Today, investors will lock their gaze on the US for two speeches by the Fed's top policymakers, Chair Janet Yellen and Vice Chairman Stanley Fischer. This will be the last time we hear from these officials ahead of the March meeting and as such, their remarks will be closely scrutinized for any hints on whether a March hike is as likely as market pricing currently suggests. The probability for a hike at this meeting skyrocketed this week, boosted by hawkish comments from various influential FOMC officials. The latest of these remarks came overnight, from Fed Board Governor Powell, who stated explicitly that a March rate hike will be on the table when policymakers meet. If Yellen's and Fischer's comments are equally optimistic as those of their colleagues, we could see that probability increase further, something that could add more fuel to the latest dollar rally, at least ahead of next week's employment report. EUR/USD slid yesterday and hit the key support territory of 1.0500 (S1) before rebounding somewhat. In our view, investors are likely to settle near that zone and wait for Yellen and Fisher. If these two elite policymakers sound hawkish as well, then we may see a dip below 1.0500 (S1), which could open the way for our next support barrier of 1.0450 (S2), defined by the low of the 11th of January.

On the other hand, a more moderate tone from these key officials, could suggest that the FOMC can be patient for now and pour cold water on the idea of a March action. Something like that could lead to notable downside correction in USD. In this case, EUR/USD could rebound further from near the 1.0500 (S1) hurdle and could initially aim for the resistance of 1.0570 (R1). A possible break above that territory is likely to set the stage for more upside extensions, perhaps towards the 1.0630 (R2) area, marked by the peaks of the 27th and 28th of February.

On balance, we view the risks surrounding today's reaction in the dollar as asymmetric and as being tilted to the downside. We believe there is likely to be a bigger negative reaction in case the two officials express more moderate comments, rather than the corresponding positive reaction in case of hawkish ones. The March rate hike probability already rests at 77% according to the Fed funds futures, implying that this is the market's base case scenario, and comments hinting anything different than that will come as a surprise.

Having outlined the scenarios, we maintain our view that June is still a more likely candidate than March for the next rate hike. We think that the greater than 50% probability for a March hike is overly optimistic, mainly because there has not been a phenomenal change in the economic outlook in the aftermath of the February meeting to justify such a shift in Fed rhetoric. Let's not forget that the minutes of that meeting showed many officials held a cautious stance, judging that the Fed would have "ample time" to respond if inflation emerged. Since then, wage growth slowed in January, while the core PCE price index for the same month failed to accelerate for the third consecutive time, generating doubts as to whether underlying inflationary pressures have really begun to pick up. What's more, there is still elevated uncertainty around the direction of fiscal policy. Bearing all these in mind, a strong case can be made for the Committee to remain patient, at least for now. In order to reassess this view, we would like to see hawkish signals from both Yellen and Fischer, as well as a rebound in the average hourly earnings rate for February, next week.

As for the rest of today's highlights:

During the European day, we get the final services PMIs for February from the European nations that we got the manufacturing data on Wednesday, and the Eurozone as a whole. All the final indices are expected to confirm their preliminary estimates and as such, the reaction in EUR may be limited. We also retail sales for January from both Germany and the Eurozone.

From Sweden, we get industrial production data for January and the forecast is for a rebound, something that may support SEK somewhat. Norway's unemployment rate for February is also due out.

In the UK, the services PMI for February is due to be released. The forecast is for the index to have declined somewhat. A modest decline could signal that growth in the UK's largest sector is slowing down and may thereby hurt the pound somewhat. GBP/JPY edged south yesterday after it hit resistance at 140.70 (R1) and the prior upside support line taken from the low of the 16th of January. This combined with the fact that the rate remains below the downside resistance line drawn from the peak of the 15th of December keep the short-term outlook somewhat negative. A disappointment in the services PMI today could push the rate below the 139.70 (S1) support, something that could pave the way for our next obstacle of 138.80 (S2), marked by the low of the 28th of February.

We believe that the most closely watched aspect of the report will be how fast inflationary pressures are mounting, as investors try to gauge whether or not the BoE is likely to tighten its policy in the foreseeable future. Following comments from BoE policymakers last week, such a scenario appears rather unlikely. Even Ian McCafferty, a notorious hawk among the Committee, signaled that there is "some hope" that interest rates could start to normalize in two or three years. Even though that depends on how inflation evolves over the coming months, the fact that presently there seems to be very little appetite for rate hikes even by the most hawkish MPC members is important in our view.

