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Global Markets:

• Asian stock markets: Nikkei down 0.20 %, Shanghai Composite lost 0.10 %, Hang Seng and ASX 200 both rose 0.30 %
• Commodities: Gold at $1226 (+0.05 %), Silver at $17.78 (+0.05 %), WTI Oil at $53.20 (-0.05 %), Brent Oil at $55.95 (-0.10 %)
• Rates: US 10-year yield at 2.49, UK 10-year yield at 1.22, German 10-year yield at 0.34

News & Data:

• Australia AIG Construction Index (Feb): 53.1 (prev +0.7 to 47.7)
• Japan Foreign Reserves (USD) (Feb): 1232.3bn (prev 1231.6bn)
• UK BRC Retail Sales Monitor like-for-like (YoY) (3m to Feb): -0.40% (est -0.20%, prev -0.60%)
• PBOC sets USD/CNY mid-point today at 6.8957 (vs. yesterday at 6.8790)
• RBA Rate Decision:
• RBA holds Cash Rate at 1.50%, as expected
• Rising Australian dollar could complicate economic transition
• Global economic conditions have improved over recent months
• Unchanged policy consistent with growth, inflation targets
• Labour indicators have been mixed
• Higher commodity prices have supported a rise in Australia's national income
• Headline inflation expected to pick up over the course of 2017
• House prices rising briskly in some markets
• US rates expected to rise further, no longer expectations of further easing in other major economies
• Australian economy continuing to transition after mining boom

Markets Update:

The main event overnight was the RBA rate decision. The central bank left rates unchanged as expected. In its statement, it acknowledged that global economic conditions have improved. Further, the RBA saw inflation rising during the course of the year, though labour conditions have been mixed.

Overall, it was a neutral statement and signalled that the RBA will remain on hold in the near-term. This was in line with expectations.

The Australian Dollar rose nevertheless, on the fact that there were no dovish comments. AUD/USD rallied from 0.7590 to a high of 0.7630 so far.

Price action in the other major pairs was relatively quiet. NZD/USD followed the AUD higher, rising from 0.6980 to 0.7020. The Euro, Yen and Pound are almost unchanged on the day against the Dollar.

Upcoming Events:

• 07:00 GMT – German Factory Orders08:30 GMT – UK Halifax House Price Index
• 10:00 GMT – Euro Zone GDP
• 13:30 GMT – US Trade Balance
• 13:30 GMT – Canadian Trade Balance
• 15:00 GMT – Canadian Ivey PMI
• 23:50 GMT – Japanese GDP
• 23:50 GMT – Japanese Current Account

STOCKS

Dow (20954.34, -0.24%) and Dax (11958.40, -0.57%) closed a little lower yesterday. Markets seem to be quiet just now allowing some correction in the indices after the recent rally. As mentioned yesterday, Dow may move towards 20750 while Dax could test 11800 on the downside before seeing an immediate bounce back.

Nikkei (19345.49, -0.17%) has not been able to sustain levels above 19600 and while below 19600, we may expect a test of 19200-19000 levels in the near term.

Shanghai (3233.72) is almost stable near current levels. It could try to inch up towards 3250 and higher in the coming sessions. We do not expect a break below 3200 in the near term.

Nifty (8963.45, +0.74%) is in a consolidation mode within the 8800-9000 region and unless we see a break on either side, it would be difficult to get any directional clarity just now. We prefer a corrective fall from current levels before it continues to rally further but lack of immediate rejection may indicate that we need to wait for confirmation from the prices.

COMMODITIES

Gold (1226) is trading within its sideways range of 1212-1275. The bias will remain bearish as long it is trading below 1247-50.

Silver (17.72)also moved lower but somehow managed to hold its upward trend line support of 17.62. A close below 17.45 could be trend reversal from bullish to sideways.

Copper (2.64) looks weak due to its failure to close above 2.73. It is still holding its upward trend line support at 2.63 since October 16, but the bullish momentum is becoming weak. A close below 2.63-60 could open up lower levels of 2.53 and 2.44 respectively.

Brent (55.60) and WTI (53.14) both are trading within their narrow ranges of 54-58 and 52-55 with no directional bias.

FOREX

The RBA decision will be released today though no change is expected, same as the ECB meet on Thursday, 9th March'17. Almost all the currencies are mute with the volatility collapsing.

Dollar Index (101.66) is trading quietly in the range of 100.70-102.25 in line with our expectations and may continue that for the rest of the week.

Euro (1.0607), taking cue from the Dollar, is trading sideways too and the range of 1.0500-1.0630 may remain intact even after the ECB meet on 9th Mar'17.

