European inflation and employment data continues improving trend

Notes/Observations

US political volatility appears to be on the rise in the aftermath of the recent imposition of immigration controls; Trump fired acting U.S. Attorney General

European inflation continues to improve (France, Spain Euro Zone all beat expectations)

German unemployment hits fresh post-reunification low at 5.9% while Italy Dec reading hits a 18 month high

Overnight:

Asia:

(JP) Bank of Japan (BOJ) left Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintains its current policy on both asset purchases and yield control); Reiterated overall assessment that domestic economy to maintain moderate expansion; Appears to signal no taper at this time

(JP) Japan Dec Jobless Rate in-line with expectations (3.1% v 3.1%e) and hold just above multi-decade lows

Japan Fin Min Aso expected weak Yen/strong USD trend to continue in H1; FX policy should be discussed in global context

Europe:

(UK) Parliament begins debate on Article 50; reports that five amendments presented to draft bill (**Note: final vote on Wed, Feb 8th)

(UK) Jan GFK Consumer Confidence hits a 3 month high (-5 v -8e)

Americas:

President Trump fires Acting Attorney General Yates (Obama holdover) who would not enforce immigration orders; names Dana Boente new acting AG

Economic data

(JP) Japan Dec Annualized Housing Starts (miss): 923K v 938Ke; Y/Y: 3.9% v 8.4%e v 6.7% prior

(FR) France Q4 Advance GDP (in-line) Q/Q: 0.4% v 0.4%e; Y/Y: 1.1% v 1.1%e

(DE) Germany Dec Retail Sales (miss) M/M: -0.9% v +0.5%e; Y/Y: -1.1% v 0.5%e

(TR) Turkey Dec Trade Balance: -$5.6B v -$5.6Be

(FR) France Jan Preliminary CPI (beat) M/M: -0.2% v -0.5%e; Y/Y: 1.4% v 1.1%e

(FR) France Jan Preliminary CPI EU Harmonized M/M: -0.2% v -0.5%e; Y/Y: 1.6% v 1.2%e

(FR) France Dec Consumer Spending M/M: -0.8% v +0.2%e; Y/Y: 1.5% v 2.1%e

(FR) France Dec PPI M/M: 0.9% v 0.7% prior; Y/Y: +1.7 v -0.5% prior

(ES) Spain Jan Preliminary CPI (beat) M/M: -0.5% v -1.2%e; Y/Y: 3.0% v 2.3%e

(ES) Spain Jan Preliminary CPI EU Harmonized M/M: -0.9% v -1.6%e; Y/Y: 3.0% v 2.2%e

(ES) Spain Jan Preliminary CPI Core M/M: % v 0.1% prior; Y/Y: % v 1.0%e

(AT) Austria Q4 GDP Q/Q: 0.6% v 0.4% prior; Y/Y: 1.8% v 1.2% prior

(DE) Germany Jan Unemployment Change (beat): -26K v -5Ke; Unemployment Rate: 5.9% v 6.0%e ( (post-reunification record low)

(IT) Italy Dec Preliminary Unemployment Rate (miss): 12.0% v 11.8%e

(PL) Poland Overall 2016 GDP Y/Y: 2.8% v 2.7%e

(UK) Dec Net Consumer Credit: £1.0B v £1.7Be; Net Lending: £3.8B v £3.2Be

(UK) Dec Mortgage Approvals (miss): 67.9K v 69.0Ke

(UK) Dec M4 Money Supply M/M: -0.5% v +0.4% prior; Y/Y: 6.2% v 6.4% prior

(EU) Euro Zone Dec Unemployment Rate (beat): 9.6% v 9.8%e (lowest level since 2009)

(EU) Euro Zone Q4 Advance GDP Q/Q: 0.5% v 0.5%e; Y/Y: 1.8% v 1.7%e

(EU) Euro Zone Jan CPI Estimate (beat) Y/Y: 1.8% v 1.5%e (3 1/2 year high); CPI Core Y/Y: 0.9% v 0.9%e

Fixed Income Issuance:

(ID) Indonesia sold total IDR22.0T in bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.6% at 3,279, FTSE +0.6% at 7,161, DAX +0.3% at 11,721, CAC-40 +0.5% at 4,810, IBEX-35 +0.6% at 9,416, FTSE MIB +1.0% at 18,936, SMI +0.2% at 8,340, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading higher despite the Asian and US sessions ending lower overnight; Rallies in European indices predominantly led by banking stocks; Italian FTSE MIB outperforming with the peripheral lenders trading sharply higher, with automobile manufacturers Fiat ad Ferrari also trading notably higher; FTSE 100 gains led by commodity and mining stocks as copper prices trade higher intraday.

