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At today's meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.

Regarding non-standard monetary policy measures, the Governing Council confirms that it will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of this month and that, from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

USD/JPY - 114.67

Original strategy  :

Buy at 114.20, Target: 115.20, Stop: 113.85

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 114.20, Target: 115.20, Stop: 113.85

Position :  -

Target :  -

Stop : -

Yesterday’s rally after finding renewed buying interest at 113.61 signals the rise from 111.69 is still in progress and may extend further gain to previous chart resistance at 114.96, however, break there is needed to signal early erratic rise from 111.59 low has resumed and extend gain towards another previous resistance at 115.38 but price should falter below previous resistance at 115.62, bring retreat later.

In view of this, we are looking to buy dollar on pullback as the Kijun-Sen (now at 114.19) should limit downside and bring another rise later. Below 113.95 support would signal an intra-day top is formed instead, risk weakness towards said strong support at 113.56-61 which is likely to hold from here.

The ECB is stealing the spotlight temporarily from the Federal Reserve today as it announces its latest monetary policy decision and hopefully offers some guidance for the rest of the year.

While inflation in the eurozone is currently running above the ECBs target of below but close to 2%, core inflation is still well below and the base effect in commodities is broadly responsible for the moves in the headline figure. What's more, while the economy is showing signs of improvement, it's still too early to remove accommodation again, having only cut its asset purchase program by €20 billion in December, a move that only comes into effect after this month.

The ECB will also likely want to keep a low profile ahead of the upcoming elections in the Netherlands and France. The most popular parties in these countries are strongly anti-euro and want to pull their respective countries out of the currency union. The last thing Draghi will want to do is rock the boat ahead of these crucial votes, especially if there's absolutely no reason to do so. That said, in the press conference after, we may get some insight into what the central bank intends to do later this year when the current quantitative easing program expires. This is what will create waves in the markets, assuming he gives anything away of course. I think it's more likely that he'll refrain from letting much go at this early stage but highlight the improvement in the data and possible reduction in downside risks.

The euro is trading a little higher ahead of the ECB decision, having spent the last three days in the red. Still, it continues to linger around its two month lows against the dollar, with 1.05 still offering significant support. Against the pound it's been a little better supported but this may largely be due to the weakness in sterling more so than strength of the euro. It continues to struggle against the yen, with safe haven flows continuing to support the latter. With all this in mind, the euro may be susceptible to some decent upside, should Draghi strike a more hawkish tone.

Oil has been the biggest mover this morning, with Brent and WTI both down by more than 2.5%. This week's large inventory build, the third substantial increase in four weeks, really appears to have hit home in the markets, triggering some significant losses over the last 24 hours and a break below the range it had traded within for the last three months. With the downside now taken out, we could well see further losses ahead for Brent and WTI, with $50 and $47.35 being the next major tests. Oil producers may have been patting themselves on the back in recent months about the success of the output cut, with compliance much higher than many expected, but with prices looking weaker once again, an extension to the deal may be more of a necessity than an option.

WTI Crude oil extends weakness today and falls below $50 per barrel for the first time since Dec 15.

Yesterday's sharp fall, triggered by unexpectedly strong build in crude stocks (8.2 mln bls build vs 1.1 mln bls forecast and 1.5 mln bls previous week) was the biggest one day fall since July 2016.

Fresh acceleration lower today was sparked by break below psychological $50 support and the base of thick daily cloud (spanned between $49.88 and $53.03) that acted as strong support zone.

Further downside is seen likely, as the price generated strong bearish signal yesterday's close below $50.27 (Fibo 38.2% of $42.19/$55.22) and today's violation of cloud top, close below which would be seen as another strong bearish signal.

Weakness may extend towards next strong support at $48.70 (200 SMA / 50% retracement / weekly Kijun-sen) initially, with break here to generate another strong bearish signal.

However, strongly oversold daily studies suggest that sharp bearish acceleration mmight be paused for corrective action.

Broken cloud base is now acting as initial barrier, ahead of broken 100SMA ($50.91) which sholud ideally cap.

Res: 49.88; 50.00; 50.91; 51.21
Sup: 49.18; 48.70; 47.90; 47.17

The DAX Index is slightly higher in the Thursday session, trading at 11,940.00 in the European session. In economic news, the ECB will set the benchmark rate, which is expected to remain at 0.00%. ECB President Mario Draghi follows with a press conference.

