Daily Pivots: (S1) 1.0117; (P) 1.0149; (R1) 1.0208; More.....

Intraday bias in USD/CHF remains neutral for the moment as consolidation from 1.0342 continues. In case of another fall, we'd expect strong support from 1.0019 to contain downside and bring rally resumption. Firm break of 1.0342 will confirm up trend resumption. However, sustained break of 1.0019 will indicate near term reversal and could bring deeper fall bring to 0.9443/9548 support zone.

In the bigger picture, the corrective fall from 1.0327 should have completed at 0.9443 already. Rise from 0.9443 could be resuming the long term rally from 2011 low at 0.7065. But decisive break of 1.0327 is needed to confirm. In that case, next medium term upside target will be 38.2% retracement of 1.8305 to 0.7065 at 1.1359. Rejection from 1.0327 will extend the sideway pattern with another fall back to 0.9443/9548 support zone.

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Daily Pivots: (S1) 115.61; (P) 116.39; (R1) 117.72; More...

Intraday bias in USD/JPY remains neutral as consolidation from 118.65 continues. Outlook stays bullish with 114.76 intact and further rise is expected. Above 118.65 will extend the whole rise from 98.97 to 125.85 key resistance next. However, sustained break of 114.76 will confirm short term topping and bring deeper pull back to 55 day EMA (now at 112.96) and possibly below.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.05 and below will extend the consolidation with another falling leg before up trend resumption.

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Daily Pivots: (S1) 1.2217; (P) 1.2324; (R1) 1.2387; More...

GBP/USD's fall from 1.2774 resumed by taking out 1.2200 and reaches as low as 1.2179 so far. Intraday bias is back on the downside for 1.1946 low. As noted before, corrective rise from 1.1946 has completed at 1.2774 and larger down trend is possibly resuming. This is supported by the rejection from 55 day EMA. Decisive break of 1.1946 will confirm this bearish case. Meanwhile, break of 1.2432 resistance will indicate that fall from 1.2774 is completed and correction from 1.1946 is extending with another rise.

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.

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Sterling opens the week broadly lower as weighed down by comments from UK prime minister Theresa May. May emphasized in a televised interview that Brexit is about "getting the right relationship, not about keeping bits of membership." And she noted that the right relationship is about being "have control of our borders, control of our laws" while having the "best possible deal" for trading with EU. The comments indicated that control of immigration and law prevail access to the single markets. Meanwhile, May also pledged to set out "some more details in the coming weeks" about Brexit ahead of the March 31 deadline for triggering Article 50 for Brexit negotiations. GBP/USD dips through 1.2200 near term support to resume recent decline next key support level at 1.1946.

Dollar recovers mildly as support by comments from Fed officials. But overall, the greenback is staying in consolidative mode against most major currencies. Dallas Fed president Robert Kaplan, a voter this year indicated that the median projection of three rate hikes "gives you a sense of my views", though again emphasizing the pace of increasing interest rates should be "gradual and patient". Kaplan's comments were echoed by Philadelphia Fed president Patrick Harker who noted that he was "penciled in for three increases next year, however, that's subject to a lot of uncertainty". By contrast, dovish Chicago Fed president Charles Evans, also a voter this year, reiterated that "two moves is not an unreasonable expectation". This was in spite of his upbeat view on the economic developments as Evans remained "optimistic that fundamentals will remain strong and that the labor market will continue to support consumer-led growth in output".

For the week ahead, important data releases for the US are clusters on Friday, when December PPI, December retail sales, November business inventories and the preliminary University of Michigan consumer sentiment reading for January would be due. Headline PPI probably accelerated to 1.6% yoy, from 1.3% in November, as mainly driven by the surge in energy prices. Core PPI might have slowed to 1.5%, from 1.6% in November. Headline retail sales might have gained 0.7% m/m, accelerating from 0.1% in November. Excluding autos, retail sales probably expanded 0.5% m/m, following a 0.2% gain in November. The University of Michigan's consumer sentiment index probably added 0.3 point to 98.5 in January.

In the Eurozone, besides the release of December ECB minutes scheduled on Thursday, the region-wide industrial production report would be due on that day. In the UK, BOE Governor Mark Carney would testify before the Treasury Select Committee on Wednesday. In Asia, Chins would release a series of macroeconomic data throughout the week. Due Tuesday, headline CPI inflation probably moderated to 2.2% yoy in December, from 2.3% a month ago. PPI inflation might have soared to 4.7% yoy from 3.3% previously. Friday comes December's trade report. It is expected to report a trade surplus of US$45.9B, up from US$44.2B in the prior month. China's money and credit aggregates for December might due later in the week or over the weekend.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2217; (P) 1.2324; (R1) 1.2387; More...

