Market movers today

In the US, capital goods orders data for January is due out. These figures will give us a first impression of whether investments continue to gain momentum as seen during the second half of 2016.

In the euro area, we face a week with many interesting data releases. Monday kicks off with M3 money supply and private sector loan growth for January. Loans to households increased 2.0% in December, up from 1.9% in November, while loans to non-financial corporations were up 2.3% in December from 2.1% in November. We expect loan growth to the private sector in January to remain around the December levels.

In the UK, focus continues to be on the passing of the EU exit legislation, enabling the UK government to trigger Article 50. The bill is currently in the House of Lords and the socalled committee stage begins on today, where the Lords will discuss and vote on amendments. It remains our base case that the Lords will not delay the bill and the UK remains on track to trigger Article 50 by the end of March, perhaps at the EU summit in Malta on 9-10 March. If the Lords agree the amendments, the bill will go back to the House of Commons for approval and then back and forth between the two chambers until the wording is agreed upon.

In Denmark, the week kicks off with business confidence data. Manufacturing confidence fell slightly in January after climbing strongly in December, so it will be interesting to see which way the wind blows in February. In Sweden, household lending data is due to be released today.

Selected market news

As we await the budget proposal from the White House, a Reuters story reported that it will contain lofty defence spending increases and will among other things establish ‘a more robust presence in key international waterways and chokepoints'. The increase in defence spending is expected to be financed partly by cuts to the US State Department, Environmental Protection Agency and other non-defence programmes. However, as stated by Treasury Secretary Steven Mnuchin in an interview on Sunday, the budget proposal will spare big social welfare programmes such as Social Security and Medicare from any cuts.

President Trump's pick for secretary of the Navy, Philip Bilden, withdrew from consideration yesterday citing government conflict-of-interest rules. In an area where the presidency has placed such high strategical importance, it now leaves Trump without nominees to head both the Navy and the Army, as Vincent Viola withdrew his considerations to head the Army earlier this month.

Following a week with new all-time highs in the major US stock indices, the Asian morning has been off to a sluggish start with Nikkei and Hang Seng trading slightly below par at the time of writing. With most major currencies ‘on hold' as we await Trump's speech on Tuesday, we have seen the downward pressure on EURDKK ease a bit and it is now trading slightly above the central bank's intervention target of 7.4330.

Currency pair USD/JPY

The USD/JPY is probably in a wave 1-2 (blue) unless price breaks below the bottom of wave 1 (blue). A larger ABC (brown) could be taking place within wave 2 (blue). A wave 2 (blue) correction typically last between 100% and 161.8% of wave 1 (see bottom scale).

The USD/JPY is respecting the 88.6% Fibonacci retracement level of wave 2. A break above resistance (orange line) could indicate that the correction is finished.

Currency pair EUR/USD

The EUR/USD is showing a bullish WXY correction (blue/green) within a wave 2 (purple). The wave 2 Fibonacci retracement (purple) levels are potential bouncing spot and reversal levels. A break above the 100% level of wave 2 vs 1 (purple) invalidates it.

The EUR/USD could have completed a bearish ABC zigzag (blue) within an expanded bullish correction via a WXY (green) within wave Y (blue).

Currency pair GBP/USD

The GBP/USD failed to break above long-term resistance (brown) and showed a strong bearish turn instead. The wave count is therefore now showing a completed wave C (blue) and price could continue with the bearish momentum and break below support (blue).

The GBP/USD showed bearish momentum which has been labelled as a 5 wave (orange) sequence as a wave 1 (blue). Price could now build a retracement within wave 2 (blue) but a break above the 100% level invalidates it.

Key Points:

• Euro impacted by political unrest as Far-Right party gains ground in France.
• Watch for the EU CPI Flash Estimate result.
• Euro parity proposition still likely in medium term.

The Euro declined steadily throughout most of last week to touch a low of 1.0492 before recovering a portion of losses to close the week out around the 1.0556 mark. Much of the initial selling came following mounting concerns of political instability in Europe with increased risk of victory by Marianne La Pen’s far right wing party in France. Subsequently, it makes sense to review the salient events that led to the decline and to assess what is potentially on the horizon for the pair.

