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EUR/USD has ticked lower in the Wednesday session. Currently, the pair is trading at 1.0550. On the release front, German Industrial Production rebounded with a strong gain of 2.8%. Later in the day, the US releases ADP Nonfarm Employment Change, ahead of the official Nonfarm Payrolls report on Friday. On Thursday, the ECB will set the benchmark rate, while the US releases unemployment claims.

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 south towards the 1.05 level.

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. The US will kick off a host of employment indicators this week, starting with the ADP Nonfarm Payrolls on Wednesday. These job numbers will be critically important, as strong numbers will likely boost the odds of a March move as well as push the greenback to higher levels.

Inflation in Europe continues its improving trend

Notes/Observations

Lunar NY distortions has China register its 1st trade deficit since early 2014

Switzerland Feb CPI beats expectations as the country continues to slowly emerge from years of deflation brought on by the strong franc; Hungary Feb CPI near target and at 4-year high

UK budget seen as non-event but FY16/17 gilt issuance seen significant lower

Asia:

Japan Q4 Final GDP misses estimates but above preliminary levels (QoQ: 0.3% v 0.4%e; YoY: 1.2% v 1.5%e). Prelim readings were 0.2% and 1.0% respectively; capex rises at fastest pace in almost 3 years

Europe:

UK House of Lords voted in favor of adding extra conditions to Brexit Bill (loss for PM May govt); called for a binding vote on the final Brexit agreement with Europe; bill moves back to House of Commons

Two Govt ministers said to call for PM May to call a snap election to give her a clear mandate for her Brexit plan -

EU Official stated that Greece bailout discussions were progressing but an agreement prior to their next Eurogroup meeting on March 20th was unlikely; Greece official believes deal was possible by Mar 20th.

Americas:

US Jan Consumer Credit registers its smallest gain since July 2012 ($8.8B v $17.3Be)

Energy:

Weekly API Oil Inventories: Crude: +11.6M v +2.5M prior (6th build in the past 7 weeks; Highest build since Feb 7th)

Saudi Oil Min Al-Falih stated that compliance on OPEC/Non-Opec oil cut agreement was not 100% yet but it was satisfactory. To look at extension of oil cuts in May period

Economic data

(DE) Germany Jan Industrial Production M/M: 2.8% v 2.7%e; Y/Y: 0.0% v -0.6%e

(FR) France Jan Trade Balance (miss): -€7.9B v -€3.8Be

(HU) Hungary Feb CPI M/M: 0.4% v 0.4%e; Y/Y: 2.9% v 2.8%e (annual pace at a 4-year high)

(CZ) Czech Feb Unemployment Rate: 5.1% v 5.2%e

(CH) Swiss Feb CPI (beat) M/M: 0.5% v 0.2%e; Y/Y: 0.6% v 0.4%e; highest annual since Jun 2011

(CH) Swiss Feb CPI EU Harmonized M/M: 0.6% v 0.2%e; Y/Y: 0.7% v 0.4%e

Fixed Income Issuance:

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

(DK) Denmark sold total DKK2.46B in 2021 and 2027 Bonds

(SE) Sweden sold SEK2.5B vs. SEK2.5B indicated in 2025 and 2026 Bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

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]

Market Focal Points/Key Themes: European equity indices are trading generally higher but mixed ahead of the UK Spring Budget scheduled later today; Banking stocks trading higher in the Eurostoxx with the sector gains led by shares of Deutsche Bank, ING and SocGen; shares of Adidas the notable gainer in the index after releasing their Q4 results; shares of Deutsche Post the notable laggard however after releasing their Q4 results; Insurers Admiral and Legal & General the laggards in the FTSE 100 after releasing their respective results, as the recent Ogden rate change takes further toll on the industry; Energy stocks trading lower as WTI and Brent contracts trade lower intraday.

Upcoming scheduled US earnings (pre-market) include Bob Evans Farms, CIENA Corp, Express, Hovnanian Enterprises, Orbital ATK, Children’s Place Retail, Stein Mart, Tech Data Corp, and Valspar Corp.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Adidas ADS.DE +6.4% (Q4 results), Air France AF.FR +4.9% (Feb metrics), Beiersdorf BEI.DE -1.3% (FY16 results), G4S GFS.UK +6.4% (FY16 results), PageGroup PAGE.UK -0.1% (FY16 results)]

Energy: [EDF EDF.FR -6.5% (French Govt sold 231M shares), Verbund VER.AT -2.0% (FY16 results)]

Financials: [Admiral Group ADM.UK -1.5% (FY16 results), Deutsche Pfandbriefbank PBB.DE +6.9% (FY16 results), Foxtons FOXT.UK -1.3% (FY16 results), Legal & General LGEN.UK -1.2% (FY16 results)]