With regards to US economic data, we get the ISM non-manufacturing PMI for February. The forecast is for the index to have remained unchanged at a relatively elevated level. However, the greenback's near-term direction is likely to be dictated by Yellen's and Fischer's comments, later during the day.

Besides Chair Yellen and Vice Chairman Fischer, we have one more Fed speaker on today's schedule: Dallas Fed President Robert Kaplan.

EUR/JPY - 120.28

EUR/JPY: Wave v as well as larger degree wave (C) ended at 94.11 and first leg of larger degree wave C upmove has possibly ended at 149.79 and wave 2 correction has possibly ended at 109.49.

Although the single currency fell briefly to 118.24 late last week, the subsequent rebound suggests low is possibly formed there and consolidation above this level would be seen with mild upside bias for gain to 121.00, however, a daily close above resistance at 121.34 is needed to provide confirmation, bring at least a strong retracement of the fall from 124.10 to 122.00-10. Looking ahead, only a break of resistance at 122.52 would retain bullishness and signal the pullback from 124.10 has ended, bring subsequent test of resistance at 123.31, a firm break above this level would indicate early upmove has resumed for retest of 124.10 (Dec high).

The daily chart is labeled as attached, early selloff from 169.97 (July 2008) to 112.08 is wave (A) of B instead of end of entire wave B and then the rebound from there to 139.26 is wave (B), hence, wave (C) has possibly ended at 94.12 with a diagonal triangle as labeled in the daily chart, hence upside bias is seen for further gain. Recent rally above indicated retracement level at 116.69 (50% Fibonacci retracement of the intermediate fall from 139.26-94.12) adds credence to this view and signal major reversal has commenced but first leg of this wave C has possibly ended at 149.79, hence wave 2 has commenced with wave A ended at 126.09, followed by wave B at 141.06, wave C commenced and could have ended at 109.49, above 125.00 would add credence to this view.

On the downside, whilst initial pullback to 119.80 cannot be ruled out, reckon downside would be limited to 119.20-25 and bring another rebound later. Only a drop below said last week's low at 118.24 would abort and signal the erratic fall from 124.10 top is still in progress for further fall to 117.50-60 but reckon downside would be limited to 117.00 (61.8% Fibonacci retracement of 112.61-124.10) and price should stay well above previous resistance at 116.29, bring another rally later this month or in Q2.

Recommendation: Buy at 119.20 for 121.20 with stop below 118.20.

To re-cap the corrective upmove from the record low of 88.93 (18 Oct 2000), the wave A from there is subdivided as: 1:88.93-113.72, 2:99.88 (1 Jun 2001), 3:140.91 (30 May 2003), 4:124.17 (10 Nov 2003) and 5 ended at record high of 169.97 (21 Jul 2008). The brief but sharp selloff to 112.08 is viewed as a-b-c x a-b-c wave (A) of B. The subsequent rebound to 139.26 is (B) of B and (C) of (B) has possibly ended at 94.12 and in any case price should stay well above previous chart support at 88.93, bring rally in larger degree wave C towards 150.00.

USD/CHF – 1.0128

USD/CHF – Wave IV ended at 1.1730 and wave V has possibly ended at 0.7068

The greenback found renewed buying interest at 1.0009 earlier this week and has risen again, suggesting the erratic rise from 0.9861 is still in progress and may extend further gain to 1.0200 and possibly test of resistance at 1.0248, however, a daily close above there is needed to signal the retreat from 1.0344 has ended at 0.9861, bring eventual retest of 1.0344. Looking ahead, only break of said resistance at 1.0344 would retain bullishness and extend the major rise from 0.7401 (2015 low) to 1.0400 and later towards 1.0470-75 but upside should be limited to 1.0500 and price should falter below 1.0600.

Our preferred count on the daily chart is that early selloff to 0.9630 is an end of the larger degree wave III and major correction is unfolding from there with a leg ended at 1.2298 (Nov 2008 with (a): 1.0625, (b):1.0011 and (c):1.2298), wave b ended at 0.9910 with (a): 1.0370, (b): 1.1967, (c): 0.9910. The rise from there to 1.1730 is the wave c which also marked the end of wave IV and wave V has possibly ended at 0.7068.