GBP/USD's fall from 1.2774 resumed by taking out 1.2200 and reaches as low as 1.2179 so far. Intraday bias is back on the downside for 1.1946 low. As noted before, corrective rise from 1.1946 has completed at 1.2774 and larger down trend is possibly resuming. This is supported by the rejection from 55 day EMA. Decisive break of 1.1946 will confirm this bearish case. Meanwhile, break of 1.2432 resistance will indicate that fall from 1.2774 is completed and correction from 1.1946 is extending with another rise.

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

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Subdued economic growth and unconventional easing measures resulted in EURUSD's third consecutive yearly decline, although the loss was greatly trimmed to about -3%, last year. EURGBP, however, jumped +16% as sterling slumped on concerns over British economic outlook after Brexit. Risk is to the downside for the single currency in 2017 as pressured by elevated political uncertainties and ECB's dovish tapering stance. Recent upside surprises on inflation data would not make ECB less dovish. Core inflation remained weak and should only improve gradually this year, not sufficient for the central bank to commit to tapering. A break below the 1.0463 low in March 2015 has paved the way for EURUSD to go further lower. We expect EURUSD to reach parity by 2Q17, probably after French election.

Election Year Raises Political Risks: 2017 is an election year in Europe, marked by elections in France, Germany, the Netherlands, and possibly, Italy. Following a 'yes' vote in the Brexit referendum and a 'no' vote in the Italian referendum to reject the senate reform, the market has turned increasingly concerned that the rise of populist, anti-globalization sentiment would trigger another crisis in Europe. Such anxiety is not groundless. The key focus is on the French presidential elections in May. It is likely that Marine Le Pen from the far-right Front National party would become president. She pledged to hold a 'Frexit' referendum on French membership of the EU. As she suggested at a recent interview, France needs to'renegotiate with the EU because I want to see French sovereignty restored in France, supported by a referendum… I will announce that a referendum will be held in six months time. I will spend those six months going to the European Union and telling them: ‘I want the French people to regain at least their territorial sovereignty because I want to control the borders - they don't belong to you'. Le Pen, however, suggested that France should keep euro even after 'Frexit'.

Meanwhile, polls of the Netherlands' general election, scheduled on March 15, suggested that the eurosceptic PVV party would get the biggest number of seats while falls short of a majority. Scheduled in September, Germany's election might see the far-right, eurosceptic AfD party win as much as 15-20% of seats in the lower house. The centrist Grand Coalition would likely continue but with a shrunk majority. Italy has already fallen into political turmoil since Prime Minister Matteo Renzi's defeat in the December constitutional referendum. The crisis is exacerbated by an electoral law known as' Italicum' which came into force in July. The law allows a party to form a majority single-party government if it wins a certain share of votes. If a party wins 40% of the popular vote, it will automatically be allocated 54% of the seats in the lower house. If no party achieves that benchmark, a second round would be held in which the two biggest parties participate. The winner of that second round would still get 54% of the seats in the lower house. The populist, eurosceptic Five Star Movement is running neck and neck in the opinion polls with Renzi's Democratic Party. Last month's referendum has, however, greatly increased the popularity of the former.

ECB's Dovish Tapering

At its December meeting, ECB announced to extend the program until December 2017 but the pace of asset purchases would slow to 60B euro per month from April 2017, compared with the current 80B euro. President Mario Draghi indicated that the "calibrations" reflected the "moderate but firming recovery of the euro area economy" and the "subdued underlying inflationary pressures". He maintained a dovish tone, noting that the members still expected risks to Eurozone's growth skewed to the downside. He affirmed that the new measures are not tapering and pledged that the program "goes until December 2017 or beyond, if necessary, and until we see a sustained rise in inflation". Draghi also noted that the move allows ECB to maintain a 'sustained presence' in the markets. In this sense, the reduction in pace of buying was way-out for ECB to continue QE amidst bond scarcity. Indeed, ECB made some change changes in the parameters of the QE with the ECB now allowed to buy government bonds which are yielding less than its deposit rate of -0.4%. Moreover, the securities lending program now accepts cash as collateral. A dovish ECB is in contrast with a more hawkish Fed which, as unveiled in the December minutes, sees accelerating pace of rate hike this year.