With the markets all abuzz that the Federal Reserve will raise rates next week, the ECB's policy meeting has almost fallen off the radar. The benchmark rate has been pegged at 0.00% since March 2016, and no change is expected at Thursday's meeting. Inflation levels have finally moved higher and eurozone inflation is expected at 2.0% in February, meeting the central bank's inflation target. ECB President Mario Draghi appears comfortable with current monetary policy, although the ECB could tighten its stance if growth and inflation levels continue to point upwards.

The DAX broke above the symbolic 12,000 level last week, but has dipped lower following a capital raise announcement by Germany's Deutsche Bank. The bank has announced a major reorganization, including raising EUR 8 billion by issuing 687.5 million shares on March 21. Deutsche Bank has hit rough waters, and it seemed only a matter of time before it would have to take some drastic measures. In December, the bank reached a $7.2 billion settlement with the U.S. Department of Justice for selling toxic mortgage-backed securities. Deutsche had a dismal 2016, with losses of EUR 1.4 billion. This capital hike is the fourth since 2010, and it remains to be seen if this move will attract investors and help set the bank in the right direction. Deutsche Bank is one of the larger companies on the DAX, so lower share prices this week for Deutsche has weighed on the DAX.

The Federal Reserve waited an entire year to raise rates in December, but appears ready to make a Mach move. The odds of a March hike continue to climb, and are currently at 88% percent, according to the CME Group. Fed policymakers have been dropping hints of a March move, and a red-hot labor market and higher inflation levels present further arguments in favor higher rates. Earlier in the year, the Fed had said that it wanted to wait until it had a clearer idea of President Trump's economic policy before it tightened monetary policy. However, Trump has not backed up his promises to reform the tax code and increase fiscal spending with any details. Some Fed policymakers wanted to raise rates earlier this year, so Fed Chair Yellen is under pressure to make a move, and it appears virtually certain that the Fed will raise rates by a quarter-point on March 15.

Summary: Inflation still heading above the 3% target

Today's CPI inflation figure for China for February surprised sharply on the downside, falling to 0.8% y/y (consensus 1.7% y/y, previous 2.5% y/y).

The decline was due mainly to a big fall in food prices, from 2.7% y/y to -4.3% y/y.

Core CPI (excluding food) also fell slightly, to 2.2% y/y from 2.5% y/y in January. However, the trend is still up (see chart).

It is likely the fall in inflation is due to the end of Chinese New Year and we expect to see a rebound in March.

PPI inflation rose more than expected to 7.8% y/y - the highest rate since 2008. It is more than signalled by commodity prices and suggests pricing power has improved. However, we expect PPI to peak soon.

Weaker CPI inflation implies downside risk to our forecast of two rate hikes in H1. However, as we still see an overshoot of the 3% target in the spring (due to pass-through from PPI), we continue to expect policy tightening.

Core inflation set to overshoot target in H1

CPI inflation still expected to rise above target in H1

PPI and CPI diverging in February. We look for some pass-through to push CPI inflation above 3% during the spring months.

The increase in commodity prices points to an overshoot of the 3% target before too long.

Lower inflation adds downside risk to our forecast of two hikes

Higher inflation needed for PBoC to hike. Our base case is still two hikes in H1, as we look for a rebound in CPI inflation.

So far, China has targeted tightening towards the financial system through tighter liquidity and raising the repo rate by 10bp.

Latest rise in PPI not explained by commodity prices

Rise in PPI inflation not fully explained by commodity prices - this points to broader price pressure.

PMI and monthly momentum has peaked but is still at a fairly high level.

Moderation in commodity prices set to lower inflation pressure

We should be close to a peak...

... if metal prices flatten out as we forecast

Peak in M1 growth also points to a decline in PPI inflation soon

ECB is unlikely to surprise

Notes/Observations

ECB is unlikely to surprise today ahead of high-risk elections despite an improving economic picture

WTI moves back below the $50/barrel following DOE crude inventory build (1st time since Dec)

Overnight:

Asia:

China inflation data diverges (attributed to Lunar New Year distortions); Feb PPI rose for the 6th straight month and to its highest level since Sept 2008 thanks to recent jump in commodity prices while CPI fell m/m for the first time in 4 months, and y/y figure hit a 2-year low

China PBoC said to be planning to apply a stricter method for assessing banks' capital as part of efforts to contain financial sector risks

Europe:

France Harris Poll had Macron (Independent) lead in 1st round (**Note: 2nd in a week that Le Pen had been displaced). 2nd round again saw either Macron or Fillon beating Le Pen

Energy:

Kuwait Oil Min Al-Marzouk: OPEC exceeded pledged cuts in Feb

Economic data

(NL) Netherlands Feb CPI M/M: +0.7% v -0.4% prior; Y/Y: 1.8% v 1.7% prior

(JP) Japan Feb Preliminary Machine Tool Orders Y/Y: 9.1% v 3.5% prior

(CH) Swiss Feb Unemployment Rate: 3.6% v 3.6%e; Unemployment Rate (Seasonally adj): 3.3% v 3.3%e

(FR) Bank of France Feb Business Sentiment (beat): 104 v 102e

(CZ) Czech Feb CPI M/M: 0.4% v 0.3%; Y/Y: 2.5% v 2.4%e

(CN) China Feb M2 Money Supply (miss) Y/Y: 11.1% v 11.4%e; M1 Money Supply Y/Y: 21.4% v 15.7%e, M0 Money Supply Y/Y: 3.3% v 15.0%e

(CN) China Feb New Yuan Loans (CNY): 1.17T v 950Be

(CN) China Feb Aggregate Financing (CNY): 1.15T v 1.45Te

(IT) Italy Jan Bad bank loans €190.7B v €200.9B prior

Fixed Income Issuance:

(IE) Ireland Debt Agency (NTMA) sold total €1.25 vs. €1.0-1.25B indicated range in 2026 and 2045 IGB Bonds

Sold €850M in 1.0% May 2026 IGB bond; Avg Yield: 1.0459% v 0.4951% prior; Bid-to-cover: 1.73x v 2.01x prior

Sold €400M in 2.00% Feb 2045 IGB bonds; Avg Yield: 2.187% v 1.307% prior; Bid-to-cover: 2.00x v 2.07x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.1% at 3,392, FTSE -0.5% at 7,301, DAX -0.2% at 11,939, CAC-40 -0.1% at 4,957, IBEX-35 +0.6% at 9,911, FTSE MIB -0.3% at 19,429, SMI -0.4% at 8,596, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading mixed across the board with the IBEX the outperformer as the Spanish banking sector trades sharply higher in the index; Banking stocks generally providing support across the board; FTSE 100 underperforming with losses in the index led my commodity and mining stocks as copper prices trade sharply lower intraday; Energy stocks also trading lower after API oil weekly inventories overnight showed a larger stockpile causing Brent and WTI contracts to fall sharply; shares of Aviva reversing the insurer sector's recent losses, the notable gainer in the FTSE 100, after releasing its FY16 results and raising its dividend; Asia generally lower overnight despite the Nikkei ending higher.

Upcoming scheduled US earnings (pre-market) include AdvancePierre Foods, Engility Holdings, Ferrellgas Partners, FMSA Holdings, Global Partners, GMS, International Game Technology, NII Holdings, Party City, Signet Jewelers, and Staples.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Carrefour CA.FR -3.9% (final FY16 results), Hugo Boss BOSS.DE -0.1% (Q4 results), Leg Immobilien LEG.DE +1.0% (FY16 results), Royal Unibrew RBREW.DK +5.8% (Q4 results)]

Consumer Staples: [WM Morrison MRW.UK -4.5% (FY16 results)]

Energy: [Premier Oil PMO.UK -1.2% (FY16 results), Uniper UN01.DE +2.2% (FY16 results)]

Financials: [Aviva AV.UK +6.8% (FY16 results, raises div), Hannover Re HNR1.DE -0.7% (FY16 results), Old Mutual OML.UK -2.9% (FY16 results)]

Healthcare: [Merck MRK.DE -3.1% (Q4 results)]

Industrials: [BMW BMW.DE -2.5% (FY16 results), Linde LIN.DE -0.3% (Q4 results, div increase), Schmolz+Bickenbach STLN.CH -1.3% (FY16 results)]

Materials: [Akzo Nobel AKZA.NL +13.3% (Reviewing strategic options to separate Specialty Chemicals; rejects an unsolicited indicative proposal from PPG)]

Technology: [Altran ALT.FR -2.3% (FY16 results), Axel Springer SPR.DE +2.8% (FY16 results), Morphosys MOR.DE -3.4% (FY16 results)]

Utilities: [E.ON EOAN.DE -0.7% (Reportedly made net loss of more than €12.4B in 2016)]

Speakers

German Chancellor Merkelcommented in her Parliament ahead of EU Leader Summit that the EU was facing fundamental decisions about its future. Recent economic developments were more positive for the region; growth prospects were better than thought

German Fin Min Schaeuble: Monetary and fiscal measures have reached their limits. Called for timely start to the end of ECB's loose monetary policy. Must implement bank regulation that was agreed upon at G20 level