On the downside, whilst initial pullback to 1.0065-70 cannot be ruled out, reckon said support at 1.0009 would remain intact and bring another rise later to aforesaid upside targets. A daily close below support at 1.0009 would abort and suggest the rebound from 0.9861 has possibly ended, bring test of 0.9967, break there would add credence to this view and bring further fall to 0.9900. A drop below there would confirm and signal the fall from 1.0344 has resumed for a retest of said support at 0.9861, once this level is penetrated, this would extend this decline to 0.9850-53 (61.8% Fibonacci retracement of 0.9550-1.0344), then 0.9800, having said that, reckon downside would be limited to 0.9735-40 and 0.9675-80 should hold from here, bring rebound later.

Recommendation: Buy at 1.0065 for 1.0265 with stop below 0.9965.

Dollar's long-term downtrend started from 2.9343 (Feb 1995) and it was unfolding as a (A)-(B)-(C) with (A): 1.1100, (B): 1.8310 (26 Oct 2000), then followed by another impulsive wave (C) with wave III ended at 0.9630 (Mar 2008). Under this count, correction in wave IV has possibly ended at 1.1730 and wave V already broke below support at 0.9630 and met indicated downside target at 0.7500 and 0.7400. The reversal from 0.7068 suggests the wave V has possibly ended and the breach of resistance at 0.9595 add credence to this view and indicated upside target at 1.0000 had been met, however, the sharp retreat from 1.0296 to 0.7401 suggests choppy trading would be seen but price should stay above said record low at 0.7068.

EUR/JPY - 120.27

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 119.85, Target: 121.35, Stop: 119.25

Position: -
Target: -
Stop: -

New strategy :

Buy at 119.65, Target: 121.35, Stop: 119.05

Position: -
Target: -
Stop:-

As the single currency has eased after rising to 120.50 yesterday, suggesting 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 120.50 would extend the rebound from 118.24 low for retracement of recent decline to 120.90-00, then towards 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 turn long 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 – 0.7563

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

Original strategy :

Sold at 0.7690, met target at 0.7550

Position: - Short at 0.7690
Target: - 0.7550
Stop: -

New strategy :

Stand aside

Position: -
Target: -
Stop:-

Aussie has finally dropped yesterday and our short position entered at 0.7690 finally met our indicated downside target at 0.7550 (with 140 points profit), adding credence to our view that top has been formed at 0.7741 and consolidation with mild downside bias remains for this fall from there to bring retracement of recent upmove to 0.7512, however, near term oversold condition should prevent sharp fall below previous support at 0.7493 and price should stay above support at 0.7449, bring rebound later.

As we have taken profit on our short position entered at 0.7690, would not chase this fall here and would be prudent to stand aside in the meantime. On the upside, expect recovery to be limited to 0.7600 and price should falter below previous support at 0.7637, bring another decline later. Only break of 0.7700 would signal the retreat from 0.7741 (last week's high) has ended and bring retest of this level first.

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.

Sunrise Market Commentary

• Rates: Sell-the-rumour, buy-the-fact as Yellen delivers.
  Main events today are speeches by Fed vice chair Fischer and Yellen. We expect them to seal the deal for a March rate hike, which is by and large already completely discounted. We believe that there is room for some minor profit taking going into the weekend, especially if stock markets continue to correct lower.
• Currencies: Dollar rally continues amid higher rates and yields
  Yesterday evening's equity correction on Wall Street deepened overnight in Asia. Fed Yellen will probably seal the March rate hike deal today, but it is largely discounted, opening the possibility for a sell the dollar before/on the fact. However, we consider it as a correction and remain dollar positive longer term.

The Sunrise Headlines

• US couldn't hold on to record gains after Trump's speech and Fed governors' hints on a March rate hike. They corrected 0.5% lower yesterday. Overnight, losses on Asian stock markets are even slightly bigger.
• Core inflation has returned to Japan for the 1st time since 2015, with consumer prices ex. fresh food rising by 0.1% Y/Y in January. The return to positive territory was driven by energy.
• An independent gauge of activity in China's services sector indicates growth slowed further last month, contrasting with a pick-up in bustle at the country's manufacturers. The Caixin Services PMI declined from 53.1 to 52.6.
• Fed Governor Powell said the case for a rate increase at the US central bank's March meeting has “come together,” joining the chorus of Fed officials signalling a hike is coming soon.
• China's leaders are expected to telegraph their willingness at this year's annual parliamentary meeting to let reforms overtake policy stimulus as their priority amid concerns over financial instability in the world's second-largest economy.
• Catalonia is organising the logistics for a referendum on independence from Spain it plans to hold by the end of September, even if it goes against the wishes of the national government, the Catalan government's foreign policy chief said.
• Today's eco calendar contains services PMI's/ISM in EMU (final), UK and the US. Fed vice chair Fischer speaks on monetary policy decision making and chairwoman Yellen discusses the economic outlook.