Industrials: [Boskalis Westminster BOKA.NL -6.7% (FY16 results), Dassault Aviation AM.FR -0.4% (final FY16 results), Deutsche Post DPW.DE -2.3% (Q4 results), Dorma+Kaba DOKA.CH -5.1% (H1 results), SAS SAS.SE +0.7% (Q1 results, Feb metrics)]

Technology: [Agfa Gevaert AGFB.BE +4.7% (FY16 results)]

Telecom: [Inmarsat ISAT.UK +6.7% (Q4 results)]

Speakers

Turkey Central Bank gov Cetinkayastated that more monetary tightening was possible if required. He noted that inflation was expected to trend lower by mid-2017

S&P stated that the UK economy was gradually losing momentum and saw the first signs of gradual slowing of GDP growth

China Foreign Exchange Trade System (CFETS): CNY currency (Yuan) was basically stable against the basket in Feb. Fundamentals to support currency as a stable and strong currency and saw 2-way moves of yuan currency with flexibility

Currencies

FX markets were quiet and stable in the session but a bit of USD strength remained evident. Focus turning to ECB rate decision on Thursday and US jobs report on Friday. Dealers believe that discussions regarding a change in the ECB rate guidance should gain traction later in the year, but politics should prevent the ECB from striking a hawkish tone just yet even as inflation data in the region improves.

GBP was softer and back below 1.22 level to fresh 7-week lows after the House of Lords voting to add extra conditions to the Brexit bill. Dealers now see if the changes would be removed now that the bill was moving back to the lower house. Little impact seen from spring budget speech by Chancellor Hammond later today but Gilt issuance could be significantly reduced as the economy has been resilient since last June

CHF was mixed as Swiss Feb CPI reading of 0.6% was highest annual pace since June 2011.

Fixed Income:

June Bund futures trade at 160.86 down 44 ticks continuing to decline on risk on trade, with Equities recovering from earlier weakness. The Mar-Jun spread currently stands at 309 ticks down . Support remains at 160.63 then 159.96.Resistance remains at 161.59 followed by 162.32 then contract high at 163.12.

Gilt futures trade at 126.46 down 35 ticks tracking declines in the Bund as futures continue to come off from highs seen last week. Support remains at 126.12 followed by 125.57. Resistance remains at 126.87 followed by 127.35. Short Sterling futures trade flat to down 1bp, in slight steepening trade with Jun17Jun18 spread widening to 12/13bp.
Wednesday liquidity report showed Tuesday's excess liquidity rose to €1.352T up €7B from €1.345T prior. Use of the marginal lending facility rose to €383M from €276M prior.

Corporate issuance saw $13.1B come to market via 9 issuers led by Siemens 7 part $7.5B offering which was just under 2 times covered. Weekly issuance now stands at $35.75B bringing monthly issuance to $49.8B.

Looking Ahead

05:30 (DE) Germany to sell €4.0B in 0% Apr 2022 BOBL

05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 2020 and 2026 OT bonds

06:00 (CL) Chile Feb CPI M/M: 0.3%e v 0.5% prior; Y/Y: 2.8%e v 2.8% prior, CPI Ex Food and Energy M/M: 0.2%e v 0.5% prior

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

06:00 (IL) Israel Q4 Current Account Balance: No est v $2.8B prior

06:00 (CZ) Czech Republic to sell 2020, 2023 and 2028 bonds

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

07:00 (BR) Brazil Jan Industrial Production M/M: -0.4%e v +2.3% prior; Y/Y: +1.0%e v -0.1% prior

07:00 (US) MBA Mortgage Applications w/e Mar 3rd: No est v 5.8% prior

07:00 (UK) Prime Minister's Question Time in House of Commons

07:30 (UK) Chancellor Hammond announces spring Budget (DMO forecasts)

08:15 (US) Feb ADP Employment Change: +187ke v +246k prior

08:15 (CA) Canada Feb Annualized Housing Starts: 200.0Ke v 207.4K prior

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Q4 Final Nonfarm Productivity: 1.5%e v 1.3% prelim; Labor Costs: 1.6%e v 1.7% prelim

08:30 (CA) Canada Q4 Labor Productivity Q/Q: 0.4%e v 1.2% prior

08:30 (CA) Canada Jan Building Permits M/M: +3.0%e v -6.6% prior

10:00 (US) Jan Wholesale Inventories (Final) M/M: -0.1%e v -0.1% prelim; Wholesale Trade Sales M/M: 0.5%e v 2.6% prior

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

10:30 (US) Weekly DOE Crude Oil Inventories

12:00 (CA) Canada to sell 3-Year Bonds

13:00 (US) Treasury to sell 10-Year Notes Reopening

News and Events:

Carry play is not done yet

Emerging market currencies in general have performed extremely well since the beginning of the year and this in spite of tighter monetary policy expectations in the US. The whole picture got brighter for emerging markets as commodity prices rose and investors became more optimistic about global demand as Trump took office. The risk embedded in EM trades improved continuously over the last few months as 5y sovereign CDS narrowed substantially (Brazil -20bps, Mexico -17bps, Turkey -15bps, South Africa -15bps), while implied volatility on EM crosses almost vanished. Carry trade plays returned in force this year as investors were eager to harvest returns in this low yields environment.

