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Dollar maintains overall gain in early US session in spite of weak trade data. Trade deficit widened to USD -48.5b in January versus expectation of USD -47.0b. That's a 9.6% rise from December's USD -44.3b and the largest figure in five years. Imports jumped 2.3% totalling USD 240.6b. Export, one the other hand, rose 0.6% to USD 192.1b. From Canada, trade surplus widened to CAD 0.81b in January. In the currency markets, Aussie remains the strongest major currency for today but momentum is unconvincing. Fresh selling is seen in Sterling as markets are starting to position for the Brexit negotiation, which should be triggered by the end of the month by prime minister Theresa May.

OECD: Economic nationalism could derail modest recovery

The Organization for Economic Cooperation and Development warned in its latest economic outlook report that protectionism could derail the world's modest recovery. OECD chief economist Catherine Mann said that "the economic nationalism is a much bigger wildcard because we don't know how the language translates into policy at this point." In the report, OECD noted that there were evidence of pick-up in confidence but consumption, investment, trade and productivity remain weak. More importantly, "disconnect between financial markets and fundamentals, potential market volatility, financial vulnerabilities and policy uncertainties could, however, derail the modest recovery."

In addition, "financial market expectations imply that a large divergence in short-term interest rates between the major advanced economies will open up in the coming years. This raises the risk of financial market tensions and volatility, notably in exchange rates, which could lead to wider financial instability." Also, "an increase in trade barriers in the major global trading economies - Europe, the United States and China - roughly equivalent to an average increase of tariffs to the bound tariff rates in 2001, the year when the trade negotiations under the Doha Development Round started, would have a major adverse impact on trade and GDP, particularly for those economies that imposed new trade barriers."

German FM Schaeble: ECB is doing a good job

Ahead of ECB meeting this Thursday, German finance minister Wolfgang Schaeuble hailed that the central bank is doing a good job. He noted that the 2% inflation in February "did not surprise me" and "the development indicates that the economic recovery in Europe continues." Released from Eurozone, German factory orders dropped -7.4% mom in January, below expectation of -2.5%. Eurozone Q4 GDP was finalized at 0.4% qoq, unrevised. From Swiss, foreign currency reserves rose to CHF 668b in February. From UK, BRC retail sales monitor dropped -0.4% yoy in February.

BoJ Masai: Large swing in exchange was would hurt business sentiment

BoJ board member Takako Masai expressed her concerns on the large swings in exchange rate. She pointed to the volatility seen back last week when Yen surged against the greenback during the first half and dropped during the second half. She noted that "there is concern that these kinds of large swings in the exchange rates, if they continue, might have a negative impact on business sentiment." Regarding inflation outlook Masai said that "although the momentum toward achieving the 2 percent price stability target has been maintained, it continues to lack firmness."

RBA stands pat

RBA left the cash rate unchanged at 1.50% as widely expected. Policymakers turned more upbeat on the economic outlook. as noted in the accompanying statement, "most measures of business and consumer confidence are at, or above, average", whilst "consumption growth was stronger towards the end of the year, although growth in household income remains low". The statement, however, added that "with growth in labour costs remaining subdued, underlying inflation is likely to stay low for some time". RBA also mentioned that the Fed is "expected to increase further" and it is less likely for other major central banks to add more monetary policy easing. More in RBA Maintains Neutral Bias In March. Fed Funds Rate Hike Alleviates Pressure On Aussie Appreciation

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2207; (P) 1.2254; (R1) 1.2284; More...

GBP/USD's fall resumes by taking out 1.2213 and reaches as low as 1.2181 so far. Intraday bias remains is back on the downside for retesting 1.1946/86 support zone. As noted before, consolidation pattern from 1.1946 should have completed with three waves to 1.2705 already. Break of 1.1946 will confirm our bearish view and resume the larger down trend. On the upside, break of 1.2346 support turned resistance is needed to invalidate this view. Otherwise, outlook will remain cautiously bearish in case of recovery.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

USD/CAD - 1.3409

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term down

 
Original strategy       :

Buy at 1.3300, Target: 1.3450, Stop: 1.3240

Position: -

Target:  -

Stop: -

 
New strategy             :

Buy at 1.3300, Target: 1.3450, Stop: 1.3240

Position: -

Target:  -

Stop:-

The greenback has remained confined within recent established range and although pullback from 1.3437 (last week’s high) may bring minor correction to 1.3345-50, reckon 1.3300 would limit downside and bring another rise later, above said resistance at 1.3437 would extend recent upmove from 1.2969 low to resistance at 1.3461 but loss of near term upward momentum should prevent sharp move beyond 1.3500-10 and price should falter well below 1.3558, risk from there is seen for a retreat to take place later.