Currencies: USD Extends Gains On Rate Hike Expectations, But No USD Euphoria

USD uptrend continues, albeit a slower pace

The revived reflation trade took a breather (equities lower) yesterday. Even so, the dollar uptrend remained intact, as yields maintained an upward bias. Investors continued to adjust positions for a March Fed rate hike. The 2-yr US/German yield spread widened 4 bps to 215 bps, matching the cycle high, to close at 213 bps, after a late session “rebound” of Treasuries. The dollar rally initially shifted into a lower gear, but got extra fuel from hawkish comments of Fed Powell who explicitly mentioned a March rate hike. Some correction started late in the session. EUR/USD approached 1.0494 support and USD/JPY neared the 114.94 resistance. EUR/USD finally closed at 1.0507 (intraday low 1.0495), while USD/JPY closed at 114.41 (intraday high 114.59). The eco data (EMU inflation and US jobless claims) supported the reflation trade, but had no immediate impact on currency trading.

Overnight, the risk-off sentiment deepened. Japanese data were on the softer side and Chinese Caixin services sector and composition business sentiment were mixed versus January. Asian stocks are lower, with Japan underperforming as the yen strengthens. USD/JPY trades currently around 114.10 (from 114.41 opening). Risk off and slightly lower US yields drive the move. Commodities stabilise after yesterday's slide, and so does EUR/USD for now (1.0514). US Services ISM and Yellen in the spotlight today

The US Services ISM is expected to have stabilized at a lofty 56.5 in February. However, the manufacturing ISM accelerated in February to 57.7 from 56 previously and both indices have a strong monthly correlation. Therefore, we put the risks on the upside of expectations for the US services ISM despite its high level. No less than 5 Fed governors will appear and give their opinions on the economy and likely policy ahead of the black period that precedes the March 15 FOMC meeting. However, the key speeches will be given by Fed chairwoman Yellen and Vice-chair Fischer at 19:00 CET. Fed governors like Dudley, Williams, Powell and Brainard prepared the road for a March rate hike. It is now the “task” of Yellen/Fischer to seal the deal. This looks highly likely. If not, expect some panic and wild repositioning

Regarding FX trading today, the service ISM may be dollar positive. As markets have now nearly completely discounted a March Fed rate hike, the risk is nevertheless for a counter-intuitive “buy-the-rumour, sell the fact” reaction in various markets before and/or after Yellen's speech. Yesterday, some traces of such behavior were visible in the equity markets, but not yet in FX markets. The risk-off equity moves and slightly lower US yields overnight may be the precursor of what will follow today. The dollar hit key resistance levels which might also be an invitation for some dollar profit taking. We would take that as a “normal” reaction and no sign of a turnaround in the trend. In this respect, we stay dollar positive longer term and hope to be able to buy it at lower levels in case the correction is more than a superfluous event.

Global context: Over the previous days the focus shifted from US fiscal policy to the Fed's monetary policy, as the Fed prepares markets for a rate hike in March. EUR/USD 1.0874 is a solid resistance and we favour a sell EUR/USD on upticks approach. The focus is now on the downside of the pair with 1.0494, first intermediate support ahead of the 1.0341 correction low. Too difficult to break ahead of Yellen and the weekend? The downside test of USD/JPY is also rejected. USD/JPY 111.60/111.16 (Range bottom/38% retracement of the 99.02/118.66 rally) remains key support. On the topside, 114.96 is a first point of reference, but some correction pre/post-Yellen may delay a test.

EUR/USD decline continued yesterday, nearing 1.0492 support, last gate before cycle lows. Risk off may make a break difficult today, unless Yellen helps

EUR/GBP

EUR/GBP fails to take out first resistance at 0.8592

Yesterday, cable slid lower for the fifth consecutive session, but the pace of the downturn slowed and cable closed around 1.2267 from 1.2293 on Wednesday evening. The intraday decline of EUR/USD was only a small and temporary help for sterling versus the euro. EUR/GBP closed at about 0.8565,virtually unchanged from the previous close (0.8579). The pair came again within reach of the 0.8592 resistance (ST top), but a real test didn't occur. There were plenty of comments on the Brexit amendment in the Upper House. However, (FX) markets don't see these as a hurdle for respecting the Brexit timetable.