After this great start into the year, investors preferred to take profit on their long carry positions ahead of next week FOMC meeting. However, we believe that EM currencies with low domestic/political risk still have some room for further appreciation should Trump’s economic boost story comes into play, eventually. Regarding the Federal Reserve, next week’s rate hike is already priced in, therefore the risk is mostly on the downside in USD. We maintain our long INR view, while we believe the rally in the Brazilian real may resume. From a more general standpoint, the long USD speculative positioning, as reported by the CFT, has been continuously decreasing over the first quarter to reach the lowest level since July 2016. Obviously, commodity currencies showed the largest increase in long positioning as commodity prices recovered.

US ADP data not likely to hurdle a March rate hike

After years of patience and false hopes it seems almost certain that the Fed will raise rates next week. However, we believe that rates will not go above 2% within the next couple of years especially as the majority of the very indebted economic institutions would not be able to reimburse credit, loans or mortgages.

Whatever the ADP data, which is expected to come in at 187k new jobs in February, it will not significantly change market pricing for a rate hike, which is now estimated around 96%. We believe that even a low number would not cause the Fed to stop its tightening. US yields are also on the rise, the 2-year yield has broken 1.3%, which represents its highest level in nine years. Markets are remaining cautious with most expecting US rates to be at 1% - 1.5% by year-end.

Indeed, credibility is one major issue with the Fed. We still believe that the rate path is overestimated and that the USD may face further weakness in the medium-term. It is clear to us that after years of patience, the Fed must raise rates to preserve its credibility. Since last year, inflation has picked up but other fundamental data remains mixed. Rates may be set to increase but should remain low for some time. In the longer-run, we would rule out any rate hike above 1.25%.

Today's Key Issues (time in GMT):

• Jan Industrial Production MoM, exp 1,00%, last -0,20%, rev 0,00% TRY / 07:00
• Jan Industrial Production YoY, exp 1,80%, last 1,30%, rev 1,60% TRY / 07:00
• Jan Industrial Production SA MoM, exp 2,70%, last -3,00%, rev -2,40% EUR / 07:00
• Jan Industrial Production WDA YoY, exp -0,60%, last -0,70%, rev -0,10% EUR / 07:00
• Jan Trade Balance, exp -3800m, last -3421m, rev -3569m EUR / 07:45
• Jan Current Account Balance, last -1.1b, rev -1.2b EUR / 07:45
• 4Q INE House Price Index QoQ, last 0,80% EUR / 08:00
• 4Q INE House Price Index YoY, last 4,00% EUR / 08:00
• Jan Industrial Output NSA YoY, last -1,60%, rev -1,50% EUR / 08:00
• Jan Industrial Output SA YoY, exp 2,40%, last 1,90%, rev 2,00% EUR / 08:00
• Jan Industrial Production MoM, exp 0,20%, last -0,50% EUR / 08:00
• Feb CPI MoM, exp 0,20%, last 0,00% CHF / 08:15
• Feb CPI YoY, exp 0,40%, last 0,30% CHF / 08:15
• Feb CPI EU Harmonized MoM, exp 0,20%, last -0,20% CHF / 08:15
• Feb CPI EU Harmonized YoY, exp 0,40%, last 0,30% CHF / 08:15
• Jan Household Consumption (MoM), last -2,10%, rev -1,60% SEK / 08:30
• Jan Household Consumption (YoY), last 0,70%, rev 1,40% SEK / 08:30
• Feb SACCI Business Confidence, last 97,7 ZAR / 09:30
• mars.07 FGV CPI IPC-S, exp 0,35%, last 0,31% BRL / 11:00
• Jan Industrial Production YoY, exp 1,00%, last -0,10% BRL / 12:00
• Jan Industrial Production MoM, exp -0,40%, last 2,30% BRL / 12:00
• mars.03 MBA Mortgage Applications, last 5,80% USD / 12:00
• U.K. Spring Budget GBP / 12:30
• Feb ADP Employment Change, exp 187k, last 246k USD / 13:15
• Feb Housing Starts, exp 200.0k, last 207.4k CAD / 13:15
• 4Q F Nonfarm Productivity, exp 1,50%, last 1,30% USD / 13:30
• 4Q F Unit Labor Costs, exp 1,60%, last 1,70% USD / 13:30
• Revisions: Productivity and Costs USD / 13:30
• 4Q Labor Productivity QoQ, exp 0,40%, last 1,20% CAD / 13:30
• Jan Building Permits MoM, exp 3,00%, last -6,60% CAD / 13:30
• Jan F Wholesale Inventories MoM, exp -0,10%, last -0,10% USD / 15:00
• Jan Wholesale Trade Sales MoM, exp 0,50%, last 2,60% USD / 15:00
• mars.03 DOE U.S. Crude Oil Inventories, exp 2000k, last 1501k USD / 15:30
• mars.03 DOE Cushing OK Crude Inventory, exp 406k, last 495k USD / 15:30
• Currency Flows Weekly BRL / 15:30
• Feb Foreign Direct Investment YoY CNY, exp -4,20%, last -9,20% CNY / 23:00