In view of this, would not chase this rise here and would be prudent to buy on pullback as 1.3300-10 should limit downside and bring another rise later. Below 1.3250 would defer and risk correction to indicated previous resistance at 1.3212 (now support) but only break there would suggest top is formed, bring weakness to 1.3165 first.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.

USD/CHF - 1.0145

Original strategy :

Buy at 1.0110, Target: 1.0210, Stop: 1.0075

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0110, Target: 1.0210, Stop: 1.0075

Position : -

Target :  -

Stop : -

Dollar’s intra-day breach of previous resistance at 1.0146 confirms recent erratic upmove from 0.9861 has resumed and bullishness remains for this move to extend further gain to 1.0175-80, then towards 1.0200-10, however, near term 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 1.0100-10 should limit downside. Only break of indicated support at 1.0073 would suggest an intra-day top is formed instead, risk weakness to 1.0040-45 but reckon support at 1.0009 would remain intact. 

GBP/USD - 1.2196

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As cable has remained under pressure after meeting renewed selling interest at 1.2301, suggesting near term downside risk remains for recent decline from 1.2706 to extend further weakness to 1.2170-75 but reckon 1.2150 would limit downside due to loss of downward momentum and 1.2120-25 should hold, bring another rebound 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 1.2231) would bring recovery to the Ichimoku cloud (now at 1.2261-69), break there would suggest an intra-day low is formed, bring test of said resistance at 1.2301 which is likely to hold from here . 

EUR/USD - 1.0575

Original strategy  :

Buy at 1.0535, Target: 1.0635, Stop: 1.0500

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0535, Target: 1.0635, Stop: 1.0500

Position : -

Target :  -

Stop : -

Although the single currency retreated after rising to 1.0640 yesterday and consolidation with initial downside bias is seen for weakness to 1.0560, reckon downside would be limited to 1.0540-45 and bring another rebound later, above said resistance at 1.0640 would extend the erratic rise from 1.0493 lo 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 - 113.99

Original strategy  :

Sell at 114.50, Target: 113.35, Stop: 114.80

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 114.50, Target: 113.35, Stop: 114.80

Position :  -

Target :  -

Stop : -

As the greenback recovered after finding support at 113.56 yesterday, suggesting consolidation with initial upside bias would be seen and corrective bounce to 114.30-35 cannot be ruled out, however, if our view that a temporary top formed at 114.75 last week is correct, upside should be limited to 114.50-55 and bring another decline later, below said support at 113.56 would 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), bring rebound later.

In view of this, we are looking to sell dollar on recovery for such move as 114.50 should limit upside, bring another decline. Only above said resistance at 114.75 would abort and 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.

GBPUSD: The pair faces further weakness following its continued downside pressure. Support lies at the 1.2150 level where a break will turn attention to the 1.2100 level. Further down, support lies at the 1.2050 level. Below here will set the stage for more weakness towards the 1.2000 level. Conversely, resistance stands at the 1.2250 levels with a turn above here allowing more strength to build up towards the 1.2300 level. Further out, resistance resides at the 1.2350 level followed by the 1.2300 level. On the whole, GBPUSD continues to face downside threats but with caution.

The Euro found itself under renewed selling pressure during trading on Monday following reports of former Prime Minister Alain Juppe confirming that he was not ready to run in the French presidential election. Markets simply acknowledged this fresh development as potentially heightening the chances of Marine Le Pen winning the elections which consequently exposed the Euro to further downside losses on Tuesday. Sentiment remains firmly bearish towards the Euro moving forward and the growing threat of a possible "Frexit" challenging the future of the European Union should limit future gains.

Although the economic fundamentals of Europe have repeatedly displayed signs of recovery, the persistent uncertainty over the French elections continues to leave investors jittery. While inflation in the Eurozone has reached the ECB's golden 2% target, the central bank may adopt a passive stance by keeping monetary policy unchanged on Thursday amid the ongoing political uncertainty.

From a technical standpoint, the EURUSD remains heavily pressured on the daily charts. Although the pair currently resides in a wide 150 pip range, weakness below the 1.0500 support could encourage a further selloff towards 1.0350.

