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USD/CAD continues to strengthen in the Wednesday session. Early in North American trade, the pair is trading at 1.3440. On the release front, it's a busy day in Canada. Housing Starts improved to 210 thousand, above the estimate of 207 thousand. Building Permits posted a strong gain of 5.4%, beating the forecast of 3.1%. Finally, Labor Productivity, a quarterly release, posted a gain of 0.4% in the first quarter. This matched the forecast. In the US, ADP Nonfarm Employment Change soared to 298 thousand, well above the estimate of 184 thousand. On Thursday, the US releases unemployment claims, with the indicator expected to rise to 239 thousand.

Canada's employment market has improved in recent months, buoyed by strong employment gains. The economy added 48.3 thousand jobs and 53.7 thousand jobs in December and January respectively. This surprised the markets, which had predicted declines for each reading. The unemployment rate has also improved, dropping to 6.8%. A strong US economy has been good news for Canada, which is heavily dependent on its southern neighbor. At the same time, speculation of an imminent rate hike by the Fed has boosted the US dollar, which has jumped 2.5% against the Canadian currency since the end of February.

Donald Trump and his new administration continues to create controversy on an almost basis, much to the consternation of the markets. Still, the dollar hasn't skipped a beat and remains at high levels against its major rivals, including the euro. The dollar has benefited from a strong economy and the increasing likelihood of a rate hike at the upcoming Fed policy meeting on March 15. The likelihood of a March hike has jumped to 84%, according to the CME group, compared to 33% just a week ago. We'll get a look at US Nonfarm Payrolls on Friday, which is expected to soften to 185 thousand. If the indicator beats expectations, the greenback rally could continue and increase the odds of a March rate hike.

Daily Pivots: (S1) 1.3350; (P) 1.3393; (R1) 1.3416; More...

USD/CAD's break of 1.3436 temporary top indicates resumption of whole rebound from 1.2968. Intraday bias is back on the upside for retesting 1.3598 high. Decisive break there will resume the medium term rally from 1.2460 and target next fibonacci level at 1.3838. On the downside, however, break of 1.3371 minor support will turn intraday bias neutral first. And that could also be an early sign of short term topping, possibly with bearish divergence condition in 4 hour MACD.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is likely still in progress and could target 61.8% retracement of 1.4689 to 1.2460 at 1.3838. We'd look for reversal signal there to start the third leg. Break of 1.2968 wold at least bring at retest of 1.2460 low. However, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

Dollar jumps sharply in early US session on much stronger than expected job data. ADP report showed that private payroll grew by 298k in January, comparing to consensus of 184k. Prior month's figure was also revised up from 246k to 261k. The data affirmed general expectation of a solid non-farm payroll report to be delivered this Friday. And that would solidify the case for Fed to deliver the highly anticipated rate hike next week. Also released in US session, Q4 non-farm productivity was finalized at 1.3% while unit labor costs at 1.7%. From Canada, housing starts rose 1k to 210k in February. Building permits rose 5.4% mom. Labor productivity rose 0.4% qoq in Q4.

Technically, USD/CAD led the way by taking out 1.3436 resistance to resume recent rise. AUD/USD also breaches 0.7542 temporary low. GBP/US is extending recent fall to as low as 1.2158 so far. While Dollar could be building up momentum again, EUR/USD is holding well above 1.0493 support. USD/JPY is held well below 114.94 resistance. Outlook in Dollar is only cautiously bullish until the mentioned levels in EUR/USD and USD/JPY are broken firmly.

UK revised up growth forecast

UK Chancellor of Exchequer Philip Hammond delivers his first full budget statement today. And he emphasized that there was "no room for complacency" in spite of the improvement of the economy since the Brexit referendum. And he promised to give UK a "strong and stable platform" for Brexit negotiations. Growth forecast for 2017 was revised up from 1.4% to 2.0%. 2018 growth will slow to 1.6%. However, public borrowing will be lowered by GBP -16.8b. Deficit is projected to be 2.6% of GDP in 2016/17 fiscal year.

