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EUR/USD has ticked lower in the Tuesday session. Currently, the pair is trading at 1.0560. On the release front, German Factory Orders declined 7.4%, well below the estimate of a 2.5% decline. Eurozone Revised GDP edged up to 0.4%, matching the forecast. In the US, today’s highlight is Trade Balance, with an expected deficit of 47.0 billion. On Wednesday, the US releases ADP Nonfarm Employment Change, ahead of the official Nonfarm Payrolls report on Friday.

After some solid data last week, German numbers have looked dreadful early in the week. The markets were braced for a soft reading from Factory Orders in February, but the sharp drop of 7.4% was much worse than expected. On Monday, 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. The euro has held steady despite these weak readings, but if the negative trend continues from the Eurozone’s largest economy, investors could get edgy and the euro could again head south towards the 1.05 level.

Donald Trump continues to create controversy on an almost basis, much to the consternation of the markets. Still, the dollar remains strong, buoyed by 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 as jumped to 84%, according to the CME group, compared to 33% just a week ago. Why the huge jump in odds? One reason is that Fed policymakers have sent out strong hints that the Fed is leaning towards raising rates next week. Earlier in the year, the Fed sent out signals Fed sent out signals that it would stay on the sidelines until it had a clearer picture of Trump’s economic agenda, such as an outline of tax reform or fiscal spending plans. That has changed, as the Fed appears poised to move ahead despite the lack of any details about the administration’s economic policy. This week’s 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.

The pair returned below 0.7600 handle on Tuesday after probe above pivot at 0.7616 (Fibo 38.2% of 0.7739/0.7541 pullback) failed to sustain break, as rally was capped by 55SMA at 0.7634.

Studies on daily chart remain mixed and lacking clearer direction signals that may result in prolonged consolidation.

Downside is expected to remain at risk as pullback from 0.7739 doesn't look completed.

Increased downside pressure could be expected on violation of 0.7541 (Friday's low) that would expose a cluster of strong supports, consisting of 200 / 100 and 55 SMA's (0.7526/0.7509/0.07508 respectively) and Fibo 38.2% of 0.7158/0.7739 rally that marks downside breakpoint.

Conversely, bounce above upper triggers at 0.7634 / 0.7641 / 0.7653 (55 / 10 / 20 SMA's) is needed to generate stronger bullish signal for fresh recovery.

Res: 0.7634, 0.7641, 0.7653, 0.7697
Sup: 0.7571, 0.7541, 0.7526, 0.7509

EUR/JPY - 120.47

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Sideways

Original strategy:

Buy at 119.65, Target: 121.35, Stop: 119.05

Position: -
Target:  -
Stop: -

New strategy :

Buy at 119.65, Target: 121.35, Stop: 119.05

Position: -
Target:  -
Stop:-

Euro’s retreat after rising to 121.19 late last week suggests consolidation below this level would be seen and pullback to 120.00 is likely, however, reckon downside would be limited to 119.60-65 and bring another rise later, above said resistance at 121.19 would extend the rebound from 118.24 low for retracement of recent decline to 121.30-35 but overbought condition should limit upside to 121.90-00 and price should falter well below resistance at 122.52, bring another decline later.

In view of this, we are looking to buy euro on dips as 119.60-65 should limit downside. Below previous resistance at 119.47 would defer and risk weakness to 119.00-10 but reckon support at 118.67 would contain downside and bring further consolidation. Only below this support would signal the rebound from 118.24 has ended, bring retest of this level later. A drop below there would extend recent decline from 124.10 top to 118.00 and later towards 117.50.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7587

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term up

New strategy :

Sell at 0.7605, Target: 0.7450, Stop: 0.7665

Position: -
Target:  -
Stop:-

Although aussie recovered after falling to 0.7543 late last week, reckon upside would be limited to 0.7640-45 (50% Fibonacci retracement of 0.7741-0.7543) and bring another decline later, below said support at 0.7543 would extend the fall from 0.7741 top for retracement of recent upmove to 0.7512 support but oversold condition should prevent sharp fall below previous support at 0.7493 and price should stay above support at 0.7449, bring rebound later.

In view of this, we are looking to sell aussie on recovery as 0.7605-10 should limit upside. Only above 0.7665 (61.8% Fibonacci retracement of 0.7741-0.7543) would abort and suggest the retreat from 0.7741 has ended, bring a stronger rebound to 0.7700 but price should falter well below said resistance at 0.7741, bring another decline.