A plethora of upcoming scheduled US earnings (pre-market) include AmerisourceBergen, Aetna, Ally Financial, Anixter, CIT Group, CONSOL Energy, Coach, Danaher, HCA, Harley Davidson, Hubbell, Eli Lilly, MasterCard, Manpowergroup, NASDAQ OMX, NuStar Energy, Nucor, Paccar, Pfizer, Pentair, Sprint Nextel, Stifel Financial, Scotts Miracle-Gro, Simon Property, Taylor Morrison, Thermo Fisher Scientific, Under Armour, UPS, Valero Energy, Exxon Mobil, Xerox, and Zimmer Biomet.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Centrotec CEV.DE +0.2% (prelim FY16 results), GFK GFK.DE +0.1% (prelim FY16 results), Givaudan GIVN.CH -4.2% (FY16 results), Hennes & Mauritz HMB.SE +5.5% (Q4 results), Ocado OCDO.UK +7.5% (FY16 results), Richemont CFR.CH +2.0% (Four execs to depart)]

Energy: [Nostrum Oil & Gas NOG.UK +4.7% (production), Royal Dutch Shell RDSA.UK +1.5% (To sell package of UK North Sea assets to Chrysaor for up to $3.8B), Seadrill SDRL.NO -20.6% (financial restructuring update), Scottish & Southern Energy SSE.UK -0.7% (trading update)]

Financials: [Sanne Group SNN.UK +3.6% (trading statement)]

Industrials: [Alfa Laval ALFA.SE +8.1% (Q4 results), UPM-Kymmene UPM1V.FI -9.5% (Q4 results, raises LT outlook)]

Telecom: [Com Hem COMH.SE +1.0% (Q4 results)]

Speakers

ECB's Draghi: Financial integration essential for well-functioning single currency

ECB's Villeroy (France) reiterated view that concerns about rising inflation are exaggerated

UK Government might may invoke Article 50 on March 9th at a European summit. Govt told House of Lords on Mon, Jan 30th that it wanted the bill authorizing Brexit to be approved on March 7th

France Fin Min Sapin: 2017 beginning with very good economic conditions

Spain Econ Min de Guindos saw national inflation easing from Q2

German Finance Ministry spokesman reiterated further payments to Greece depend on successful completion of debt review and IMF participation

Turkey Central Bank Quarterly Inflation Report raised its inflation forecasts for both 2017 and 2018 citing thatimport price rise was the main factor. It raised 2017 CPI from 6.5% to 8.0% and 2018 CPI from 5.0% to 6.0%. CBRT noted that in Jan it decided to strengthen policy tightening and could do additional policy tightening if needed and would use all policy tools until inflation was under control. CBRT also noted that 2017 economic recovery could be slower than expected and expected exports to recover

BOJ Gov Kuroda post rate decision press conference reiterates that that economic recovery remained on a moderate trend and the upward revision to GDP forecasts reflected overseas economies. Reiterated that risks to both growth and inflation remained on the downside (Board Members Kiuchi, Sato both believe that inflation to stay below 2% over BOJ forecast horizon). Reiterated to achieve 2% inflation target around FY18 (**Note: Apr 17 thru Mar 2018). To keep close watch on policy direction and impact from new Trump Administration. Kuroda added that the central bank had "no intention to signal future policy stance through bond buying operations. Too early to discuss any exit strategy from policy; only halfway to inflation target; balance sheet and interest rates were important parts of exit strategy but still dependent on economic situation

Currencies

USD remained on the defensive mode in the aftermath of US President Trump's broad-sweeping executive order on immigration curbs from 7 Middle East countries. Safe-haven plays remained in focus with JPY and Gold being eyed as primary benefactors.

The EUR/USD hovered around the 1.07 level and little changed in the session despite continued improvement in European inflation data and record low unemployment in Germany. Dealers noted that several ECB officials, including President Draghi, have recently highlighted the importance of seeing core CPI pick-up as one of the determinants of meeting its price stability mandate

The USD/JPY moved off its worst levels after BOJ showed its firm commitment to managing the yield curve and dismissed speculation of any imminent tapering of policy. USD/JPY trying to make its way back to the 114 area after testing 113.26 overnight

GBP/USD was softer by 0.4% at 1.2435 as UK Parliament begins debate on the Article 50 bill. Several bits of UK data did disappoint in the session highlighted by mortgage approval for Dec

Fixed Income:

Bund futures trade at 161.66 down 40 ticks with on risk aversion flows with strong German job numbers, stronger Eurozone CPI and GDP readings also weighing on futures. Continued downside targets 161.19 followed by 160.80. A reversal higher targets 162.22 yesterday high, 162.49 then 163.01 followed by 163.38.

