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Yesterday, the UK House of Lords dealt a blow to Theresa May's Brexit plans. The Lords voted for an amendment to the Brexit bill that will guarantee Parliament a "meaningful vote" on the final exit deal May negotiates with Brussels. This amendment essentially gives lawmakers a veto over the final deal, and allows them the option to send the government back to the negotiating table in case they are not satisfied with the deal it agrees with its EU counterparts. May had already pledged to give Parliament a vote on the final deal, but it would only be a "take it or leave it" vote, implying that in case lawmakers said no, the UK would walk away without a deal.

Even though this is a "soft Brexit" signal, as it would restrict May's ability to actually follow through with her "hard Brexit" plans, GBP was little changed on the news. We believe that this is mainly due to the fact that this amendment must also be approved by the House of Commons. The government has already confirmed that it will fight these changes in the lower house and seek to overturn them. We think that there is a high possibility of that happening given that the Commons have already shown they do not intend to interfere with the government's plans, by voting for the bill the first time without any material amendments.

Focus now turns to Chancellor Hammond, who will deliver his Spring Budget to Parliament today. Following his comments on Sunday that it is sensible to maintain fiscal discipline in order to ensure the UK can weather economic surprises, we expect a less expansionary budget than previously. We believe that signs of some fiscal tightening could bring the pound under renewed selling interest, bearing in mind that a reduction in government spending could weigh on the nation's GDP.

GBP/JPY traded lower yesterday and during the Asian morning today, it managed to touch its toe below the support (now turned into resistance) barrier of 138.80 (R1). Given that the rate is trading below the downtrend line taken from the peak of the 15th of December and also below the prior upside support line drawn from the low of the 16th of January, we believe that the near-term outlook remains negative. Therefore, we would expect the dip below 138.80 (R1) to carry extensions towards our next support hurdle of 137.90 (S1). Switching to the daily chart, we believe that the broader outlook is cautiously bearish as well. However, a clear close below 137.00 (S2) is needed to signal that the bigger downtrend is back in force.

As for the rest of today's highlights: During the European day, we have a very light data calendar, with no major indicators due to be released.

In the US, the ADP employment report for February is due out. The private sector is expected to have added 190k jobs, less than the robust 246k in January, but still a solid number that could raise speculation for the NFP figure to meet its forecast of 190k as well and thereby, support the dollar. EUR/USD moved somewhat lower yesterday, falling just below the support (now turned into resistance) level of 1.0570 (R1). A strong ADP report could add some more fuel to the pair's decline and is possible to pave the way for another test near the psychological zone of 1.0500 (S1). Looking ahead, we think that following the new administration's freeze on public sector hiring in late January, we are likely to see the ADP print coming in closer to the NFP number, considering that the NFP figure will now include fewer public employees, which are not measured in the ADP report. We also get the nation's final labor cost index for Q4.

From Canada, we get housing starts for February and building permits for January. Housing starts are expected to have rebounded, but building permits are expected to have slowed somewhat. Given the mixed expectations, the reaction in CAD could remain relatively limited.

Besides UK Chancellor Hammond, we do not have any other speakers scheduled for today.

GBP/JPY

Support: 137.90 (S1), 137.00 (S2), 136.50 (S3)

Resistance: 138.80 (R1), 139.70 (R2), 140.70 (R3)

EUR/USD

Support: 1.0500 (S1), 1.0450 (S2), 1.0390 (S3)

Resistance: 1.0570 (R1), 1.0630 (R2), 1.0500 (R3)

USD/JPY - 114.08

Original strategy  :

Sell at 114.55, Target: 113.55, Stop: 114.85

Position :  -

Target :  -

Stop : -

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.

The Euro holds stable below thickening daily cloud and cracked daily Tenkan-sen (1.0566) that adds weight on negative near-term tone.

Immediate target at 1.0549 (Fibo 61.8% of 1.0493/1.0638 upleg) is eyed, with close below here needed to confirm lower top at 1.0638.