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Pullback from last Friday's recovery top at 114.73 was so far contained at 113.56 (Fibo 38.2% of 111.67/114.73 upleg), with yesterday's action shaped in Doji candle and signaling indecision.

Plethora of strong supports that lies just below (converged 10/20/30 SMA's at 113.30 zone) stays intact for now and firm break here is needed for stronger bearish signal.

However, daily cloud is twisting up on Wednesday and could attract for fresh upside attempts.

Current action could be seen as consolidation ahead of renewed bulls, with 113.56/30 zone required to hold and keep scenario in play.

Daily studies show mixed signals, as MA's are bullishly aligned but other indicators are holding in neutrality zone.

Initial bullish signal could be expected on firm break above 114.00 handle, with lift above 114.30 needed to confirm and signal further upside for attack at upper triggers at 114.73 (Friday's recovery rejection) and 114.94 (15 Feb spike high).

Res: 114.11, 114.30, 114.73, 114.94
Sup: 113.56, 113.30, 113.00, 112.84

Fresh weakness on Tuesday is probing below new 7-week low at 1.2212, after bearish acceleration on Monday managed to close below 1.2260 Fibo support on third attempt.

This gives fresh bearish signal for extension of the downleg from 1.2568 (24 Feb lower top) towards next target at 1.2155 (Fibo 76.4% of 1.1986/1.2704 rally).

Daily studies are in firm bearish setup, with fresh bear-crosses of 10/100 and 10/55 SMA's maintain strong downside pressure.

However, slow stochastic is oversold on daily chart and warns of possible bullish signal that would delay bears.

Session high at 1.2250 marks solid resistance which guards more significant barriers at 1.2300 zone (triple upside rejection) where extended upticks should be ideally capped.

Res: 1.2250, 1.2300, 1.2356, 1.2379
Sup: 1.2200, 1.2155, 1.2119, 1.2035

Overnight, the Reserve Bank of Australia kept its borrowing costs unchanged and maintained its neutral bias with regards to policy. The meeting statement was more or less a repetition of the previous one, offering little fresh information to investors. The Bank reiterated that the domestic economy remains robust, and for the umpteenth time it noted that it prefers a weaker currency, as an appreciating Aussie could complicate economic adjustments. Perhaps the most noteworthy point was that the officials are still worried about high housing prices posing a risk to financial stability. This suggests that the bar for any further easing remains high, reinforcing our view that the Bank is likely to stay on hold for a while. Perhaps due to the lack of fresh forward guidance from the RBA, the reaction in the Aussie was relatively limited on the decision, though the currency moved a bit higher against its major counterparts in the following minutes.

Looking ahead, the outlook for the Aussie appears cautiously positive in our view, at least against most of its major counterparts. The RBA has shown little appetite for further easing, and has maintained a neutral stance in all its latest communications. At the same time, Governor Lowe recently indicated that it's hard to say that the Australian dollar is overvalued, implying that the RBA may be tolerant of some further gains in the currency. What's more, iron ore prices have surged in recent months, something likely to continue to support Australia's commodity-exporting economy. However, we prefer to avoid the USD as a counterpart to exploit any future AUD gains, considering the hawkish signals from FOMC policymakers regarding a March rate hike. Instead, EUR/AUD appears a much better play, having in mind that Eurozone's political uncertainties have begun to escalate (see below).

EUR/AUD slid yesterday after it hit resistance near the psychological round figure of 1.4000 (R2) and the lower bound of the falling wedge that had been containing the price action from December 2015 until February 2017. That move supports our view that the broader path remains negative and that the recovery started on the 22nd of February was just a corrective phase. We expect the bears to continue pushing the rate lower in the foreseeable future and perhaps challenge the 1.3840 (S1) level soon. A clear break below that area is possible to see scope for extensions towards our next support of 1.3725 (S2).

European political risks come back into the spotlight

European political risks emanating from the French Presidential election came back under the market's microscope yesterday, as the Republican Party formally announced that its candidate will be Francois Fillon. Prior to this, there was some chatter about Fillon dropping out of the race and being replaced by Alain Juppe, since Fillon's chances to win were seen as diminishing following the recent allegations over payments to his family members for parliamentary work.