Gilt futures trade at 123.35 down 30 ticks of an opening high of 123.69 falling with the Euro Indices rising. Support moves to 122.99, 122.60, 122.23 then Dec low at 122.08. Resistance moves to 123.79 followed 124.13 to close the gap. Short Sterling futures trade flat with Jun17Jun18 remaining steady at 28/29bp.

Tuesday's liquidity report showed Monday's excess liquidity fell to €1.260T down €5B from €1.265T prior. Use of the marginal lending facility fell to €15M from €183M prior.

Corporate issuance saw $17.85B come to market via 3 deals headlines by Microsoft jumbo 7 part $17B issuance upsized from an original $14B with $11.5B being issued in 10, 20, 30 and 40 year bonds.

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

05:30 (UK) DMO to sell £2.5B in 1.5% 2026 Gilts

05:30 (BE) Belgium Debt Agency (BDA) to sell €1.0-1.4B in 3-Month and 6-month Bills

06:00 (IE) Ireland Jan Unemployment Rate: No est v 7.2% prior

06:00 (IL) Israel Dec Unemployment Rate: No est v 4.6% prior

06:00 (BR) Brazil Dec National Unemployment Rate: 11.9%e v 11.9% prior

06:00 (BR) Brazil Dec PPI Manufacturing M/M: No est v 0.7% prior; Y/Y: No est v -0.1% prior

06:00 (IN) India Dec Fiscal Deficit (INR):

06:00 (RU) Russia announces weekly OFZ bond auction

06:45 (US) Daily Libor Fixing

07:00 (ZA) South Africa Dec Trade Balance (ZAR): +6.3Be v -1.1B prior

07:00 (IN) India 2016 annual GDP estimate Y/Y: No est v 7.1% prior

07:00 (CL) Chile Dec Unemployment Rate: 6.1%e v 6.2% prior

07:30 (BR) Brazil Dec Nominal Budget Balance (BRL): -113.2Be v -80.4B prior: Primary Budget Balance: -75.1Be v -39.1B prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Q4 Employment Cost Index (ECI): 0.6%e v 0.6% prior

08:30 (CA) Canada Nov GDP M/M: +0.3%e v -0.3% prior; Y/Y: 1.4%e v 1.5% prior

08:30 (CA) Canada Dec Industrial Product Price M/M: 0.6%e v 0.3% prior; Raw Materials Price Index M/M: +2.8%e v -2.0% prior

08:55 (US) Weekly Redbook Sales

09:00 (EU) Weekly ECB Forex Reserves: No est v €280.8B prior

09:00 (US) Nov S&P / Case-Shiller 20-City M/M: 0.70%e v 0.63% prior; Y/Y: 5.00%e v 5.10% prior; House Price Index (HPI): No est v 191.79 prior

09:00 (US) Nov S&P / Case-Shiller (overall) HPI M/M: No est v 0.85% prior, Y/Y: No est v 5.61% prior, House Price Index (HPI): No est v 185.06 prior

09:00 (MX) Mexico Q4 Preliminary GDP Q/Q: 0.6%e v 1.0% prior; Y/Y: 2.2%e v 2.0% prior

09:00 (US) Federal Open Market Committee (FOMC) begins 2-day meeting (Decision on Wed)

09:45 (US) Jan Chicago Purchasing Manager: 55.0e v 53.9 prior (revised from 54.6)

09:50 (UK) Bank of England (BOE) Bond Buying Operation (over 15 years)

10:00 (US) Jan Consumer Confidence: 112.8e v 113.7 prior

10:00 (MX) Mexico Dec Net Outstanding Loans (MXN): No est v 3.61T prior

11:30 (US) Treasury to sell 52-Week Bills

14:00 (AR) Argentina Dec Industrial Production Y/Y: No est v -4.1% prior; Construction Activity Y/Y: No est v -9.4% prior

16:30 (US) Weekly API Oil Inventories

17:20 (CA) Bank of Canada (BOC) Gov Poloz speaks at University of Alberta

News and Events:

EUR/CHF dips lower

EUR/CHF has been under constant pressure over the last few weeks as it tested continuously the 1.07 threshold that is broadly considered as the SNB’s implicit floor of 1.07. The market is getting ready for a tough year in the Euro area as the Brexit story together with ongoing and upcoming elections (Dutch national elections, French presidential and parliamentary elections and German federal election). However, the pressure has increased another notch yesterday as the euro dip to 1.0638 against the Swiss franc, the lowest level since the Brexit vote when the currency pair hit 1.0624.