Yen remains a friend

The ongoing Brexit woes, elections in Europe and Trump developments have made political risks dominant market themes for the first quarter of 2017. Uncertainty has boosted appetite for safe-haven assets with the Japanese Yen slowly becoming a trader's best choice. Risk aversion may intensify further in the coming weeks and as such may boost Yen's attraction ultimately uplifting its value. With the Yen likely to appreciate, markets will be observing how the Bank of Japan reacts to the increased volatility as the violent prices swings could impact business sentiment in Japan's economy.

A strengthening Dollar from the prospects of higher US rates combined with Yen's resurgence amid risk aversion has left the USDJPY in a tough tug of war. The USDJPY remains in a wide range on the daily charts with prices bouncing between 115.00 and 112.50. Although risk aversion could encourage bearish investors to drag the USDJPY back towards 112.50, a strong NFP on Friday should entice bulls to send the USDJPY towards 115.00.

Sterling trades below 1.2200

Sterling descended to a seven-week low below 1.2200 during Tuesday's trading session as the Brexit anxieties haunted attraction towards the currency. Investors seem edgy ahead of a second vote to Britain's upper house of parliament on granting Prime Minister Theresa May the power to trigger the formal Brexit negotiations. Sterling weakness could be a recurrent theme moving forward with the buying sentiment towards the currency remaining frighteningly low ahead of the Article 50 invoke.

The Sterling/Dollar has found itself under increased selling pressure on the daily charts with the breakdown below 1.2200 opening a path lower towards 1.2100.

Currency spotlight – Dollar

The rising confidence over the Federal Reserve raising US interest rates this month continues to support the Greenback. From a technical standpoint, the Dollar Index fulfils the prerequisites of a bullish trend on the daily charts as there have been consistently higher highs and higher lows. A decisive break and daily close back above 102.00 could encourage a further incline higher towards 102.50. Bulls should maintain control as long as the new higher low at 101.25 is not breached.

The Kiwi has struggled against the USD in recent days, but its travails are showing up on the crosses as well.

The New Zealand is in danger of going from "hero to zero" as we say down under. The Kiwi has given back almost all its Trump-fatigue driven gains of 2017 against not only the USD, but also a number of other currencies via the crosses. There is no one particular reason why everyone's favourite G-10 yielder seems to have fallen out of favour, rather a combination of factors.

The RBNZ has recently stated that it was comfortable with its current monetary settings and was still not looking at hikes until late 2018 early 2019. This was quite a surprise to many in the domestic market, although my experience there is they are always hawkish on rates anyway. This leads us to the elephant in the room, the U.S. Federal Reserve. Having wrong-footed the market by being universally hawkish into what was supposed to be a non-event March FOMC, precisely the opposite has happened. All we need now is for Friday's Non-Farm Payroll number to come in around the 190,000 expected and next week should be a done deal. Bond yields have firmed, and a narrowing interest rate differential will undermine the Kiwi although it won't be alone there in 2017.

Diminishing political risk, most especially in Europe and the glimmer of some actual detail on economic policy by the Trump administration seems to have sapped Kiwi's haven status. People may laugh at this, but it has merit. If you want to put your money away somewhere far away from the troubles and earn an actual yield on it, you could do a lot worse than New Zealand. My partner and I have just put the Trump hedge on in fact, and bought a small farm down there so consider this facts from the horse's mouth!

Regarding commodities, New Zealand's tend to be soft, not hard. Think of it this way, Australia digs gigatonnes of iron ore, copper ore, and coal out of barren patches of red dirt each year and sells it all to the Chinese. New Zealand's tend to come out of or are made of animals called Daisy, sheep (sheared or chopped up), fish and trees., i.e., soft. The rally in iron ore, copper et al. has dramatically changed Australia's terms of trade. Meanwhile, dairy prices, in particular, have softened or peaked.

This leads us to tonight's Global Dairy Auction. (GDT) This is a VERY closely watched number as Dairy is New Zealand's largest export. The weekly auction since Christmas has all been either flat to -5% in price terms. Tonight it is expected to be somewhere around -10% by the street with optimal growing conditions meaning Daisy the cow is producing a lot of dairy products.

Both the IMF and Moody's waded in today about household debt and the property market, both saying they present a large negative risk to New Zealand in the event of a "shock." Finally, the Reserve Bank of New Zealand (RBNZ) stuck the knife in this morning, announcing a bank capital review which may or may not result in the banks being required to raise more capital.