Dollar-Yen (113.97) hasn't moved much in the last session and the probability of horizontal trade in the range of 113-115 for the week looks much stronger now. The stability in EURJPY (120.63) in the near term may be beneficial for both Euro and Yen but a break above 121.25-35 may take Euro to 1.0630-50 levels once again.

Pound (1.2241) has been consolidating in the narrow range of 1.22-23 for the last 3 sessions as expected but the downside targets of 1.2100-1.2085 remain unchanged.

Aussie (0.7592) remains almost unchanged as it waits for the RBA rate review conclusion. The status quo is expected to be maintained but technically, the currency may test the near term support zone 0.7520-00 before declining further to lower levels of 0.7450.

Dollar-Rupee (66.72) ended the session with a loss in a very grinding manner. The major support 66.50 may be tested in the next couple of sessions but no major movement is expected with 66.90-67.00 capping the upside for the week.

INTEREST RATES

The US 10-5Yr yield spread (0.48%) has bounced from channel support and could move higher in the near term towards 0.50%.

The US yields have moved up. The 5Yr (2.02%), 10YR (2.50%) and the 30Yr (3.10%) are trading higher as compared to previous levels of 2%, 2.47% and 3.06% respectively. The 30YR is exactly at resistance levels and if it breaks on the upside, would indicate further bullishness which could pull up the shorter term yields too.

The US-Japan (2.43%) yield differential has been moving up in the past 2-sessions and if it continues to move higher, it could indicate some more weakness in the Japanese Yen.

The UK 10-5Yr spread (0.61%) has collapsed from levels near 0.93% due to increase in the 5Yr (0.60%) yields must faster and sharper than the 10YR and 20YR yields. The 10-5YR spread may bounce back from current levels to move up towards 0.705 in the next few sessions.

USDJPY - The pair still faces downside pressure though closing higher the past week. On the downside, support comes in at the 114.00 level where a break if seen will aim at the 113.50 level. A cut through here will turn focus to the 113.00 level and possibly lower towards the 112.50 level. Its daily RSI is bearish and pointing lower suggesting further weakness. On the upside, resistance resides at the 114.50 level. Further out, we envisage a possible move towards the 115.00 level. Further out, resistance resides at the 115.50 level with a turn above here aiming at the 116.00 level. On the whole, USDJPY looks to weaken in the nearer term.

The USD/JPY trade narrative continues on the blog today.

After having bounced out of the daily support zone (in the chart on that last blog I've linked to above), we got the following short term retest for a nice long trade with tight risk:reward:

USD/JPY Hourly:

'Find your levels, trade your levels. It's always the same!'

(I had to include that last little quote which I had published in the previous post because once again it is proven so true!)

But now with the pair pushing into the first spot of swing high resistance, we have a decision to make:

USD/JPY Daily:

Do we continue trading the pair in the overall daily direction which I would still very much classify as bullish?

Or do we make a smaller, counter-trend play at the swing highs?

French Political Risk Simmers Again

Risk off sentiment has crept back to the fore as the markets are in a sulk as dealer attempt to decipher the Fed rate trajectory beyond March while shifting their focus to geopolitical concerns as the French election risk continues to simmer. Alain Juppe, seen as a possible replacement for the scandal hobbled conservative candidate Francois Fillon announced; he has no intention to run in the presidential race. Juppe was viewed as more conservative than Fillon and would appeal to a wider element of France’s conservatives and diminishes the odds of an ultra right wing Le Pen victory

Australian Dollar

Not lots of anticipation regarding today’s Reserve Bank of Australia meeting with the futures curve as flat as a pancake, indicating zero expectations on the rate front. With the RBA widely expected to leave rates unchanged in the face of mounting household debt, a change in guidance is equally unlikely. Steady as she goes should be the course directed from the RBA captain.The tail risk for the event is certainly a Hawkish one if any.

AS with most G10 currencies overnight, the Aussie spent most of Monday consolidating as the various market themes and drivers continue to unfold. While Fed and Fiscal continue to dominate the early headlines, ECB and EU risk are starting to pick up steam again. With the later weighing on equity markets, the Aussie simply does not trade well at the slightest hint of risk aversion.

Japanese Yen

With the markets all in on a March rate hike was not ample support to push the market through the critical 115.00, dealers quickly took profit, and the dollar has failed to pick up any real momentum since.And with equity markets looking a bit worse for wear after the recent French election headlines the key 115 seems too far of a reach at this time unless equities reverse significantly higher.

Euro

While election headline risk had abated somewhat, I’m convinced there remains considerable political risk over the coming months but for now with EU interest rate expectations rising, and 1.05 level holding very firm, the EURUSD is not the markets choice to express a long dollar bias. But on the flip side, it’s hard to get excited about the EURO despite the improving macro & inflation trends, at least until the ECB clearly signals a shift in policy. But given the overall balance of risk facing Europe, we should not expect that change to occur at Thursday’s ECB meeting

Factory orders rose 1.2 percent to start 2017. On balance, the hard data in the manufacturing sector continue to show improvement, although the pace has been slower than sentiment indicators alone would indicate.