Last week saw a relatively steady depreciation for the Euro Dollar, which sent it to new lows at 1.0492 before it clawed back some of the losses to close around the 1.0556 mark. Much of the initial selling was spurred by mounting political risk within the European Union. In particular, the odds of a victory by the far-right French candidate Marianne La Pen are increasing and this is over shadowing the current EU PMI results. Subsequently, the Euro was under pressure for most of last week but the pair did receive a much needed boost when the US initial jobless figures showed an uptick to 244k. Regardless, the sentiment swing was only temporary and the pair still declined late into the week.

In fact, the move towards the extreme right in Europe has been a gradual process over the past few years largely in response to the refugee and economic crisis that the continent has faced. However, the move has been solidly opposed by the very many left wing pressure groups and it is likely that any eventual election of a far right party, such as Marianne Le Pen’s, will result in mass demonstrations and economic shutdowns throughout much of France. This of course poses a sharp threat to the Eurozone economy given that, along with their current problems, the last thing they need is political turmoil.

Looking ahead, the coming week has plenty of fundamental economic information for the market to digest. In particular, the EU CPI Flash Estimate will play a relatively key role in determining the near term trend. Inflationary pressures have been relatively lacklustre within the Eurozone of late but the current buoyancy of oil is likely to start having an impact on CPI gains. In addition, there is a bevy of US economic indicators due for release but the market will focus strongly upon the unemployment claims data, which showed an uptick last week, as a gauge of FOMC action next month. Subsequently, some volatility could be apparent around the release of the labour market data which is likely to impact the Euro Dollar.

From a technical perspective, last week’s dip to a new low of 1.0492 was indicative of the current risk-off market. However, our initial bias for the week ahead remains neutral given that RSI has flattened within neutral territory and price action appears to have formed a short term temporary bottom. However, the medium term suggests that the decline from 1.0713 is still in progress and further downside action is likely. Support is currently in place for the pair at 1.0530, 1.0400, and 1.0364. Resistance exists on the upside at 1.0678, 1.0758, and 1.0872.

Ultimately, the Euro Dollar is likely to face ongoing volatility in a similar manner as the greenback experienced during Trump’s ascension. However, the week ahead is likely to focus less upon the current political turmoil and more on some of the underlying economic variables such as the EU CPI Flash Estimate. Regardless, the Euro may very well be heading to parity in the medium term, especially if there is further political unrest.

Key Points:

• Upsides are available but just how far the rally can extend is unclear.
• Last week's performance leaves the AUD well positioned to surge.
• Both technicals and fundamentals are going to be vital this week.

The AUDUSD has been trending higher for some time now and many are beginning to question where it willend up. Some analysts have the pair pegged to hit the 0.80 handle before reversing once again but the 0.77 level also seems to be providing ample resistance as well. As a result, it's worth taking a look at the AUD's most recent week and also what the bias could be for the week to come.

Starting with last week's performance, the Aussie Dollar spent most of last week trending steadily higher in reaction to a number of weaker US fundamental results. Namely, the Market Flash Manufacturing PMI came in at only 54.3 and the Jobless Claims increased to 244K. Any positive US data was offset by the 0.5% uptick in the Australian Hourly Earnings result and remarks from the RBA's Lowe signalling that he believed interest rates had bottomed. However, news that Deutsch bank had forecasted an AUD rally up to the 0.80 mark also added to the overall buying pressure. Unfortunately, these gains were short-lived as a strong Michigan Consumer Sentiment result of 96.3 was all it took to send the pair reeling as the week closed.

As a result of last week's performance, the AUDUSD is in an interesting position. Specifically, the pair has some room to move higher but it is also beholden to the zone of the resistance around the 0.77 handle which seems intent on remaining in intact. Consequently, we will have to look at both the technicals and the fundamentals to establish a bias for the week to come.

On the technical front, the AUD looks to be firmly in an uptrend with the 12, 20, and 100 day EMA's being about as bullish as they possibly could be. Additionally, whilst the rally is moderating somewhat, the Parabolic SAR readings and the ADX oscillators are both signalling that this uptrend remains fairly robust. Interestingly, the RSI is still neutral which seems to indicate that gains may also be more sustainable that initially thought, despite them likely being capped by the 0.77 handle once again.