We however think it a bit early to ring the alarm bell and call for the failure of the SNB’s FX intervention program. Indeed, the Swiss franc had to face some unexpected market conditions recently. First, the takeover of Swiss company Actelion by Johnson & Johnson created some disturbance, even though most the $280-a-share price will be paid in dollar. However, small shareholders will a possibility to get paid in CHF. Second, yesterday sell-off in worldwide equity markets are reduce investors’ risk appetite and triggered a slight risk-off move in favour of safe-haven currencies such as the CHF and JPY. We believe that there is no reason to worry yet as the SNB is still committed to defend the Swiss franc, it however means that the central bank is now more tolerant with respect to CHF strength.

BoJ bets on Trump

The Bank of Japan has left its policy balance rate unchanged at -0.1% in line with market expectations. The Japanese central bank will continue targeting 0% on the 10-year government bond.

The BoJ has clearly been in "wait and see mode" since Trump's election. Indeed, there are hopes that the new US president will spark better economic conditions which could in the end help Japan and increase inflationary pressures.

Donald Trump has stated over the past week that the greenback may be too strong. This supports our view that the yen should weaken in the medium term even though it is far too early to assess the future efficiency of Trump’s policies.

Inflation expectations have not changed following the meeting and it is still expected to come in at 1.5% by March 2018 - below the BoJ target of 2%.

One should not forget that even if Trump is at the centre of the markets’ attention, there are also downside risks in Europe that could offset Japanese inflationary pressures. Europe's political outlook appears more and more uncertain, especially given the upcoming French and German elections which may provide plenty of surprises. The market's fear of a nationalist party win could drive investors back to safe haven, causing further yen appreciation.

European inflation to grind higher

A big day is in store for European economic data and potentially for the single currency. Euro area preliminary Q4 GDP is expected to rise to 0.5% q/q from 0.3% q/q prior read, while the annual headline CPI estimate is expected to surge to 1.5% from 1.1% prior read. French CPI was released earlier coming in at 1.4% y/y against an expected 1.1% y/y indicating that an upside surprise in the Euro area read is probable. Overall, the Euro-area economy has clearly preserved its solid growth momentum. This improvement in the European outlook might catch many off guard as investors have been singularly focused on US President Trump's first week and the latest Brexit developments. However, as inflation grinds towards the ECB 2% target range we need to consider adjusting the central bank’s current ultra-accommodating policy. Given that the ECB has forecasted strong growth, today's read is unlikely to panic Draghi, however, higher sustainable inflation will eventually lead to tighter monetary policy. We suspect that the Trump pro-growth story and worries over the European political environment have clouded investors to the fact that Europe inflation is rising. Currently, FX markets are underpricing the risk of a sharp shift in ECB policy, quickly unwinding the USD dominant trade.

Today's Key Issues (time in GMT):