Sterling is under selling pressure since yesterday as market perceive prime minister Theresa May as suffering another setback in her Brexit plan and implementation. The House of Lords in US passed an amended bill on Brexit after having the highest turnout since 1831. The vote was passed by 366 to 268 to add addition condition to the so called "European Union (Notification of Withdrawal) Bill". That demands a guarantee of "meaningful vote" by the Parliament on the outcome of Brexit talks. And it's seen by analysts as securing veto on any final agreements. The bill will now return to the House of Commons for deciding whether to accept the Lord's amendments. The debate could probably held on next Monday. The UK Brexit Secretary David Davis criticized that "it is clear that some in the Lords would seek to frustrate that process".

Euro quiet ahead of tomorrow's ECB

Euro trades mixed today as markets quietly await ECB rate decision and press conference tomorrow. While political development was the main drive in price actions recently, ECB will still be a force in trigger volatility. Headline jumped to 2% in February, hitting ECB's target. However, underlying inflation pressure remained subdued. There is practically no chance for ECB to change its monetary policies yet. The key to watch is any updates on the central bank's economic projection. ECB could raise 2017 inflation forecast from 1.3%. But the 1.5% projection for 2018 and 1.7% projection for 2019 might not be changed. The 2018 and 2019 inflation forecasts would be the ones that drive Euro's movement.

Release from Europe today, German industrial production rose 2.8% mom in January. Swiss CPI rose 0.6% mom, 0.5% yoy in February.

China policy focus to shift to "risk prevention"

China surprisingly recorded trade deficit, of RMB 60B, in February. The market had anticipated a decline of surplus to RMB 173B from RMB 355B in January. Imports soared 44.7% yoy while exports gained 4.2% yoy, compared with growth of 15.9% and 25.2%, respectively, in January. The sharp rise in imports might indicate improvement in domestic demand. China's FX reserve added USD 6.9B to USD 3.01 trillion in February, marking the first increase in 8 months. The market had anticipated further decline for the month. After adjusting for currency valuation effects, the reserves probably increased USD 19-25B in the month. While this might be the first sign of the effect of China's capital control measures, we expect the government remain cautious as outflow should remain a problem for the rest of year. Note that a reason for the uptick in February was the improved performance of renminbi at the beginning of the year.

Further information, including PBOC's FX position and SAFE flow data, is needed to grasp a clearer outlook of the capital flow situation. We remains bearish over renminbi as the Fed's monetary policy normalization program should continue to support USDCNY. More in February Trade And Reserve Data Encouraging, China's Policy Focus Shifts to 'Risk Prevention' from 'Pro-Growth' in 2017.

Japan Q4 GDP revised up, but missed expectation

The Japanese yen strengthens today, in particular against European majors, as Nikkei continues its slump. Q4 GDP growth was finalized at 0.3% qoq, revised up from 0.2% qoq but missed expectation of 0.4% qoq. GDP deflator was finalized at -0.1% qoq, unrevised. Current account surplus narrowed to JPY 1.26T in January, below expectation of JPY 1.46T. Bank lending grew 2.8% yoy in February. Eco watchers sentiment dropped to 48.6 in February. Leading indicator rose to 105.5 in January.

Also from Asia Pacific session, New Zealand manufacturing activity rose 0.8% in Q4.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3350; (P) 1.3393; (R1) 1.3416; More...

USD/CAD's break of 1.3436 temporary top indicates resumption of whole rebound from 1.2968. Intraday bias is back on the upside for retesting 1.3598 high. Decisive break there will resume the medium term rally from 1.2460 and target next fibonacci level at 1.3838. On the downside, however, break of 1.3371 minor support will turn intraday bias neutral first. And that could also be an early sign of short term topping, possibly with bearish divergence condition in 4 hour MACD.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is likely still in progress and could target 61.8% retracement of 1.4689 to 1.2460 at 1.3838. We'd look for reversal signal there to start the third leg. Break of 1.2968 wold at least bring at retest of 1.2460 low. However, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

Economic Indicators Update

The DAX Index is slightly higher in the Wednesday session, trading at 11.951.50 in the European session. In economic news, German Industrial Production rebounded with a strong gain of 2.8%. On Thursday, the ECB holds its monthly policy meeting and is expected to maintain interest rate levels at 0.00%.