Factory Sector Firming

Factory orders rose 1.2 percent in January, boosted by sizable jumps in the notoriously volatile aircraft components for both defense and nondefense.

Nondurable shipments rose 0.4 percent, led by growth in textile mills, apparel and petroleum and coal products. Input price pressures are building in the factory sector and have likely helped boost growth in this nominally reported indicator.

Core Orders Signal Stronger Business Investment

Core capital goods orders fell 0.1 percent, a smaller decline than indicated in the advanced report, but this improvement was largely offset by downward revisions to December's reading.

Through the monthly volatility, core capital goods orders are up 8.7 percent on a three-month average annualized basis. This is the fastest pace since 2014 and corroborates some of the rising sentiment seen in other indicators, such as ISM and NFIB.

USD/CHF - 1.0099

Most recent candlesticks pattern : N/A

Trend                                    : Sideways

Tenkan-Sen level                  : 1.0089

Kijun-Sen level                    : 1.0104

Ichimoku cloud top                 : 1.0118

Ichimoku cloud bottom              : 1.0106

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As the greenback ran into resistance at 1.0135 and has retreated again after faltering below resistance at 1.0146, suggesting consolidation below this level would be seen and weakness to 1.0060-65 (61.8% Fibonacci retracement of 1.0009-1.0146 and previous support), however, as broad outlook remains consolidative, reckon downside would be limited to 1.0035-40 and price should stay well above support at 1.0009, bring rebound later.

On the upside, expect recovery to be limited to 1.0120 and price should falter well below resistance at 1.0146, bring retreat later. Only above said resistance at 1.0146 would extend recent erratic rise from 0.9661 to 1.0170-80 but reckon 1.0200 would hold from here. 

GBP/USD - 1.2258

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2271

Kijun-Sen level                    : 1.2267

Ichimoku cloud top              : 1.2294

Ichimoku cloud bottom        : 1.2251

Original strategy :

Buy at 1.2220, Target: 1.2340, Stop: 1.2185

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2220, Target: 1.2340, Stop: 1.2185

Position : -

Target :  -

Stop : -

Although cable dropped to as low as 1.2214 late last week, the subsequent rebound suggests consolidation above this level would be seen with mild upside bias for recovery to 1.2315-20 (38.2% Fibonacci retracement of 1.2479-1.2214), above there would extend gain to 1.2347 (50% Fibonacci retracement and previous support), however, reckon upside would be limited to 1.2375-80 (61.8% Fibonacci retracement of 1.2479-1.2214) and bring another decline later. 

In view of this, we are looking to turn long on dips but one should take profit on such a rebound. Below said support at 1.2214 would extend recent decline from 1.2706 top to 1.2200, then towards 1.2170-75 but reckon 1.2150 would hold from here, risk from there is seen for another rebound. 

EUR/USD - 1.0596

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.0609

Kijun-Sen level                  : 1.0592

Ichimoku cloud top             : 1.0538

Ichimoku cloud bottom      : 1.0535

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite intra-day brief rise to 1.0640, lack of follow through buying on break of previous resistance at 1.0631 and the subsequent retreat suggest consolidation would be seen and pullback to 1.0570-75 cannot be ruled out, break there would prolong consolidation and risk weakness to 1.0540-45, however, support at 1.0493 should remain intact. Only a drop below this support would revive bearishness and signal recent decline from 1.0829 has resumed for further selloff to 1.0470 and then towards previous support at 1.0454.

On the upside, above said resistance at 1.0640 would extend the erratic rise from 1.0493 low to 1.0660-65 (50% Fibonacci retracement of 1.0829-1.0493) and possibly towards resistance at 1.0680, however, loss of upward momentum should limit upside and price should falter well below 1.0700-05 (61.8% Fibonacci retracement), bring retreat later. As near term outlook is mixed, would not chase this rise here and would be prudent to stand aside in the meantime.

USD/JPY - 113.77

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 113.72

Kijun-Sen level                  : 114.16

Ichimoku cloud top             : 114.23

Ichimoku cloud bottom      : 114.03

Original strategy  :

Sell at 114.35, Target: 113.35, Stop: 114.70

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 114.35, Target: 113.35, Stop: 114.70

Position :  -

Target :  -

Stop : -

Although the greenback rose briefly to 114.75, the subsequent sharp retreat suggests top is possibly formed there on Friday, hence consolidation with mild downside bias is seen for retracement of last week’s rise to 111.69, hence weakness to 113.47 support is likely, below there would bring further fall 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 114.40-50 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.