German IFO Institute chief Fuest: ECB should scale back its bond buying purchases by a further €10B from April to €50B/month

Scottish First Min Sturgeon (SNP): Autumn 2018 would be a common sense date for any second independence referendum. No final decision had yet been made on holding such vote for any second independence referendum

Turkey Econ Min Zeybekci: Fed decisions seen not impacting domestic rates or TRY currency (Lira)

Japan Chief Cabinet Sec Suga stated that govt expected companies to raise base pay by same amount seen in 2016

China NPC vice chairman Wu Xiaoling reiterates govt stance that fluctuations in exchange rate were normal

China Commerce Ministry (MOFCOM) reiterated govt stance to further improve market-based CNY currency (Yuan) mechanism

Currencies

Dollar held onto its recent gains aided by higher Treasury yields. The upbeat ADP jobs data on Wed has market participants now pricing a 100% probability of a hike in rates by the Fed next week. Dealers added that any further USD strength needed to be driven by expectations of a faster pace of rate hikes in 2018

Focus on ECB rate decision and Draghi press conference later today. EUR/USD was little changed at 1.0550 area just ahead of the NY morning. Dealers noted that it would closely watched for evidence of how the ECB planned to tread the fine line between conveying economic expansion and assuaging fears of near-term tapering. Dealers noted that both economic growth and inflation were both picking up but expected the ECB to resist calls to tighten policy citing potential political risks ahead of several key elections

USD/JPY edged higher by approx. 0.5% towards the 115 neighborhood on yield differentials

Fixed Income:

Bund futures trade at 160.43 down 7 ticks continuing its momentum downwards after yesterday's strong ADP report out of the US. With the ECB rate decision looming support moves to 160.12 followed by 159.86. Resistance moves to 161.06 then 161.59 followed by 162.32 and contract high at 163.12.

Gilt futures trade at 126.50 up 24 ticks moving higher as Cable continues to weaken. Support moves to 126.00 followed by 125.57. Resistance remains at 126.87 followed by 127.35. Short Sterling futures trade flat to down 2bp, in slight steepening trade with Jun17Jun18 spread widening to 13/14bp.

Thursday liquidity report showed Wednesday's excess liquidity rose to €1.356T up €4B from €1.352T prior. Use of the marginal lending facility fell to €111M from €383M prior.

Corporate issuance slowed to $2.95B for the day via 4 issuers headlined by $1.35B 2 part offering from UnitedHealth Group. This puts weekly to $38.7B and Monthly issuance to $52.7B.

Looking Ahead

(UR) Ukraine Feb CPI M/M: 1.0%e v 1.1% prior; Y/Y: 14.2%e v 12.6% prior

05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills - 05:30 (HU) Hungary Debt Agency (AKK) to sell floating rate bonds

05:30 (UK) DMO to sell 0.125% I/L 2036 Gilts

06:00 (IE) Ireland Q4 GDP Q/Q: 1.0%e v 4.0% prior; Y/Y: No est v 6.9% prior

06:00 (IE) Ireland Q4 Current Account: No est v €10.1B prior

06:00 (IL) Israel Q4 Preliminary GDP (2nd reading): No est v 6.2% advance

06:00 (BR) Brazil Mar IGP-M Inflation (1st Preview): 0.1%e v 0.1% prior

07:00 (BR) Brazil CONAB Report

07:00 Czech Central Bank comments on Feb CPI data

07:30 (US) Feb Challenger Job Cuts" No est v 45.9K prior; Y/Y: No est v -38.8% prior

07:45 (EU) ECB Interest Rate Decision: ECB expected to keep key rates unchanged

08:00 (RU) Russia Gold and Forex Reserve w/e Mar 3rd: No est v $393.0B prior

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Feb Import Price Index M/M: 0.1%e v 0.4%prior; Y/Y: 4.4%e v 3.7% prior

08:30 (US) Initial Jobless Claims: 238Ke v 223K prior; Continuing Claims: 2.06Me v 2.066M prior

08:30 (CA) Canada Q4 Capacity Utilization Rate: 82.5%e v 81.9% prior

08:30 (CA) Canada Jan New Housing Price Index M/M: 0.1%e v 0.1% prior; Y/Y: No est v 3.0% prior

08:30 (US) Weekly USDA Net Export Sales

08:30 (EU) ECB's Draghi post rate decision press conference

08:30 (EU) ECB updates Staff Projections

09:00 (MX) Mexico Feb CPI M/M: 0.6%e v 1.7% prior; Y/Y: 4.8%e v 4.7% prior, Core M/M: 0.7%e v 0.6% prior