Strong bearish setup of daily studies supports scenario of full retracement of 1.0493/1.0638 correction and fresh bearish extension on firm break below 1.0493 base (lows of 22Feb / 02 Mar).

However, fundamentals are likely to influence near-term action, with today's US ADP data seen as indication for more significant US NFP numbers on Friday, which are expected to generate stronger signal.

Also, ECB's policy meeting, due on Thursday, will be closely monitored.

Break out of initial range between 1.0493/1.0638 to define near-term direction.

Res: 1.0566, 1.0585, 1.0605, 1.0637
Sup: 1.0549, 1.0528, 1.0493, 1.0454

'The euro has already survived a number of scares since its inception in 1999, with the political and economic elites proving willing to do whatever it takes to support the currency.' – Ian Wishart, Mira Rojanasakul and John Fraher, Bloomberg

Pair's Outlook

On early Wednesday morning the common European currency was slowly continuing its way lower against the US Dollar. The rate had finally broken free from the grip of the weekly PP at 1.0582, around which the currency exchange rate was fluctuating around for almost 48 hours. The currency pair is set to fall next to the weekly S1, which is located at 1.0533 level. It is most likely that the decline will occur gradually, as there are minor support levels, which have proven themselves to be strong enough to even change the direction of the rate for short periods of time.

Traders' Sentiment

For the third consecutive trading session SWFX traders remain neutral bullish, as 51% of open positions are long on Wednesday. Meanwhile, 61% of trader set up orders are to sell the Euro.

'GBP is consequently one of the most attractive currencies to sell for an extension of the dollar's interest rate rally.' – JP Morgan (based on PoundSterlingLive)

Pair's Outlook

The Pound suffered once again yesterday, falling deeper down against the US Dollar. The relatively sharp bearish momentum has been prevailing for nearly two weeks in a row now when the Cable retested the down-trend at 1.2570, and is expected to remain in the markets today as well. The GBP/USD pair could then fall towards 1.2119, namely the monthly S2, even though a possibility of bulls taking over still exists, as technical studies retain mixed signals. Moreover, a disappointment in today's ADP Employment Change reading is likely to weaken the US Dollar, which would allow the Sterling to take the opportunity and recover some of previous two-week losses.

Traders' Sentiment

Traders' sentiment remains bullish at 62%, but the portion of purchase orders declined over the day, namely from 60 to 54%.

'With attention on whether the Fed can conduct three hikes this year, Friday's jobs data will provide important cues as to whether an inflation-inducing wage increase is taking place.' – IG Securities (based on Reuters)

Pair's Outlook

On Tuesday, the USD/JPY pair remained relatively unchanged again, unable to reclaim the 114.00 major level. Even if this mark is overcome, the Buck is still unlikely to appreciate beyond 114.50, as the ascending channel's resistance line is located there, also bolstered by the 55-day SMA, the monthly R1 and the upper Bollinger band. Technical indicators are also in favour of the positive outcome, but today's ADP Employment data could turn the tide for the US Dollar, causing it to fall to around 113.30. A flat outcome would also not be a surprise, as the main focus is still on Friday's NFP data this week.

Traders' Sentiment

Today 60% of all open positions are long, compared to 61% on Tuesday. At the same time, the number of orders to purchase the Greenback inched up from 54 to 57%.

'Gold has made a modest recovery this morning as early Asian buyers are sighted.' – Jeffrey Halley, OANDA

Pair's Outlook

The yellow metal has dropped below the 1,220 mark. In particular, the commodity price managed to decline as low as 1,213.92, where the bullion's price rebounded and began a surge, which occurred during the early hours of Wednesday's trading session. It is most likely that the decline of the bullion will continue in the near future, as the commodity price is facing the resistance put up by the weekly S1 at 1,216.60 and the 38.20% Fibonacci retracement level at the 1,219.20 level. The next level to decline to is the cluster of support, which surrounds the 1,208.96 level, where the monthly S1 is at.

Traders' Sentiment

Traders remain firm regarding their opinion, as 54% of open positions remain long. Meanwhile, 62% of trader set up orders are set to buy the metal.