The Risk Today:

EUR/USD is moving lower. Hourly resistance is given at 1.0679 (16/02/2017 high). Hourly support at 1.0521 (15/02/2017 low) has been broken. The technical structure suggests deeper consolidation towards 1.0500. 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 has broken support given at 1.2254 (19/01/2017 low). The road is wide-open for further decline. Hourly resistance is given at 1.2214 (intraday high). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY is showing limited short-terms buying interest after reversing off base lows. Key resistance is given at 115.62 (19/01/2016 high). The technical structure suggests further weakening towards 112.00. 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 continues to improves after testing 1.0021 support. Hourly resistance is implied by upper bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Expected to see further strengthening. 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.

Cable is trading near 1.2180 area within wave five drop from 1.2568 which can be coming to an end. However, there is still room for a leg down to 1.2100 before we may get a strong turn. But as always, we need to see a rise in five small waves back to 1.2300 before we may confirm a turning point.

GBPUSD, 1H

Fresh weakness back below 0.7600 handle turns near-term focus lower after recovery attempt stalled at 0.7630. Fresh easing was supported by 10/30 SMA's bear-cross at 0.7630, increasing risk of retesting recent correction low at 0.7541 and possible extension towards plethora of strong supports that lay below and consisting of 200SMA (0.7527), Fibo 38.2% of 0.7158/0.7739 and 55/100SMA SMA's bull-cross at 0.7508 that mark the lower breakpoint. The notion is supported by lower top left at 0.7630 and signals of extension of corrective phase from 0.7739. However, the pair may extend consolidation within recently established range, ahead of US jobs data that may give more clues about near-term direction.

Res: 0.7606, 0.7630, 0.7648, 0.7680
Sup: 0.7541, 0.7527, 0.7508, 0.7463

The pair remains neutral in the near term, leaving double-Doji in past two days, with the price action holding so far above strong support at 113.56 (Fibo 38.2% of 111.67/114.73 upleg).

Near-term price action is stuck between 113.56 and 114.00 (Fibo 38.2% and 23.6%) with mixed daily studies supporting directionless mode that may extend, as the pair is looking for firmer signals on US jobs data on Friday.

Break above initial pivot at 114.00 is needed to sideline downside risk and shift near-term focus higher and expose 114.50 zone, where daily cloud is twisting that may attract for further upside action.

Conversely, loss of 113.56 pivot and a cluster of supports, formed by 10/20/30 daily MA’s would generate stronger bearish signal.

Res: 114.14, 114.38, 114.50, 114.73
Sup: 113.56, 113.30, 113.00, 112.84

Cable remains firmly in red and approaches next target at 1.2155 (Fibo 76.4% of 1.1986/1.2704 rally), after Monday's close below 1.2260 pivot (Fibo 61.8%) generated strong signal of bearish continuation. Fundamentals are adding on downside pressure from firmly bearish technical studies that may extend bear-leg from 1.2300 lower base towards January's low at 1.1986. Slow stochastic is oversold on daily chart but so far without firmer bullish signals, however, consolidative/corrective action could be anticipated in the near-term. Session high and hourly lower base at 1.2212 marks initial resistance, ahead of former triple upside rejection at 1.2300 and falling 10SMA at 1.2327 that are expected to cap extended upticks.

Res: 1.2212, 1.2262, 1.2300, 1.2327
Sup: 1.2155, 1.2119, 1.2035, 1.2000

USD/CHF - 1.0129

Original strategy :

Buy at 1.0110, Target: 1.0210, Stop: 1.0075

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 - 1.2165

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 - 1.0555

Original strategy  :

Buy at 1.0535, Target: 1.0635, Stop: 1.0500

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.