Inflation Picking Up?

Headline CPI in the Eurozone accelerated to +1.1% y/y in December, from +0.6% a month ago. Core CPI also picked up to +0.9% y/y from +0.8% in November. Energy inflation soared to +2.5% from -1.1%, whilst food, alcohol & tobacco inflation rose to +1.2% from +0.7%. Services inflation also climbed higher to +1.2% from +1.1%. In Germany, headline CPI more than doubled to +1.7% y/y in December. This came in better than expectation of a rise to +1.4%. Pleasant surprise in December inflation has once again brought about rhetoric of ECB rate hike from certain German officials. However, we not see improvement in inflation data a trigger for ECB's tapering, let alone rate hike. Not only does headline CPI remain far below ECB's target of' close to, but below, +2%', but core inflation also remains weak. Executive board member Benoît Cæuréat noted last month that the ECB is still awaiting 'signs that core inflation is on the rise and will clearly exceed +1%'. December's data shows that core CPI stayed below +1%. The underlying trend signals that it would only rise gradually this year and is expected to stay below +1% most of the year. Indeed, we see core inflation to undershoot ECB's forecasts of +1.1% in 2017 (followed by +1.4% in 2018 and +1.7% in 2019), a scenario that might lead the ECB to extend QE purchases in 2018.

The markets originally looked set for a general trend reversal with the synchronized sharp decline in US stocks, yield and the Dollar leading into 2017. Nonetheless, equities staged a strong come back towards the end of last week and helped stabilized both yields and the greenback. The overall solid non-farm payroll report, with strong wage growth, provided some support to sentiments. But it looked more like the trump rally is back in force. While there are still risks of trend reversals, it's much lowered now with S&P 500 and NASDAQ closing at record high at 2276.98 and 5521.06 on Friday. DJIA also just missed 20000 handle by a hair and reached as high as 19999.63 before closing at 19963.80. The coming would be crucial to the overall developments in the markets as Donald Trump's inauguration day on January 20 approaches.

In the currency markets, Dollar ended as the second weakest major currency over the week, just next to Sterling. Nonetheless, the greenback holds on to key near term support level against other major currencies. EUR/USD is kept below 1.0652, GBP/USD below 1.2509. USD/CHF held above 1.0019 and USD/JPY above 114.76. Canadian dollar was the strongest one with the help of resilience in oil price and stellar December job data. Nonetheless, USD/CAD is also held above 1.3080 key near term support. These levels will be closely watched this week to see if the greenback can defend its bullish trend.

Comments from Fed officials could also be part of the determining factors. Chicago Fed president Charles Evans, a known dove, said on Friday that two Fed rate hikes this year is "not an unreasonable expectation. And, with stronger than expected economic data coming in "three is not going to be implausible:". Cleveland Fed president Loretta Mester said that she's been "seeing a little more strength in the economy" and three hikes in 2017 is "probably" appropriate. Richmond Fed president Jerry Lacker said that Fed "may need to increase more briskly than markets appear to expect, depending on developments as the year unfolds." Current, Fed fund futures are pricing in 67.2% chance of another hike by June.

Looking at the technical, S&P 500's pull back proved to be brief and up trend resumed quickly. Outlook will now stay bullish as long as 2233.62 support holds. Current up trend is in progress for 61.8% projection of 1074.77 to 2134.71 from 1810.10 at 2465.14 in medium term term. We'd expect that strength in the stock markets will give room for Fed to hike rates as they protected in December's forecasts. That is, three hikes this year.

10 year yield suffered sharp decline to 2.339 last week before closing at 2.418. The development indicates short term topping at 2.621 and TNX has turned into a corrective phase. Friday's rebound was not strong enough to warrant completion of the correction yet. And we could see another dip to 55 day EMA (now at 2.263) and below. And that would limit Dollar's strength for resuming recent up trend. Though, strong support is expected at 38.2% retracement of 1.336 to 2.621 at 2.130 to contain downside.

Dollar index's sharp fall also indicates short term topping at 103.82, ahead of 61.8% projection of 78.90 to 100.39 from 91.91 at 105.19. Bearish divergence condition in daily MACD also raised the chance of a relatively lengthier consolidation. At this point, we'd expect strong support from 99.43 to contain downside and bring rise resumption. Above 103.82 will target 105.19 next. However, break of 99.43 will indicate that recent rise from 91.91 has completed and deeper pull back would be seen.