• Dec Unemployment Rate Gross Rate, exp 4,30%, last 4,20% DKK / 08:00
• Dec Unemployment Rate SA, exp 3,40%, last 3,40% DKK / 08:00
• Dec Foreign Tourist Arrivals YoY, last -21,40% TRY / 08:00
• Jan P CPI YoY, exp 2,40%, last 1,60% EUR / 08:00
• Jan P CPI MoM, exp -1,10%, last 0,60% EUR / 08:00
• Jan P CPI EU Harmonised MoM, exp -1,60%, last 0,50% EUR / 08:00
• Jan P CPI EU Harmonised YoY, exp 2,20%, last 1,40% EUR / 08:00
• ECB's Mario Draghi Speaks in Frankfurt EUR / 08:00
• Jan Unemployment Change (000's), exp -5k, last -17k, rev -20k EUR / 08:55
• Jan Unemployment Claims Rate SA, exp 6,00%, last 6,00% EUR / 08:55
• Nov Current Account Balance, last 2.0b EUR / 09:00
• Feb Norges Bank Daily FX Purchases, exp -1000m, last -1000m NOK / 09:00
• Dec P Unemployment Rate, exp 11,80%, last 11,90%, rev 12,00% EUR / 09:00
• Dec Net Lending Sec. on Dwellings, exp 3.2b, last 3.2b, rev 3.1b GBP / 09:30
• Dec Mortgage Approvals, exp 69.2k, last 67.5k GBP / 09:30
• Dec Money Supply M4 MoM, last 0,40% GBP / 09:30
• Dec M4 Money Supply YoY, last 6,40% GBP / 09:30
• Dec M4 Ex IOFCs 3M Annualised, last 4,20%, rev 4,60% GBP / 09:30
• Dec Unemployment Rate, exp 9,80%, last 9,80%, rev 9,70% EUR / 10:00
• 4Q A GDP SA QoQ, exp 0,50%, last 0,30%, rev 0,40% EUR / 10:00
• 4Q A GDP SA YoY, exp 1,70%, last 1,70%, rev 1,80% EUR / 10:00
• Jan CPI Estimate YoY, exp 1,50%, last 1,10% EUR / 10:00
• Jan A CPI Core YoY, exp 0,90%, last 0,90% EUR / 10:00
• Dec PPI MoM, last -0,20% EUR / 10:00
• Dec PPI YoY, last -0,30% EUR / 10:00
• Dec National Unemployment Rate, exp 11,90%, last 11,90% BRL / 11:00
• Dec Fiscal Deficit INR Crore, last 34489 INR / 11:00
• Dec PPI Manufacturing MoM, last 0,73% BRL / 11:00
• Dec PPI Manufacturing YoY, last -0,12% BRL / 11:00
• Dec Trade Balance Rand, exp 6.3b, last -1.1b ZAR / 12:00
• 2016 GDP Annual Estimate YoY, last 7,10% INR / 12:00
• ECB's Yves Mersch Speaks in Frankfurt EUR / 12:15
• Dec Net Debt % GDP, exp 45,80%, last 43,80% BRL / 12:30
• Dec Nominal Budget Balance, exp -105.2b, last -80.4b BRL / 12:30
• Dec Primary Budget Balance, exp -72.8b, last -39.1b BRL / 12:30
• 4Q Employment Cost Index, exp 0,60%, last 0,60% USD / 13:30
• Nov GDP MoM, exp 0,30%, last -0,30% CAD / 13:30
• Nov GDP YoY, exp 1,40%, last 1,50% CAD / 13:30
• Dec Industrial Product Price MoM, exp 0,50%, last 0,30% CAD / 13:30
• Dec Raw Materials Price Index MoM, exp 2,80%, last -2,00% CAD / 13:30
• Nov S&P CoreLogic CS 20-City MoM SA, exp 0,70%, last 0,63% USD / 14:00
• Nov S&P CoreLogic CS 20-City YoY NSA, exp 5,00%, last 5,10% USD / 14:00
• Nov S&P CoreLogic CS 20-City NSA Index, last 191,79 USD / 14:00
• Nov S&P CoreLogic CS US HPI YoY NSA, last 5,61% USD / 14:00
• Nov S&P CoreLogic CS US HPI NSA Index, last 185,06 USD / 14:00
• ECB's Benoit Coeure Speaks in Frankfurt EUR / 14:3
• Jan Chicago Purchasing Manager, exp 55, last 54,6, rev 53,9 USD / 14:45
• Jan Conf. Board Consumer Confidence, exp 112,8, last 113,7 USD / 15:00
• Jan Conf. Board Present Situation, last 126,1 USD / 15:00
• Jan Conf. Board Expectations, last 105,5 USD / 15:00
• Jan QV House Prices YoY, last 12,50% NZD / 16:00
• 4Q Unemployment Rate, exp 4,80%, last 4,90% NZD / 21:45
• 4Q Employment Change QoQ, exp 0,70%, last 1,40% NZD / 21:45
• 4Q Employment Change YoY, exp 6,10%, last 6,10% NZD / 21:45
• 4Q Participation Rate, exp 70,20%, last 70,10% NZD / 21:45
• 4Q Pvt Wages Ex Overtime QoQ, exp 0,50%, last 0,40% NZD / 21:45
• 4Q Pvt Wages Inc Overtime QoQ, exp 0,50%, last 0,40% NZD / 21:45
• 4Q Average Hourly Earnings QoQ, exp 0,60%, last 0,30% NZD / 21:45
• Bank of Canada's Poloz speaks at University of Alberta CAD / 22:20
• Jan AiG Perf of Mfg Index, last 55,4 AUD / 22:30

The Risk Today:

EUR/USD's momentum is now trading sideways. Hourly resistance area is given at around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 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 on the road towards 1.2771 (05/10/2016 high). The technical structure is still anyway showing positive potential. Hourly support is given at 1.2466 (30/01/2016 low). Expected to show further bullish move. 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 has surprisingly exited the downtrend channel after monitoring resistance implied by the upper bound. Yet, the pair is back within it. Hourly resistance is given at 115.62 (19/01/2016 high) while a break of hourly support given at 112.57 (17/01/2017 low) is needed to confirm further downside moves. 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 bearish. Yet, the selling pressures are being reduced below parity. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is nonetheless wide-open for further decline. 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.