'This is no longer a blip. We've got a good run going here.' - Peter Hall, Export Development Canada

The Canadian trade balance remained in the positive territory for the third consecutive month in January, the longest streak since 2014, suggesting the economy regained momentum after the oil price collapse. Statistics Canada reported on Tuesday that the country's trade surplus hit C$0.8 billion, while analysts expected January's surplus to come in at C$0.2 billion. Meanwhile, December's originally reported trade surplus of C$0.9 billion was revised down to C$0.4 billion. Data showed exports advanced 0.5% in January, while imports fell 0.3%. In volume terms, exports and imports rose 1.0% and 2.5%, respectively. After the release, the Canadian Dollar rose slightly against its US counterpart, trading at C$1.3406. Back in the Q4 of 2016, the Canadian economy expanded at a stronger than expected pace, driven by higher household spending and lower imports. However, despite the economy's strong performance, the Bank of Canada left its key interest rate unchanged at its last policy meeting on March 1, pointing to significant uncertainties in the Canadian economy. Other data released on Tuesday showed the Ivey PMI dropped to 55.0 last month, after hitting 56.4 in the previous month. February's decline was mainly driven by lower material prices. However, the Employment Index climbed to 54.5 from 53.5 in January.

'One poor result doesn't have a huge impact on the milk price [but] it will be difficult for prices to recover quickly while there is surplus product available'. - Susan Kilsby, AgriHQ

Dairy product prices dropped markedly at the latest Global Dairy Trade auction, official figures revealed on Tuesday. The GDT Price Index fell 6.3% amid a decrease in skim-milk and whole-milk powder prices. Data showed the price of whole-milk powder, New Zealand's key commodity export, fell 12.4% to $2,782 per tonne, while the price of skim-milk powder declined 15.5% to $2,118 per tonne. Back in February, Fonterra confirmed its forecast farm gate milk price for 2016-2017 of $6 a kilogram of milk solids amid a rebound in whole-milk powder pricing. Nevertheless, whole-milk powder prices dropped 22.5% since December. Usually at this time of the year offer volumes of dairy products start to decline; however, the recent pick-up in Fonterra's milk intake is expected to increase the company's supply of dairy products. Last week, Fonterra lifted 49% skim-milk powder volumes, as well as increased 6% the amount of whole-milk powder available. Analysts reported that the GDT prices at this morning's auction had been even weaker than the marked initially expected. Anhydrous milk-fat prices fell 0.8%, while prices of cheddar, lactose and casein dropped 4.2%, 4.3% and 6.6%, respectively. However, the price of butter climbed 1.2%, whereas the butter-milk powder price rose 8.4%.

'The manufacturing sector is very worried about the development of U.S. economic policy. I think that is one of the reasons why they are very cautious about making greater business investments. This is the one area where we have a great deal of uncertainty in Japan'. - Sayuri Shirai, Keio University

The Japanese economy expanded at a stronger than initially reported pace in the last quarter of 2016, due to upward revisions in business spending and business investment. The Cabinet Office reported on Wednesday the economy grew at an annualized pace of 1.2% in the Q4 of 2016, up from the preliminary reading of 1.0%. However, the figure missed analysts' expectations, who anticipated growth at 1.6%. On a quarterly basis, Japan's GDP climbed 0.3%, above the 0.2% preliminary reading, yet below consensus estimates of a 0.4% rise. Fresh data confirmed the presence of serious challenges, faced by Japan's policymakers. Even though the Japanese economy reported growth for four consecutive quarters, marking the longest stretch in three years, business investment and consumption remained subdued. The Bank of Japan's former board member Sayuri Shirai said that the corporate sector was 'very cautious of making an investment' amid uncertainties in both global and local economy. Shirai served at the BoJ's Policy Board from April 2011 to March 2016 and supported the QQE programme in 2013 and 2014. However, back in January 2016, she voted against negative interest rates. Data showed capital expenditure advanced 2.0% quarter-over-quarter in the Q4, surpassing expectations for a 1.7% climb and following the preliminary figure of 0.9%.