10:00 (BR) Brazil to sell 2023 LFT

10:00 (BR) Brazil to sell 2018, 2019 and 2020 LTN Bills

10:30 (US) Weekly EIA Natural Gas Inventories

12:00 (US) Fed reports Q4 Flow of Funds: Household wealth: No est v $1.593T prior

12:00 (US) USDA World Agricultural Supply and Demand Estimates (WASDE) Crop Report

13:00 (DE) German Fin Min Schaeuble speech on global risk to public finances

13:00 (US) Treasury to sell 30-Year Bonds Reopening

14:00 (AR) Argentina Feb National CPI M/M: 2.1%e v 1.3% prior

USD/CHF - 1.0147

Original strategy :

Buy at 1.0080, Target: 1.0200, Stop: 1.0045

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0080, Target: 1.0200, Stop: 1.0045

Position : -

Target :  -

Stop : -

Although the greenback has rebounded after finding support at 1.0123 yesterday, break of this week’s high at 1.0171 is needed to signal recent erratic rise from 0.9861 low has resumed and extend further gain to 1.0200-10 but near term overbought condition should limit upside to 1.0220-25 and price should falter below previous chart resistance at 1.0248. If said resistance at 1.0171 continues to hold, then further consolidation would take place and risk of another retreat to 1.0123 cannot be ruled out, however, reckon downside would be limited to 1.0100 and support at 1.0173 should hold, bring another rise later.

In view of this, would not chase this rise here and would be prudent to buy dollar on subsequent pullback as support at 1.0073 should limit downside. A drop below 1.0065 support would abort and signal top is formed instead, risk weakness to 1.0040-45 but reckon support at 1.0009 would remain intact. 

GBP/USD - 1.2152

Original strategy :

Sell at 1.2215, Target: 1.2115, Stop: 1.2250

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.2215, Target: 1.2115, Stop: 1.2250

Position : -

Target :  -

Stop : -

As cable has remained under pressure after recent selloff, adding credence to our bearish view that recent decline from 1.2706 is still in progress and may extend further weakness to 1.2110-15, then 1.2090, however, loss of near term downward momentum should prevent sharp fall below 1.2070-75 and price should stay above 1.2050, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell cable on recovery as 1.2210-15 should limit upside. Above resistance at 1.2253 would defer and suggest a temporary low is possibly formed instead, risk a stronger rebound to 1.2275-80 but price should falter below resistance at 1.2301 and bring another selloff.

EUR/USD has edged higher in the Thursday session. Currently, the pair is trading at 1.0550. On the release front, the ECB will set the benchmark rate, which is expected to remain at 0.00%. In the US, today's key event is unemployment claims, with the markets expecting the indicator to climb to 239 thousand. On Friday, employment numbers will again be in the spotlight, with the release of Nonfarm Payrolls, Average Hourly Earnings and the unemployment rate.

With speculation heating up that the Federal Reserve will raise rates next week, the ECB's policy meeting has almost fallen off the radar. The benchmark rate has been pegged at 0.00% since March 2016, and no change is expected at Thursday's meeting. Inflation levels have finally moved higher and eurozone inflation is expected at 2.0% in February, meeting the central bank's inflation target. ECB President Mario Draghi appears comfortable with current monetary policy, although the ECB could tighten its stance if growth and inflation levels continue to point upwards.

German numbers have been a mixed bag this week. Industrial Production gained 2.8%, its strongest gain since January 2016. Factory Orders plunged 7.4% in February, much worse than expected. Retail sales, the primary gauge of consumer spending, declined 0.8%, compared to an estimate of 0.2%. This marked a fifth decline of six releases, as the German consumer continues to hold tight to her purse strings. If data from Germany, the Eurozone's largest economy, continues to point downwards, investors could get edgy and drag the euro south towards the 1.05 level.

The Federal Reserve waited an entire year to raise rates in December, but appears ready to make a Mach move. The odds of a March hike continue to climb, and are currently at 88% percent, according to the CME Group. Fed policymakers have been dropping hints of a March move, and a red-hot labor market and higher inflation levels present further arguments in favor higher rates. Earlier in the year, the Fed had said that it wanted to wait until it had a clearer idea of President Trump's economic policy before it tightened monetary policy. However, Trump has not backed up his promises to reform the tax code and increase fiscal spending with any details. Some Fed policymakers wanted to raise rates earlier this year, so Fed Chair Yellen is under pressure to make a move, and it appears virtually certain that the Fed will raise rates by a quarter-point on March 15.