After some solid data last week, German numbers are mixed 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 and the DAX to lower levels.

The DAX flirted with 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 markets have been focused on a likely March move by the Federal Reserve, paying less attention to the ECB policy meeting on Thursday. The benchmark rate has been pegged at 0.00% since March 2016, and no change is expected at the upcoming meeting. Inflation levels have 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.

Sterling bears were unleashed during Wednesday's trading session, with the GBPUSD sinking to a fresh seven-week low at 1.2150 as investor anxiety heightened ahead of the UK Spring Budget speech. Treasury chief Philip Hammond will be in the limelight today, and is set to provide some insight on the UK government's financial plans as it embarks on its quest to exit the European Union. Although Hammond has stated that he may adopt a cautious approach in the Spring Budget to ensure that the UK is safeguarded from Brexit, rapidly rising Brexit-fuelled uncertainties have already negatively impacted sentiment.

With there being a live threat of the UK economy facing serious long-term risks from Brexit, fiscal discipline should be maintained, with the government potentially holding back on any spending increases. While some may be optimistic over the upgraded growth forecast for 2017 and are likely to receive reassurance from Hammond on the bright future of the UK economy, most participants remain jittery from the recent string of soft economic releases. Political developments continue to dictate market movements and this may mitigate the impact the Spring Budget has on Sterling, with sellers exploiting the anxiety ahead of the Article 50 invocation to send prices lower.

From a technical standpoint, the GBPUSD is heavily bearish on the daily charts as there have been consistently lower lows and lower highs. A breakdown below 1.2150 could encourage a decline towards 1.2000.

ADP NFP in focus

The Greenback has maintained its dominance in the currency markets during trading this week, as speculations heighten over the Federal Reserve raising US interest rates next week. With US economic data repeatedly beating expectations, sentiment towards the Dollar remains firmly bullish. Although some Trump uncertainties continue to linger in the background, the main focus now is the Fed taking action and this continues to support the currency. Investors may direct their attention towards the pending ADP Non-Farm employment report, which could elevate the Greenback higher if the data exceeds estimates. From a technical standpoint, the Dollar Index is bullish on the daily charts. A breakout and daily close back above 102.00 could encourage an incline higher towards 102.50.

Gold descends to five-week low

Gold was exposed to further losses during trading on Wednesday, as expectations intensified over the Federal Reserve raising US interest rates next week. A resurgent Dollar from the improving sentiment towards the US economy has fuelled the selloff, with prices sliding to a fresh five-week low at $1212 as of writing. The recurrent weakness displayed on Gold suggests that bulls have surrendered from the battle against rate hike expectations, with further downside expected on Friday if NFP exceeds expectations. From a technical standpoint, prices are trading below the daily 20 SMA, while the MACD has crossed to the downside. Previous support around $1220 could transform into a dynamic resistance that encourages a decline towards $1200 and potentially go even lower.

USD/CHF - 1.0133

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 : -

Dollar’s retreat after yesterday’s rise to 1.0171 suggests top has been formed and consolidation below this level would be seen and pullback to 1.0105-10 cannot be ruled out, however, reckon downside would be limited to support at 1.0073 and bring another rise later, above said resistance at 1.0171 would confirm recent erratic upmove from 0.9861 has resumed for further gain towards 1.0200-10 but overbought condition should prevent sharp move beyond previous chart resistance at 1.0248, risk from there is seen for a retreat later.

In view of this, would not chase this rise here and would be prudent to buy dollar on 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 - 1.2155

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although cable has fallen again after brief recovery and near term downside risk remains for recent decline to extend further weakness to 1.2150, loss of near term downward momentum should prevent sharp fall below 1.2100-10 and reckon 1.2070-75 would hold from here, risk from there has increased for a rebound to take place later.

In view of this, would not chase this fall here and would be prudent to stand aside in the meantime. Above the Kijun-Sen (now at 1.2193) would bring test of 1.2210-15, however, break there is needed to signal an intra-day low is formed, bring correction to the Ichimoku cloud (now at 1.2246-58) but price should falter well below resistance at 1.2301 and bring another selloff.