Today, the UK February services PMI is expected to have declined slightly from 54.5 to 54.1. A negative surprise, after the miss in the manufacturing measure earlier this week, might be slightly sterling negative, but will it be enough for EUR/GBP to break above 0.8592 resistance? Sterling sentiment has softened a bit of late, but an EUR/USD rebound is likely needed to push EUR/GBP above resistance. If the euro loses further ground against the dollar and EUR/USD drops below 1.0494, a break of EUR/GBP above resistance would be difficult at this point. Early last week, the euro sell-off pushed EUR/GBP to the 0.84 area, but a sustained break lower didn't occur. A break of EUR/GBP above 0.8592 resistance would suggest a further loss of sterling momentum. Longer term, we have a sterling negative view, as the Brexit will negatively impact the UK economy

EUR/GBP: testing first resistance at 0.8592.

Download entire Sunrise Market Commentary

Market movers today

Following the recent hawkish comments from dovish FOMC members, today's single most important event is Fed Chair Janet Yellen's speech tonight. Given the relatively strong data, easy financial conditions and calm markets with record-high stocks, it seems likely to us that the Fed will hike at the upcoming meeting (despite the softer signals from the latest minutes), especially now that markets more or less expect the Fed to do so (markets have priced in over a 70% probability of a March hike). Still, we would like to hear it from Yellen herself to get the final confirmation and it is likely that she echoes the other FOMC members saying an increase is coming ‘soon'. Also Fed Vice Chair Stanley Fischer and Charles L. Evans are also due to speak tonight.

We have a busy calendar in terms of economic data releases today. We get final PMI service indices for February from Europe and the US and the UK index, in particular, should be interesting, as services confidence has been on the weaker side in recent months. Also, look out for retail sales for January in both Germany and the euro area.

In Sweden, both industrial and service production data for January are due. In Norway, we get both unemployment and house price data for February. For more see page 2.

Selected market news

US stocks closed lower yesterday with S&P500 falling 0.6%, the most in a month, as investors took profit from the solid gains recently and the Fed has talked up the probability of a hike at the upcoming meeting. Also Asian equities are trading lower this morning. EUR/USD is trading more or less unchanged at 1.05.

Danmarks Nationalbank sold DKK4.7bn in FX intervention in February to cap the EUR/DKK lower bound. The Danmarks Nationalbank reaction indicates that we have reached the lower bound of EUR/DKK for now, which looks to be around 7.4330. We forecast EUR/DKK at 7.4350 in 1-3M and 7.4400 in 6-12M and that the key policy rate will stay unchanged at -0.65% in 12M. Read our take here.

In the euro area, HICP inflation hit the ECB's 2% target in February – it is the first time since January 2013 that it has been at 2%. It is worth noting that HICP core inflation was unchanged at 0.9%, well below the 2% target, meaning the ECB is not about to exit its accommodative monetary policy (see also our latest ECB review: Draghi remains dovish until core inflation rises, 19 January). The ECB is meeting again next week.

In France, presidential candidate François Fillon continues to suffer as his own party members are abandoning his campaign and the police searched his home in Paris (see also Bloomberg). According to the average probability implied by betting odds, the probability of a Fillon win is only 14%, while the probability of an Emmanuel Macron win has surged to 54%. The probability of a Marine Le Pen win is unchanged at 33%.

Weekly

• Last Candlesticks pattern: Hammer
• Time of formation: 19 Sep 2016
• Trend bias: Down

Daily

• Last Candlesticks pattern: Hammer
• Time of formation: 9 Nov 2016
• Trend bias: Near term up

EUR/JPY – 120.12

Although the single currency fell to as low as 118.24 late last week, the subsequent strong rebound suggests a temporary low is possibly formed there and consolidation with mild upside bias is seen for a test of the Kijun-Sen (now at 120.78), however, a daily close above there is needed to add credence to this view, bring test of previous resistance at 121.34, once this level is penetrated, this would provide confirmation and extend the rebound from 118.24 low for retracement of recent decline to 122.00 and then 122.50-55 but price should falter well below resistance at 123.31, bring retreat later.

On the downside, whilst initial pullback to 119.70 and then the Tenkan-Sen (now at 119.37) cannot be ruled out, reckon 118.80 would contain downside and bring another rebound later. A drop below 118.80 would suggest the rebound from 118.24 has ended instead, bring retest of this level but break there is needed to signal recent erratic decline from 124.10 top has resumed for further fall to 118.00, then 117.50, however, still reckon downside would be limited and price should stay above 116.90-00.