The pair remains directionless, trading within initial 0.7510/0.7607 range.

Yesterday's Doji candle confirms indecision, as near-term studies are in neutral mode.

Key supports, 100/200 SMA's (0.7494/0.7487) remain intact for now and maintain sideways mode, following upside rejection at 0.7600 zone.

No clear direction could be expected while the price holds within the range, however, south-heading daily indicators see risk of fresh attempts lower.

Firm break below 100/200SMA breakpoint is needed to signal reversal and open next strong support s at 0.7467 (daily cloud top) and 0.7437 (Fibo 38.2% of 0.7163/0.7607 upleg).

Alternative scenario requires sustained break above 0.7600 pivot to expose immediate target at 0.7630 (Fibo 76.4% of 0.7776/0.7158), with possible acceleration higher on break.

Res: 0.7569, 0.7583, 0.7607, 0.7630
Sup: 0.7526, 0.7510, 0.7487, 0.7467

Rejection under strong 115.55 barrier (daily cloud top / Kijun-sen line) and yesterday’s fall, turned near-term focus lower.

Recovery from today’s low at 113.23 stays for now caped by daily Tenkan-sen at 114.05, with Tenkan-sen / Kijun-sen lines being in bearish setup, together with negative daily studies, maintaining downside pressure.

Extended upticks are expected to hold below 114.67, where daily 20/55SMA’s bear-cross is forming, ahead of fresh downside attempts that could extend towards key near-term support, 112.50 base and floor of near-term congestion.

Res: 114.05, 114.67, 115.36, 115.55
Sup: 113.44, 113.23, 112.50, 111.97

Strong three-day pullback from 1.2671 peak was for now contained by sideways-moving daily Tenkan-sen at 1.2460.

Mild recovery was seen so far, with price action now above thinning daily cloud that is also twisting and expected to attract for fresh downside attempts.

Weakening near-term studies support scenario, as three consecutive long bearish daily candles weigh, however, sustained break below Tenkan-sen support is needed to confirm bearish

extension and open 1.2409 support (Fibo 38.2% of 1.1986/1.2671 ascend / converging daily 100/55SMA’s).

Highs of past two days at 1.2600 zone mark significant barrier that should limit extended corrective upticks.

Conversely, firm break above 1.2600 barrier would signal an end of corrective phase and turn near-term focus higher.

Res: 1.2517, 1.2543, 1.2600, 1.2622
Sup: 1.2486, 1.2460, 1.2426, 1.2409

The pair is trading within narrow 1.0680/1.0710 range in early Tuesday and holding above cracked daily Tenkan-sen (1.0680) for the fourth straight day.

Yesterday's strong downside rejection signals that downside attempts are short-lived for now, with upper boundary at 1.0710, being currently under pressure.

Near-term studies are in mixed mode, while daily bulls remain in play and keep upside in focus.

However, sustained break above 1.0710 barrier and yesterday's high at 1.0738 would signal renewed attack at 1.0773/93 resistances (24 Jan recovery high/falling 100SMA) , with further bullish acceleration seen towards key barrier at 1.0824 (daily cloud top).

Daily Tenkan-sen marks initial support at 1.0680, ahead of ascending 20SMA (currently at 1.0644) that contained yesterday's dip and continues to underpin.

Firm break here would soften near-term structure and risk fresh downside

Res: 1.0738, 1.0773, 1.0793, 1.0824
Sup: 1.0680, 1.0657, 1.0619, 1.0607

On the 4h EUR/USD chart we are tracking a corrective bounce from December lows, labeled as an expanded flat correction. It's a contra-trend movement in three waves which can be finished based on recent turn down from 1.0775 highs. In fact, we see an ending diagonal placed in wave C of 4) which is a reversal pattern so strong decline may follow, especially if we consider that rise from 1.0340 was slow, so now momentum may pick up and cause a strong fall into wave 5). If that's the case then current wave bounce can be subwave 2 with resistance seen at 1.0740.