Juppe announced yesterday that he will not challenge Fillon, which implies that Republicans may not even make it to the second round as Fillon is currently third in most polls, behind Macron and Le Pen. Therefore, this may have been interpreted as increasing the odds for Le Pen to win the presidency, something that pushed the euro somewhat lower. EUR/USD edged south after it hit resistance near the 1.0630 (R1) obstacle, which is the upper bound of the sideways range that has been containing the price action since the 17th of February. Nevertheless, the slide was stopped by the 1.0570 (S1) support level. We still expect the common currency to remain on the back foot in coming weeks, at least ahead of the upcoming Dutch and French elections, with the former vote due to take place next week. A decisive dip below 1.0570 (S1) is possible to open the way for another test near the psychological territory of 1.0500 (S2), which also happens to be the lower bound of the aforementioned range. Besides EUR/USD, our other favorite proxy for any potential near-term EUR weakness is EUR/JPY, due to the possibility of the yen attracting some safe haven flows amid this political uncertainty in the EU.

Today's highlights: During the European day, Germany's factory orders for January are due out, though no forecast is presently available. We also get Eurozone's final GDP for Q4. The forecast is for the final figure to confirm the preliminary estimate and as such, the reaction in EUR may remain limited.

From the US, we get the trade balance for January. Expectations are for the nation's trade deficit to have widened, something that could hurt the dollar somewhat on the news. However, considering the bullish sentiment currently surrounding the currency amid hawkish signals from key FOMC officials, we expect any negative reaction from the trade data to remain short-lived.

We also get Canada's trade data for January, as well as the nation's Ivey PMI for February. The trade surplus is expected to have narrowed, albeit slightly, while no forecast is available for the Ivey figure.

EUR/AUD

Support: 1.3840 (S1), 1.3725 (S2), 1.3655 (S3)

Resistance: 1.3925 (R1), 1.4000 (R2), 1.4075 (R3)

EUR/USD

Support: 1.0570 (S1), 1.0500 (S2), 1.0450 (S3)

Resistance: 1.0630 (R1), 1.0675 (R2), 1.0715 (R3)

Upside extensions after Friday's strong rally was short-lived, as the rally stalled at 1.0638 and closed under daily Ichimoku cloud on Monday that could be seen as negative signal.

Initial lower pivot at 1.0572 (Fibo 38.2% of Friday's rally / converged 5/10SMA's) was tested but is holding for now.

Overall structure remains weak with fresh 20/55 SMA bear-cross adding on existing negative outlook.

In addition, daily cloud that twisted on 01 Mar and is starting to widen, also weighs on market.

Bearish scenario requires firm break below 1.0572 and 1.0566 (daily Tenkan-sen) lower pivots to signal lower top and open way for further retracement of Fri/Mon 1.0499/1.0638 rally.

At the upside, daily cloud (currently spanned between 1.0605 and 1.0618) marks initial resistance, ahead of falling 30SMA (1.0641) and 100SMA (currently at 1.0668) which marks the upper trigger for stronger recovery action of larger 1.0827/1.0493 descend.

Res: 1.0605, 1.0618, 1.0641, 1.0668
Sup: 1.0572, 1.0566, 1.0552, 1.0520

E-mini S&P500 has five waves down from 2400 so index can be moving into a new bearish phase, which can be only a correction of a higher degree. But in either case there should be more downside coming after a three wave; a-b-c rally that may find resistance today near 2383.

S&P500, 1H

'Today's RBA statement reveals a central bank pleased with both the improving global backdrop and the transition of the Australian economy to better growth and stronger employment'. - Scott Haslem, UBS

As markets expected, the Reserve Bank of Australia kept its key interest rate unchanged during its March policy meeting on Tuesday, pointing to rising real estate prices and soft inflation. Policymakers voted to leave the cash rate at 1.5%, despite solid growth and strong performance in the last quarter of 2016. Last year, housing demand hit its all-time high across the country despite high prices. Therefore, the decision to leave the rate on hold was driven for the most part by the RBA not wanting to inflame further the housing market. After the release, the Australian Dollar rose slightly against its US counterpart to trade at $76.17. Back in the Q4 of 2016, the Australian economy expanded 1.1% on a quarterly basis and 2.4% on an annual basis, suggesting better economic growth in 2017. However, the Q4 expansion was mainly driven by household spending financed by drawing down savings, while wage growth remained at record lows. The big question is whether the economy can maintain momentum over a longer period of time with the current unemployment rate of 5.7% and inflation mainly boosted by higher oil prices. The RBA Governor Philip Lowe said the Australian economy benefited a lot from China's strong economic performance, which was supported by higher spending on infrastructure and building construction.