Recommendation: Buy at 119.40 for 121.40 with stop below 118.40.

On the weekly chart, the single currency has continued finding good support right above the Kijun-Sen (now at 118.09) and has staged a rebound, a white candlestick looks set to be formed this week, suggesting consolidation above this level would be seen and test of the Tenkan-Sen (now at 120.99) cannot be ruled out, however, a sustained breach above resistance at 121.34 is needed to signal the fall from 124.10 has ended, then a stronger rebound to 122.00 would follow but break of 122.52 is needed to retain bullishness, bring test of indicated resistance at 123.31. Looking ahead, only above this level would signal recent rise from 109.49 low has resumed for retracement of early decline to 125.25-30 (50% Fibonacci retracement of 141.06-109.49), having said that, reckon resistance at 126.47 would cap upside and price should falter below resistance at 128.23, bring retreat later.

On the downside, expect pullback to be limited to 119.30-35 and 118.80 should hold, bring another rebound later. Below 118.80 would suggest the rebound from 118.24 has ended, bring retest of this level, a break there would signal the retreat from 124.10 top is still in progress and near term downside bias remains for this move to bring retracement of recent upmove, hence weakness towards the Kijun-Sen (now at 118.09), however, a weekly close below there is needed to signal the rise from 109.49 has ended, bring further decline to 117.30-35 but previous resistance at 116.29 should contain downside due to near term oversold condition, bring rebound later.

Currency pair EUR/USD

The EUR/USD must break below the previous bottom (green line) before a continuation of the downtrend (waves 3) becomes more likely. If price breaks above resistance (orange) then price could extend the wave 2 (purple).

The EUR/USD is at a bullish bounce or bearish break spot now price has arrived at the previous bottom (green).

Currency pair GBP/USD

The GBP/USD downtrend can be clearly seen by the bearish channel (red lines). Price has reached a bullish bounce or bearish break spot at the bottom of the channel. A break could see price fall towards the Fibonacci levels of waves 3 (green/blues) whereas a bounce could see price head back towards the resistance (orange) and top of the channel.

The GBP/USD retracement is in a wave 4 (orange) which typically retraces back to the 23.6% - 38.2% Fibonacci zone (sometimes 50%). A break above the 61.8% Fib invalidates wave 4 (orange).

Currency pair USD/JPY

The USD/JPY remains in wave 1-2 (blue) unless price breaks below above support (blue) which is the invalidation level. A break above the resistance level (red line) could see the USD/JPY continue with a wave 3 (blue).

The USD/JPY bounce at the resistance (red) level could lead to an ABC (orange) within wave 2 (brown) unless price breaks above the resistance without retracing back to the 38.2% Fib or lower.

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

EUR/USD

As can be seen from the H4 chart this morning, price failed to sustain gains beyond the H4 mid-way level 1.0550 and concluded the day pushing through both the H4 trendline support extended from the low 1.0340 and January’s opening level at 1.0515.

While the unit is currently seen feeding off of the 1.05 handle at the moment, upside looks incredibly limited from here given that daily action also broke below daily support at 1.0520 (now acting resistance). A H4 close beyond the 1.05 barrier could, according to the H4 structure, trigger another round of selling down to the 1.04 neighborhood.

Our suggestions: Despite both the daily and H4 charts indicating that the bears have a slight edge in this market at the moment, it may be worth noting that weekly price has just entered into a major weekly support area coming in at 1.0333-1.0502!

With the potential for weekly bulls to step in here, would a H4 close below 1.05 really be considered a bearish signal? Should the H4 candles retest the underside of 1.05 and print a reasonably sized H4 bear candle, then we believe the pair will take another dive lower. This is simply because the weekly support zone is nearly 200 pips in size! And since we would only be targeting 1.04, it could still come to fruition as long as the retest and confirming H4 bear candle is seen.

Data points to consider: US ISM-manufacturing PMI at 3pm, FOMC member Evans speaks at 3.15pm, FOMC member Powell speaks at 5.15pm, FOMC member Fischer along with Fed Chair Yellen speaks at 6pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Watch for a H4 close below 1.05 and look to trade any retest seen thereafter ([we would also advise waiting for a reasonably sized H4 bear candle to form following the retest before looking to execute a trade] stop loss: ideally beyond the trigger candle).