So overall many factors seemed to be conspiring to pluck the Kiwi's feathers, and this has been reflected in its relative performance on the currency markets.

NZD/USD

Testing an ascending support line that goes back to August 2015 at 6970. The next support being 6866 the December low. Below this, opens 6670 on a technical basis.

Resistance is at 7100 and then 7125/50 containing the 55,100 and 200-day moving averages.(DMA) Behind this, we see a series of daily highs at 7240 and then the long-term descending resistance line at 7390.

NZDUSD Daily

AUD/NZD

A less dovish RBA today and higher ore prices, as discussed above, sees the cross move higher again. Some readers will know that I am constantly expounding the dangers of going short AUD/NZD under or near 1.0300 and this chart shows why. From a technical point of view, it always seems to eventually lead to a rally above 1.1000 and many tears from the parity bugs. The cross has come a long way trading at 1.0885 as I write. From a technical point of view, though, it still looks to have legs.

The resistance area at 1.0665/75 has been broken and becomes support and a major pivot level. Below this, we have the 28th Feb low at 1.0618 and then the 1.0525/50 region. This contains the 55,100 and 200 DMA's. Long term support is at, you guessed it, 1.0300!

Resistance is at the 1.1045 area followed by the 1.1330/45 area.

AUDNZD Daily

NZD/JPY

A huge double top is in place at 83.80. NZD/JPY also closed below support at 80.43 and the 100 DMA at 80.00. These three levels all become resistance.

Interim support is at 78.20, followed by the long-term trendline at 77.40 and then the 200 DMA at 77.00.

NZDJPY Daily

NZD/CAD

Let's split this into two parts. I guess the thing to note is that given that Canada has perhaps the world's most dovish central bank governor at the moment, the Kiwi is sitting just above technical support against the Loonie.

Starting with the obvious, NZD/CAD is hovering just above a long-term ascending support line at 9346. From a technical basis, a daily close below opens a move to the next long-term support line at 9240.

Resistance is at 9400 and 9420, the 55/100 DMA's, then 9475, the 200 DMA, followed by 9655.

NZDCAD Daily

Part 2 is more interesting with what appears to be a head and shoulder formation on the cross. The neckline is the 2nd support at 9240. Measuring the neckline to head gives a distance of 770 points. So technically a break of the neckline could yield a move from 9240 to 8470. Better technicians than I are welcome to discuss.

EUR/NZD

EUR/NZD has been in a descending wedge pattern for the past year, which should be no surprise as we look at the events of 2016. The lines themselves, I confess, are not as exact as I would prefer, but the trend has been clear nevertheless. What is also evident, from a technical perspective, is the breakout from this long-term downtrend in the last few days.

EUR/NZD has broken the top of the wedge at 1.4840, the 55 DMA at 1.4880 and the 100 DMA at 1.4980, these all become support.

The move could imply higher levels yet, with initial resistance at 1.5285, a previous daily high and the 200 DMA. This is followed by another series of daily highs at 1.5515.

EURNZD Daily

Summary

From a technical basis, the Kiwi has broken to the downside against many major currencies. What is interesting is that the price action of the last few days has seen this breakout happen almost simultaneously across the board. Off all the G-10 currencies wizened traders will know that the Kiwi can break hearts (and profits), better than most. Nevertheless, due to the confluence of factors outlined above, the move should be respected. Traders will be closely watching tonight's Global Dairy Auction to see if the Kiwi gains some respite, or it loses more of its feathers.

Tuesday March 7: Five things the markets are talking about

Despite geopolitical tensions in Korea, lower 2017 growth target in China, and Trump's wiretap accusations, the U.S reflation trade remains somewhat intact with 10-year Treasuries gaining +4bps yesterday, briefly touching an intraday high of +2.50% during the session. Even the mighty dollar has steadied against G10 currencies in early European trade.

There seem to be no more doubts about a rate hike from the Fed next week (Mar. 14-15). It's the accompanying policy statement that equity investors should be most interested in, it will provide the market with more clues about the speed of subsequent futures rises.

Expect Friday's non-farm payroll (NFP) to also play a big part in solidifying a hike next Wednesday. Anything close to expectations and its a slam-dunk for next Wednesday, a slip and money-market dealers will be second guessing themselves.

Note: 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.

1. Stocks rally peters out

Investors betting that the global economy is strong enough to withstand an increase in borrowing costs have supported global indices to print record highs. However, the market now seems intent to seek a new catalyst to push equities any further.