Regarding trading strategies, firstly, we're holding on to our AUD/USD short (sold at 0.7550). The rebound from 0.7158 was stronger than we expected. Also, support from 0.7144 seemed strong. The development raised some doubts on our bearish outlook. In our preferred case, fall from 0.7777 is seen as resuming the larger down trend and should be an impulsive move. In the alternate case, price actions form 0.7833 are forming a three wave consolidation pattern with fall from 0.7777 as the third wave. And in that case, fall from 0.7777 should also be an impulsive move. Therefore, we're still expecting another dip at least for a test on 0.7144/7158 support zone. So, we'll hold on to the short position and keep the stop at 0.7450, and pay attention to the structure of the next near term fall to decide to keep or quit. Meanwhile, we'd like to reiterate that strong break of 0.7144 will indicate larger down trend resumption for a new low below 0.7826.

Secondly, we're holding on to our EUR/USD short position (sold at 1.0504). We'd looking at down trend resumption which would extend to parity and even next medium term target at 0.9115. However, downside momentum has been very unconvincing so far. Nonetheless, we'll hold on to the position for the moment and keep our stop at 1.0670, which wasn't hit by the rebound from 1.0652.

USD/CAD Weekly Outlook

USD/CAD's fall from 1.3598 extended to as low as 1.3176 last week. Initial bias stays on the downside this week for 1.3080 support next. As noted before, price actions from 1.2460 are viewed as a corrective move. Decisive break of 1.3080 will indicate that it's completed and turn outlook bearish for retesting 1.2460 low. On the upside, above 1.3330 minor resistance will turn bias neutral again with focus back on 1.3588/98 resistance zone.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is possibly finished at 1.3598 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3080 would likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We'd start to look for reversal signal below 1.2460 to complete the correction. In case of another rise, we'll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

In the longer term picture, rise from 0.9056 (2007 low) is viewed as a long term up trend. It's taking a breath after hitting 1.4689. But such rise expected to resume later to test 1.6196 down the road.

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EUR/USD rebounded after initial dip to 1.0339 last week. Initial bias stays neutral this week first. As long as 1.0652 holds, outlook stays bearish and another decline is expected. Break of 1.0339 will extend the larger down trend to parity next. However, break of 1.0652 will now confirm short term bottoming and turn near term outlook bullish for stronger rebound to 1.0872 resistance first.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

In the long term picture, the down trend from 1.6039 (2008 high) is still in progress and there is no clear sign of completion. We'd expect more downside towards 0.8223 (2000 low) as long as 1.1298 resistance holds.

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USD/JPY stayed in the consolidation pattern from 118.65 last week and outlook is unchanged. Initial bias stays neutral this week first. Outlook stays bullish with 114.76 intact and further rise is expected. Above 118.65 will extend the whole rise from 98.97 to 125.85 key resistance next. However, sustained break of 114.76 will confirm short term topping and bring deeper pull back to 55 day EMA (now at 112.80) and possibly below.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.05 and below will extend the consolidation with another falling leg before up trend resumption.

In the long term picture, the rise from 75.56 long term bottom to 125.85 medium term top is viewed as an impulsive move. Price actions from 125.85 are seen as a corrective move which could still extend. But, up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.

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GBP/USD recovered last week but stayed in the consolidation pattern from 1.2200. Initial bias remains neutral this week first. In case of another rise, we'd still expect upside of consolidation to be limited by 1.2509 resistance and bring fall resumption. Corrective rise from 1.1946 has completed at 1.2774. Below 1.2200 will target a test on 1.1946 low. Decisive break there will confirm larger down trend resumption.

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.

In the longer term picture, no change in the view that down trend from 2.1161 is still in progress. Current momentum suggests that the down trend will go deeper than originally expected.

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USD/CHF stayed in the consolidation pattern from 1.0342 last week and outlook is unchanged. Initial bias remains neutral this week first. We'd expect strong support from 1.0019 to contain downside and bring rally resumption. Firm break of 1.0342 will confirm up trend resumption. However, sustained break of 1.0019 will indicate near term reversal and could bring deeper fall bring to 0.9443/9548 support zone.

In the bigger picture, the corrective fall from 1.0327 should have completed at 0.9443 already. Rise from 0.9443 could be resuming the long term rally from 2011 low at 0.7065. But decisive break of 1.0327 is needed to confirm. In that case, next medium term upside target will be 38.2% retracement of 1.8305 to 0.7065 at 1.1359. Rejection from 1.0327 will extend the sideway pattern with another fall back to 0.9443/9548 support zone.

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