GBP/USD

During the course of yesterday’s sessions the GBP/USD chalked up its fifth consecutive bearish candle, which, as you can see, forced the H4 candles into the H4 mid-way point 1.2250. For those who read Thursday’s report you may recall that our desk highlighted the 1.22/1.2250 area as a potential buy zone in this market. 1.2250 fuses with a H4 AB=CD (see black arrows) 127.2% Fib ext. at 1.2244 taken from the high 1.2706, and is currently holding firm as we write. However, we were ideally looking for a slight break into our H4 buy zone before buying, since we did not want to execute a long position too far from 1.22 handle as this number represents a weekly Quasimodo support. And because of this we may have missed the boat!

For any of our readers who managed to pin down a position from here, well done! We would be looking for price to tag the 1.23 level before taking some profits and reducing risk to breakeven.

Our suggestions: Should the bears step in and push price deeper into the above noted yellow H4 zone today, however, we would still look to buy if price pencils in a reasonably sized H4 bull candle, with stops placed below the trigger candle.

Data points to consider: UK services PMI at 9.30am. US ISM-manufacturing PMI at 3pm, FOMC member Evans speaks at 3.15pm, FOMC member Powell speaks at 5.15pm, FOMC member Fischer along with Fed Chair Yellen speaks at 6pm GMT.

Levels to watch/live orders:

• Buys: 1.22/1.2250 ([wait for a reasonably sized H4 bull candle to form within the zone before looking to pull trigger here] stop loss: ideally beyond the trigger candle).
• Sells: Flat (stop loss: N/A).

AUD/USD

Across the board, we saw the US dollar gravitate north yesterday and pull the gold market lower. This, as you can see, pushed the Aussie dollar aggressively south going into the London segment. Technically speaking, this move was also bolstered by the fact that the weekly candles are selling off from a weekly trendline resistance stretched from the high 0.8163. Daily support at 0.7609 (now acting resistance) was also taken out during the bearish assault and is now on course to connect with a daily demand zone coming in at 0.7511-0.7543.

Given that the H4 candles are currently seen retesting the underside of February’s opening base at 0.7577, is there scope for a trade short from here? Well, the next downside target on the weekly scale falls in at 0.7524-0.7450: a weekly support area. On the daily chart, a daily demand mentioned above at 0.7511-0.7543 is the next hurdle in the firing range. All of this coupled with the nearby 0.7550 H4 mid-way level gives us a collective target support zone of 0.7524/0.7550.

Our suggestions: So, to answer the question regarding whether there’s scope for a sell trade from 0.7577, we would say probably not, due to the limited downside space seen to the 0.7524/0.7550 neighborhood. Therefore, at least for the time being, our desk remains on the sidelines.

Data points to consider: US ISM-manufacturing PMI at 3pm, FOMC member Evans speaks at 3.15pm, FOMC member Powell speaks at 5.15pm, FOMC member Fischer along with Fed Chair Yellen speaks at 6pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

USD/JPY

In recent sessions, the USD/JPY printed its fourth consecutive daily bullish candle and drove the unit up to within an inch of the daily resistance area coming in at 115.62-114.60. Also of note is the H4 candles recently connecting with the H4 mid-way resistance point at 114.50 (the black arrow represents a H4 Quasimodo left shoulder that converges with the 114.50 number), which is shadowed closely by December’s opening level at 114.68.

Ultimately, we do believe there is enough supporting structure around 114.50 to see price challenge the 114 handle today. However, it does seem we may have missed the boat here!

Our suggestions: On account of the above notes, we will be looking for shorting opportunities on the lower timeframes at current price (see the top of this report), targeting 114 and possibly the H4 demand at 113.47-113.70.

Data points to consider: US ISM-manufacturing PMI at 3pm, FOMC member Evans speaks at 3.15pm, FOMC member Powell speaks at 5.15pm, FOMC member Fischer along with Fed Chair Yellen speaks at 6pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 114.50 region ([wait for a lower-timeframe signal to form before looking to pull the trigger] stop loss: dependent on where one confirms the zone).

USD/CAD

Kicking this morning’s report off with a look at the weekly chart, we can see that weekly price is seen trading within reaching distance of the weekly trendline resistance taken from the high 1.4689, followed closely by the 2017 yearly opening level at 1.3434. Looking down to the daily candles, recent action spiked above daily supply coming in at 1.3387-1.3317 and has potentially cleared the runway north up to daily supply at 1.3461-1.3426.

What’s interesting here is that the 2017 yearly opening level is, as can be seen on the H4 chart, positioned nearby November and December’s opening levels at 1.3419/1.3425 (green zone). In addition to this, the 2017 yearly opening level is situated within the lower limits of the daily supply mentioned above at 1.3461-1.3426.