EUR/USD - 1.0554

Original strategy  :

Buy at 1.0525, Target: 1.0625, Stop: 1.0490

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0525, Target: 1.0625, Stop: 1.0490

Position : -

Target :  -

Stop : -

Although the single currency has remained under pressure after retreating from 1.0640 and near term downside risk remains for weakness to 1.0540-45, reckon downside would be limited to 1.0525-30 and bring another rebound later, above 1.0600-05 would bring test of said resistance at 1.0640 but break there is needed to extend the erratic rise from 1.0493 low for retracement of early decline to 1.0660-65 (50% Fibonacci retracement of 1.0829-1.0493) and possibly towards resistance at 1.0680, however, price should falter well below 1.0700-05 (61.8% Fibonacci retracement).

In view of this, we are looking to buy euro on dips. Below 1.0510 would abort and risk retest of 1.0493 but only break there would shift risk back to the downside and signal recent decline from 1.0829 has resumed for further selloff to 1.0470 and then towards previous support at 1.0454.

USD/JPY - 114.03

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Despite intra-day marginal fall to 113.61, as the greenback has rebounded after holding above support at 113.56, suggesting consolidation above this level would be seen and recovery to 114.30-35 cannot be ruled out, however, reckon upside would be limited to 114.50-55 and price should falter below last week’s high at 114.75, bring further choppy trading. Only break of 114.75 would signal the rise from 111.69 has resumed and extend gain to 114.96 (previous resistance) but price should falter well below resistance at 115.38.

On the downside, below said support at 113.56 would revive near term bearishness and add credence to our view that top has been formed at 114.75, bring retracement of recent rise to 113.20-25 (50% Fibonacci retracement of 111.69-114.75), however, downside would be limited to 113.00 and 112.84-86 (previous resistance and 61.8% Fibonacci retracement) should remain intact, bring rebound later.

Another solid jobs number this Friday could all but cement expectations for the Fed to raise rates next week and send the dollar even higher. However, investors can expect the lack of clarity on Presidents Trump's plans to grow the U.S economy through "bold" fiscal measures to cap the move.

Currently, Fed-funds futures show a +89% chance that the Fed will raise rates on March 15. A strong non-farm payroll (NFP) print this week (Fri. 08:30am) should make the Fed's decision that tad easier. The market is anticipating that employers probably added around +190k workers to payrolls, in line with the average over the past six-months and a sign of steady job growth. A miss of substance and fixed income dealers will be hastily repricing their U.S curve, while the dollar bulls will be cutting some of their positions. Investors will get a heads up from this morning's U.S ADP non-farm employment (08:15 EST).

ECB President is not expected to flinch at tomorrow's ECB meeting (07:45 EST) even after headline inflation reached the banks desired +2% target last month. ECB policy makers are expected to keep QE going until the end of this year with underlying price pressures muted.

Today, the U.K's budget arrives in a few hours (07:30 EST). Chancellor Hammond pledged on the weekend to set aside money to cushion the economy from Brexit. With the pound sitting atop of its two-month low (£1.2165), will it get a reprieve?

1. Global Stocks mixed, seek some policy clarity

For global equities, trepidation is setting in after one of the steepest post U.S election rallies in history. Investors require clarity and transparency and not Twitter policy innuendos.

In Japan, despite stronger Q4 GDP data (see below), the Nikkei eased slightly overnight (-0.5%) for the fourth consecutive session, as investors turned cautious ahead of a Friday's NFP. The broader Topix fell -0.3%.

In Hong Kong, stocks extended their gains for a third consecutive session, helped by strength in mainland property developers. The benchmark Hang Seng index added +0.4%, while the Hong Kong China Enterprises Index gained +0.5%.

In China, stocks edged lower as small-caps pulled back amid lingering concerns over tighter liquidity. News that China unexpectedly posted a rare trade deficit (see below) last month did not have an impact. The CSI300 index fell -0.1%, while the Shanghai Composite Index was unchanged.

In Europe, equity indices are trading mixed ahead of the U.K Spring Budget. Financials are trading higher in the Eurostoxx, while energy and commodities are the laggards in the FTSE 100.

U.S stocks are expected to open little changed.