In Japan, the Nikkei share average edged down (-0.2%) overnight with investors deterred mostly by geopolitical tensions after yesterday's North Korean missile tests. The broader Topix traded flat.

In Hong Kong, stocks were firm on tech share strength and property rebound. The Hang Seng index rose +0.4%, while the China Enterprises Index gained +0.6%. In China, tech stocks also supported indices. The blue-chip CSI300 index ended up +0.2%, while the Shanghai Composite Index gained +0.3%.

In Europe, equity indices are mixed. Financials are trading generally negative in the Eurostoxx, while commodity and mining stocks are supporting the FTSE 100.

U.S stocks are set to open in the red (-0.2%).

Indices: Stoxx50 -0.1% at 3,385, FTSE +0.1% at 7,359, DAX +0.1% at 11,972, CAC-40 -0.3% at 4,959, IBEX-35 -0.2% at 9,782, FTSE MIB -0.2% at 19,407, SMI flat at 8,664, S&P 500 Futures -0.2%.

2. Oil prices hold steady, eyes on economic data

Oil prices are little changed overnight, with investors searching for direction as concern over rising U.S. shale output is being negated by OPEC's production cuts.

Brent crude is down -9c, or -0.1% at +$55.92 a barrel, while West Texas Intermediate crude has fallen -6c, or -0.1% to +$53.14 a barrel.

Expect investors to take their cues from this week's crude inventory reports and tomorrow's import and export data from China.

Note: Russia and Iraq said yesterday that it was too early to discuss if the pact by OPEC and non-OPEC members should be extended beyond May.

Gold prices have edged lower (-0.1% to +$1,224.86) as the USD consolidates. The yellow metal is hovering above its two-week low print ($1,222.51) from last Friday amid signals of a hike in rates in the U.S. next week.

3. Expect wild swings in U.S T-bills this month

Dealers are forewarning that this month's U.S T-bill market will be rather volatile as the outstanding stock of bills will fall by nearly -$100B between now and March 15, as the Treasury cuts its cash position in preparation for the mid-month debt ceiling reset. This will then be preceded by a surge in bill supply in the final two-weeks.

Yesterday's T-bill auction showed a jump of +0.25% in yield in the 3-month tender (average yield +0.745%) as the market prices-in to discount next week's rate hike. The 6-month tender was also up by +15.5bps (average yield +0.835%).

Elsewhere, the Reserve Bank of Australia (RBA) left its Cash Rate Target unchanged at +1.50% (as expected) and maintained its policy rhetoric that global economic conditions have "improved over recent months." Governor Lowe reiterated that a rising AUD ($0.7593) could "complicate economic transition" and also expects Aussie headline inflation to pickup this year.

4. Sterling getting pounded

Ahead of the U.S open, the pound has fallen to its lowest level in more than seven-weeks against the USD and the EUR.

GBP/USD has dropped to £1.2198 and EUR/GBP has rallied to €0.8679 – the pounds weakest level since the third week of Jan. Whom to blame? Aside from Brexit fears, a British Retail Consortium (BRC) survey overnight showed that U.K. retail sales fell last month. This is raising concerns that the U.K's important consumer sector is cutting their spending in response to higher prices caused by a weak pound since the Brexit vote. Also hurting the pound is this morning's Halifax data, which revealed weaker-than-forecast house price growth (+0.1% vs. +0.4%). Investors will now shift their focus to tomorrows U.K. budget.

Note: The U.K's House of Lords holds its final debate and vote on Article 50 Bill.

Elsewhere, data from the Czech central bank this morning showed that it intervened on a massive scale in January, by +€14.5B – far exceeding any previous amount since the central bank introduced a currency target (€27.016) four years ago.

Note: CZK central bank has signalled that it may discontinue the target around midyear is caused investors to pour into the CZK and hence the reason for intervention.

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p>5. Eurozone growth unrevised

Eurostat has left its estimate for Q4 growth unrevised at +0.4% and +1.7% on the year.

Digging deeper, the breakdown showed the regions recovery has been kept on a steady path by a rebound in investment, and pick-ups in consumer and government spending. Trade was a drag, with imports rising at a faster pace than exports despite the EUR weakening in Q4.

The ECB should be happy to see a rise in investment, but expect Draghi to focus on inflation Thursday and potentially highlight that that consumer spending could be damped by rising inflation.