EUR/USD, 4H

'…USD/CHF, doesn't appear to be in tandem with the others and that's the first thing to reconcile'. -Ian Copsey (based on investing.com)

Switzerland's KOF Economic Barometer dropped unexpectedly in the first month of 2017, official figures revealed on Monday. In a report, the KOF Economic Research Agency said its economic barometer, which aims to track the direction of the Swiss economy, came in at 101.7, the lowest reading in four months, in January, falling behind market analysts' expectations for 102.9 points. Meanwhile, the December figure was revised down to 102.1 points from the originally reported 102.2. The 2014 KOF Economic Barometer version is based on 219 economic indicators. In January, the largest negative contributions came from private consumption, the financial sector and hotel and restaurant industry. These negative contributions offset positive contributions in the manufacturing, construction and export sectors. Overall, business confidence in the Swiss economy averaged 100.68 between 1991 and 2017, hitting its all-time record highs of 118.20 in April 2010 and record lows of 69 in December 2008.

After the release, the Swiss Franc fell slightly against other major currencies, trading at 1.0687 against the Euro, 1.2542 against the British Pound, 0.9989 against the US Dollar and 117.97 against the Japanese Yen.

'The consumer has almost everything going for it. As the consumer goes, so goes our economy. We're setting up for another decent year in 2017'. -Ryan Sweet, Moody's Analytics Inc.

Consumer spending in the United Sates advanced more than expected last month as households boosted purchases of motor vehicles and services amid increasing wages.

On Monday, the Commerce Department reported consumer spending rose 0.5% in December, following the preceding month's 0.2% rise and surpassing a 0.4% increase forecast. The stronger than expected figure pointed to solid domestic demand that is expected to boost economic growth in early 2017. Data showed purchases of manufactured durable goods climbed 1.4% last month, while consumer spending on services jumped 0.4%. Meanwhile, personal income increased 0.3% month-over-month in December after rising 0.1% in the prior month. However, economists expected household income to climb 0.4%. Salaries and wages grew 0.4% in December after dropping 0.1% in November. For all of 2016, income climbed 3.5% after increasing 4.4% in 2015. Separately, the Commerce Department said the PCE Price Index advanced 0.2% in December, following November's 0.1% increase. During the twelve-month period ending December, the Index rose 1.6%, the largest increase since September 2014, up from the previous month's 1.4% rise. Excluding volatile items, the Core PCE Index grew 0.1% after being unchanged in November, in line with analysts' expectations.

Sunrise Market Commentary

• Rates: Positive bias core bonds
  Overnight, risk aversion dominates Asian markets after US President Trump fired the acting Attorney General. Risk sentiment on stock markets (more correction?) and evolutions on peripheral bond markets (significant spread widening of late) could overshadow eco data today and be positive for core bonds in an intraday perspective.
• Currencies: Global uncertainty dominates currency trading
  Yesterday, EUR/USD trading showed two faces. Finally, Trump-related uncertainty weighed more on the dollar than on the euro. Today, the eco data in Europe and in the US might come out strong, but global risk sentiment will continue to dominate USD trading. USD/JPY looks most vulnerable. The picture for EUR/USD is more balanced

The Sunrise Headlines

• US stock markets closed near opening losses, correcting 0.5%-1% lower. Overnight, risk aversion dominates Asian markets following Trump’s move to fire the US's top law officer for refusing to defend his immigration policy.
• The White House fired acting Attorney General Yates for telling government lawyers not to defend an executive order signed by President Trump suspending immigration from 7 countries out of concerns that terrorists might enter the US.
• The BoJ made no policy change, saying it would keep interest rates at -0.1%, cap 10-yr bond yields at roughly zero and buy government bonds at a pace of ¥80tn a year. The BoJ forecasts an era of surging economic growth (see FX).
• Greece will only receive more loans from the EMU if the IMF joins its latest aid programme, the head of the bloc's bailout fund said (ESM Regling), spelling out a condition thus far disregarded by Athens's creditors.
• A last-minute mega-deal from Microsoft ($17B) propelled what was already a record January for US investment-grade bond sales to one of the busiest months ever. Blue-chip companies have issued more than $170B of bonds so far.
• Chairman of the EBA, Enria, has called on Brussels policymakers to create an EU “bad bank” to buy billions of euros of toxic loans from lenders to break the vicious circle of falling profits, squeezed lending and weak economic growth.
• Republicans in Congress are moving this week to help President Trump roll back business regulations imposed by the Obama administration, with a focus on the oil, gas and mining industries.
• Today’s EMU eco calendar contains EMU Q4 GDP, unemployment rate and CPI inflation. In the US, focus turns to the Chicago PMI and consumer confidence

Currencies: Global Uncertainty Dominates Currency Trading

Trump-related uncertainty weighs on the dollar

On Monday, the dollar initially remained well bid even as risk sentiment turned negative. Euro weakness prevailed. The rise in intra-EMU credit spreads weighed on the euro. Later, US equities tumbled as US investors were also uncertain on the impact of the US immigration measures. This deepening risk-off sentiment finally also triggered USD selling. EUR/USD reversed the earlier losses and closed the session little changed at 1.0695 (from 1.0699). USD/JPY initially held up quite well but finally dropped below 114 to close the session at 113.77 (from 115.10).