Our suggestions: Quite simply, keep an eye on the green H4 zone 1.3434/1.3419 for shorting opportunities today. Given the size of the area, however, it may be better to wait for additional confirmation in the form of a H4 bear candle. This will also help avoid any fakeout that may take place!\

Data points to consider: US ISM-manufacturing PMI at 3pm, FOMC member Evans speaks at 3.15pm, FOMC member Powell speaks at 5.15pm, FOMC member Fischer along with Fed Chair Yellen speaks at 6pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1.3434/1.3419 ([wait for a H4 bear candle to form before looking to pull trigger here] stop loss: ideally beyond the trigger candle).

USD/CHF

Although the USD/CHF pair advanced north yesterday, the overall structure of this market remains unchanged. As such, our desk continues to focus on the H4 sell zone seen at 1.02/1.0170 (yellow zone). The area comprises of the following converging structures: both December and January’s opening levels at 1.0170/1.0175, a potential H4 AB=CD 127.2% Fib ext. at 1.0185, another potential minor H4 AB=CD symmetrical formation completing also around the 1.0185 region (see black arrows), an upper H4 channel resistance line pegged from the high 1.0044, a H4 Quasimodo resistance at 1.0197, a 1.02 psychological handle and let’s not forget that all of this is seen housed within the daily supply zone coming in at 1.0248-1.0168.

Our suggestions: In light of this confluence, our team will, dependent on the time of day, look to sell from the H4 127.2% Fib ext. level, with stops placed a few pips above 1.02.

Data points to consider: US ISM-manufacturing PMI at 3pm, FOMC member Evans speaks at 3.15pm, FOMC member Powell speaks at 5.15pm, FOMC member Fischer along with Fed Chair Yellen speaks at 6pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1.0185 region ([an area one could possibly trade at market] stop loss: 1.0205).

DOW 30

US stocks fell from record highs yesterday, as the dollar’s recent advance and declines seen in the gold market bolsters the likelihood of further interest rate hikes in the near future. The descent, as you can see, forced the H4 candles back below the 21000 neighborhood, and has potentially opened up the gates for price to challenge the H4 demand coming in at 20837-20869. This H4 demand sits a few points above the daily demand seen at 20714-20821, so for traders looking to go long from here, you may want to note the possibility of a slight fakeout being seen through the current H4 demand.

Our suggestions: Right now, we have absolutely no intention of looking to sell this market beyond 21000. We would rather look to buy from the above noted H4 demand, or even the H4 demand seen below it at 20769-20801, which happens to be positioned within the walls of the aforementioned daily demand zone!

Data points to consider: US ISM-manufacturing PMI at 3pm, FOMC member Evans speaks at 3.15pm, FOMC member Powell speaks at 5.15pm, FOMC member Fischer along with Fed Chair Yellen speaks at 6pm GMT.

Levels to watch/live orders:

• Buys: 20837-20869 ([wait for a reasonably sized H4 bull candle to form before looking to pull trigger here] stop loss: ideally beyond the trigger candle). 20769-20801 ([wait for a H4 bull candle to form before looking to pull trigger here] stop loss: ideally beyond the trigger candle).
• Sells: Flat (stop loss: N/A).

GOLD

In recent trading, weekly action has pushed itself back below the weekly support at 1241.2 and looks on course to form a nice-looking bearish engulfing candle! Before this can be achieved, nevertheless, the daily support area drawn from 1232.9-1224.5 will need to be taken out.

Turning our attention to the H4 candles, we can see that price is on the verge of connecting with a H4 demand base drawn from 1225.7-1229.7. Apart from this area being positioned within the above noted daily support area, it may be worth noting that it also converges with a H4 AB=CD completion point (see black arrows) as well!

Our suggestions: While there is a possibility that price could engulf the current H4 demand base today, given what we’ve noted on the weekly chart, we still feel a bounce is likely to be seen from this zone in view of its confluence. As a result, should price strike this zone today, we will switch down to the lower timeframes and watch how the action behaves. Assuming that we are able to pin down a lower-timeframe buy signal here (see the top of this report), we will look to enter long, targeting the H4 resistance area at 1235.7-1238.1 as an initial take-profit target.

Levels to watch/live orders:

• Buys: 1225.7-1229.7 ([wait for a lower-timeframe signal to form before looking to pull the trigger] stop loss: dependent on where one confirms the zone).
• Sells: Flat (stop loss: N/A).