Indices: Stoxx50 +0.4% at 3,395, FTSE +0.1% at 7,344, DAX +0.4% at 12,009, CAC-40 +0.1% at 4,959, IBEX-35 +0.4% at 9,836, FTSE MIB +0.4% at 19,536, SMI -0.2% at 8,610, S&P 500 Futures flat

2. Crude prices fall on likely U.S. stocks build

Ahead of the U.S open, oil trades under pressure after industry data yesterday pointed to a potential ninth straight week of inventory builds, renewing concerns about an oversupply of oil despite output curbs by OPEC.

Brent futures are down -23c, or +0.4% at +$55.69, after settling down -0.2% Tuesday. U.S. West Texas Intermediate (WTI) crude fell -29c, or -0.6% to +$52.85 a barrel, after ending the previous session down -0.1%.

Yesterday's API crude stocks rose by +11.6m barrels last week, more than five times market estimates. If that data is confirmed later today (10:30am) by the U.S. Department of Energy's (EIA) it would be the ninth straight week of inventory builds. The market is looking for a +1.7m barrel inventory build.

The Saudi Oil Minister Al-Falih stated that compliance on OPEC/Non-OPEC oil cut agreement was not yet +100%, but it was "satisfactory." The Minister is looking at extension of oil cuts beyond the May period.

Gold's (down -0.1% to +$1,224.86 per ounce) appeal as an alternative asset continues to suffer as political risk fades in Europe, and rising U.S yields supports the USD ahead of a Fed rate hike next week. On Friday, the metal hit +$1,222.51, the lowest since Feb. 15.

3. Treasury yield sentiment changing

After the biggest weekly selloff since November (U.S 10's moved from +2.354% to +2.515%), sentiment on the Treasury bond market has actually turned bullish - the most bullish since October. The percentage of investors expecting lower yields rose to +20% last week from +18% a week ago (JPMorgan's weekly Treasury client survey released Tuesday).

The share of investors expecting higher yields fell to +18% from 20%. The resulting gap of +2% reflects the most "net longs" since Oct 24.

The results would suggest some investors see the selloff as a buying opportunity and that a swift rise in yields may not in the cards. Next week's Fed decision could change all that. However, the share of investors staying "neutral" still dominates at +62%, unchanged from a week ago.

Note: Overnight, yields on U.S 10's backed up +1bps to +2.53%. Today at 01:00pm EST, U.S Treasury 10-year notes auction.

Note: German 5-year Bobl auction was technically 'uncovered' - less bids than offer volume. Average yield or -0.45%.

4. Big dollar consolidates across G10 pairs

USD strength remains evident, supported by higher Treasury yields, in another relatively quiet and stable overnight session. Investor focus is firmly on tomorrow's ECB rate decision and Friday's NFP print. Any discussions regarding a change in the ECB rate guidance is expected to gain traction in Q3 or Q4. EUR (€1.0555) 'bulls' should expect Eurozone politics (France and Netherlands) preventing the ECB from striking any 'hawkish' tone tomorrow, even as inflation data in the region improves.

The pound (£1.2149) trades atop of its two-month low outright after the House of Lords yesterday voted to add extra conditions to the Brexit bill - it now goes back to the lower house. The market expects little impact to sterling from today's U.K spring budget speech by Chancellor Hammond. However, bond dealers will be looking to see if Gilt issuance would be significantly reduced, as the economy has been resilient since the Brexit vote.

5. China trade in deficit, Japan Q4 final GDP revised higher

Lunar New Year distortions have China registering its first trade deficit in three years. In CNY terms, data shows that exports undershooting at +4.2% y/y vs. +14.6%e and imports surging +44.7% vs. +23.1%e.

Analysts note that some of the deviation should be attributed to the timing of Lunar New Year coming in late January this year versus early February last year and reason why China indexes discarded the headline print in the overnight session.

In Japan, Q4 final GDP improved slightly from the preliminary levels (+0.3% q/q vs. +0.4%e; y/y +1.2% vs. +1.5%e), but did miss the streets expectations. Consumption growth remained flat, though the CAPEX component was revised sharply higher to +2.0% from +0.9% prelim.