This morning, several Asian markets are still closed. Those open lose ground (risk off). The BOJ kept its policy unchanged The Bank raised its growth forecasts, but the inflation forecast was left unchanged. The weakening of the yen since the November forecast is a positive for growth and for inflation. However, how much room is left for a weaker yen as US president Trump warns on the (global) strength of the dollar? Interesting to see the assessment of BOJ’s Kuroda at the press briefing later this morning. USD/JPY changes hands in the 113.35 area. EUR/USD is holding a tight range near 1.07.

Today, EMU Q4 GDP is expected to have increased by strong 0.5% Q/Q and a 1.7% Y/Y. we side with consensus. EMU headline inflation is expected to rise from 1.1% to 1.5% Y/Y. We see slight downside risks after yesterday’s German CPI release. The US, the Chicago PMI is expected to have increased to 55 from a 53.9. The trend is up, despite the fall in December. We put the risks on the upside of consensus. Consumer confidence is expected to have eased slightly from a 15- year high in December. We see few reasons why the index should decline and don’t exclude a further rise. So, he data in the US and Europe will probably be good. A combination of broad-based strong data a is often USD supportive. However, the market focus is shifting away from the eco data to the potential side-effects of the new Trump policy approach, which mean that core bond yield may decline in daily perspective. The jury is still out, but if confidence in the Trump reflation trade would fade, the environment might turn less USD supportive. USD/JPY is most vulnerable. The picture for EUR/USD is more balanced as several (political) issues are coming in the picture in EMU. In a day-today perspective, investors might turn more cautious on global risk and on the dollar. So, last week’s USD bottoming out process might stop. The EUR/USD 1.0775 resistance remains with reach and might come again under pressure

Global context: EUR/USD touched a multi-year low (1.0341) early this month. After the Trump rally, plenty of good USD news was discounted while US/EMU rate differentials narrowed (correction), causing a dollar correction. Longerterm, the absolute interest rate support should provide a USD floor, if US data remain good and as long as there are no profound doubts on Trump’s pro-growth policy. The day-to-day USD momentum has become a bit more fragile. A return above EUR/USD 1.0874 would question the USD positive outlook. USD/JPY is trading well off the post-Trump highs (118.60/66). The rebound off the 112.57/53 reaction low was quite constructive, but is losing momentum. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) is a tough support

EUR/USD: no clear trend as both USD and euro face factors of uncertainty

EUR/GBP

Risk-off sentiment weighs on Sterling

On Monday, EUR/GBP showed several intraday gyrations as was the case of EUR/USD. Sterling was sold early in the session. EUR/GBP dropped to an intraday low around 0.8490 in line with EUR/USD, but was squeezed during the US session. End of month EUR/GBP buying and a deepening risk-off sentiment were to blame. EUR/GBP finished the day at 0.8566. Cable was also hit hard even as the dollar declined against most majors. The pair closed the session at 1.2486 (from 1.2555).

Overnight, the GFK consumer confidence was reported stronger than expected at -5 (from -7). Today, the UK Money supply and lending data will be published. Lending data were rather good of late, but currency traders don’t give much weight to the data. The global context (risk-off?) will probably again set the tone for sterling trading. Yesterday, sterling initially didn’t know which way to go, but in the end, the global risk-off sentiment proved even more negative for sterling than for the dollar. Markets will also look forward to Thursday’s BoE meeting. Despite recent good eco data, the BoE probably will maintain a wait-and-see stance and give no indication on a rate hike. Sterling momentum was strong of late, but eased a bit at the end of last week. EUR/GBP 0.8579 and 0.8515 supports (50% and 62% retracement of the 0.8304/0.8854 rebound) were broken. The correction low comes in at 0.8451 and should provide strong support. Yesterday’s price action confirms this view. We still look to buy EUR/GBP on dips

EUR/GBP: 0.8450 support remains intact for now

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