffectiveness of current policies.

Letting the currency float will not help ease the pressure, as this current issue is more about capital flight. Who can blame mainland investors that want to escape financial markets that regularly change the rules of market engagement?

Buying dollars is the correct move, but do not fall for the perverse perception that 3 trillion is some sacred threshold and that the Mainland market is about to spiral downward. Nothing could be further from the truth, but I am sure yesterday's data will be a revelation to Chinese authorities about the ineffectiveness of current policies.

Japanese Yen

The recent ‘rinban' operations and hawkish Fed-speak have offered some near-term support for USDJPY. Yen dealers are turning their focus to the Trump-Abe meeting scheduled for 10 February 2017.

EM APAC

There is a RBI rate decision at 5:00 PM SGT today and the market expects a .25 bp cut.

EURUSD - With the pair seen weakening on a follow through on the back of its Monday losses, more decline should occur on correction. On the upside, resistance comes in at 1.0700 level with a cut through here opening the door for more upside towards the 1.0750 level. Further up, resistance lies at the 1.0800 level where a break will expose the 1.0850 level. Conversely, support lies at the 1.0600 level where a violation will aim at the 1.0550 level. A break of here will aim at the 1.0500 level. Its daily RSI is bearish and pointing lower suggesting further weakness. All in all, EURUSD faces further downside pressure on correction.

Remember yesterday's USD/JPY levels?

USD/JPY Hourly:

It's here on the lower time frame chart that we will look for a long entry on any retest of short term levels. Find your levels, trade your levels. It's always the same.

USD/JPY Hourly:

Find your levels, trade your levels. It's always the same!

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy have improved over recent months. Business and consumer confidence have both picked up. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth was stronger over the second half of 2016, supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a boost to Australia's national income.

Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Long-term bond yields have also moved higher, although in a historical context they remain low. Interest rates have increased in the United States and there is no longer an expectation of further monetary easing in other major economies. Financial markets have been functioning effectively and stock markets have mostly risen.

In Australia, the economy is continuing its transition following the end of the mining investment boom. GDP was weaker than expected in the September quarter, largely reflecting temporary factors. A return to reasonable growth is expected in the December quarter.

The Bank's central scenario remains for economic growth to be around 3 per cent over the next couple of years. Growth will be boosted by further increases in resource exports and by the period of declining mining investment coming to an end. Consumption growth is expected to pick up from recent outcomes, but to remain moderate. Some further pick-up in non-mining business investment is also expected.

The outlook continues to be supported by the low level of interest rates. Financial institutions remain in a position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Labour market indicators continue to be mixed and there is considerable variation in employment outcomes across the country. The unemployment rate has moved a little higher recently, but growth in full-time employment turned positive late in 2016. The forward-looking indicators point to continued expansion in employment over the period ahead.

Inflation remains quite low. The December quarter outcome was as expected, with both headline and underlying inflation of around 1½ per cent. The Bank's inflation forecasts are largely unchanged. The continuing subdued growth in labour costs means that inflation is expected to remain low for some time. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent, with the rise in underlying inflation expected to be a bit more gradual.

Conditions in the housing market vary considerably around the country. In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for a couple of decades. Borrowing for housing has picked up a little, with stronger demand by investors. With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments.

Taking account of the available information, and having eased monetary policy in 2016, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

• The US trade deficit narrowed to -$44.3 billion in December from -$45.7 billion in November. The smaller-than-expected deficit reflected a greater shrinking of the goods deficit than indicated in last week's advance trade report.

Exports jumped 2.7% to retrace two consecutive monthly declines. December's gain was driven by goods exports, with strong increases in capital goods and other merchandise exports. Food exports declined for a fifth consecutive month with July's surge having now largely run off (that increase contributed to net exports adding substantially to GDP growth in Q3/16). Imports increased for a third consecutive month (+1.5% in December), led by autos and industrial supplies. Capital goods imports also contributed to the gain, although with exports in the same category rising substantially in December, the narrower capex balance implies slightly weaker US equipment investment than the separate shipments data would indicate.

Our Take:

Today's report showed slightly more improvement in the US trade deficit than the BEA incorporated into their advance reading of Q4/16 GDP. Thus there is scope for the reported 1.7 ppt drag from net trade to be revised up slightly to -1.6 ppts. With recent inventory data also implying stronger investment, our current monitoring is for Q4/16 GDP growth to be revised to an annualized 2.1% pace from the 1.9% gain initially reported.

It should remain the case that net trade acted as a very modest drag on growth last year, in contrast with 2015 when more substantial USD appreciation and relatively strong domestic demand contributed to higher imports and stagnating exports. Our forecast assumes the currency will once again strengthen this year amid strong performance of the US economy and rising policy rates. However, we expect net trade will once again subtract only modestly from headline growth this year, while strong domestic spending will drive GDP growth to an above-trend 2.3% rate in 2017.