As for what lies ahead in the news, there is quite a lot of economic data on offer but the major item to monitor is the Australian GDP result. Specifically, the quarterly data is due to be released and, whilst it is currently forecasted at 0.7%, the market will be wary of another negative outcome which would put the nation into a technical recession. Indeed, these fears will be mounting in the wake of Lowe's remarks, in which, he mentioned that Australia was unlikely to reach its 3% GDP growth target. However, a sufficiently positive result could be just the thing needed to spark a rally capable of pushing past the 0.77 handle.

Ultimately, upsides are present for this pair but just how large these are is much less certain. As a result, monitor both the technical and fundamental factors mentioned above as they will be invaluable in staying ahead of the rather unpredictable AUD.

Global Markets:

• Asian stock markets: Nikkei down 0.85 %, Shanghai Composite fell 0.30 %, Hang Seng rose 0.10 %, ASX 200 lost 0.30 %
• Commodities: Gold at $1257 (+0.10 %), Silver at $18.43 (+0.10 %), WTI Oil at $54.25 (+0.45 %), Brent Oil at $56.60 (+0.50 %)
• Rates: US 10-year yield at 2.34, UK 10-year yield at 1.08, German 10-year yield at 0.18

News & Data:

• Australian Inventories Q4 0.3% (QoQ) (Prev 0.5%)
• Australian Company Operating Profit Q4 20.1% (QoQ) (prev 1.0%)
• PBoC Fixes USDCNY Reference Rate At 6.8814 (prev fix 6.8655 prev close 6.8700)

CFTC Positioning Data:

• EUR short 58K vs 47K short last week. Shorts increased by 11K
• GBP short 66K vs 67K short last week. Shorts trimmed by 1K
• JPY short 50K vs 51K short last week. Shorts trimmed by 1K
• CHF short 9K vs 11K short last week. Shorts trimmed by 2K
• CAD long 25K vs 19K long. Longs increased by 6K
• AUD long 33K vs 24K long. Longs increased by 9K
• NZD long 3K vs long 3K last week. No change.

Markets Update:

The Pound came under pressure overnight amid renewed speculations about another Scottish independence referendum. GBP/USD started the new trading week around 1.2460 and fell to a low of 1.2390 ahead of the Tokyo open. The pair later recovered to 1.2430.

Other than that, the US Dollar had a rather mixed performance. The Australian Dollar was the strongest overnight, despite the risk-off sentiment in equity markets. AUD/USD rose from 0.7665 at the open to a high of 0.7705. Meanwhile, EUR/USD began the trading week at 1.0555 and rallied to 1.0575 later in the session.

USD/JPY came under pressure along with the Nikkei and fell to 111.90. However, the pair managed to recover to 112.30. Resistance is now seen at 112.55 and 112.90.

Upcoming Events:

• 10:00 GMT – Euro Zone Consumer Confidence
• 10:00 GMT – Euro Zone Business Climate
• 13:30 GMT – US Durable Goods Orders
• 15:00 GMT – US Pending Home Sales
• 16:00 GMT – FOMC Member Kaplan speaks
• 21:45 GMT – New Zealand Trade Balance
• 23:50 GMT – Japan Industrial Production
• 23:50 GMT – Japan Retail Sales

The Week Ahead:

Tuesday, February 28th

• 00:00 GMT – Australian HIA New Home Sales
• 00:00 GMT – Australian ANZ Business Confidence
• 00:30 GMT – Australian Current Account
• 07:45 GMT – French CPI
• 07:45 GMT – French GDP
• 10:00 GMT – Italian CPI
• 13:30 GMT – US GDP
• 14:45 GMT – US Chicago PMI
• 15:00 GMT – US CB Consumer Confidence
• 15:00 GMT – US Richmond Manufacturing Index
• 20:00 GMT – FOMC Member Harker speaks
• 20:30 GMT – FOMC Member Williams speaks
• 21:00 GMT – US President Trump speaks
• 22:30 GMT – Australian AIG Manufacturing Index

Wednesday, March 1st

• 00:30 GMT – Australian GDP
• 01:00 GMT – Chinese Manufacturing PMI
• 01:00 GMT – Chinese Non-Manufacturing PMI
• 01:45 GMT – Chinese Caixin Manufacturing PMI
• 08:45 GMT – Italian Manufacturing PMI
• 08:50 GMT – French Manufacturing PMI
• 08:55 GMT – German Manufacturing PMI
• 08:55 GMT – German Unemployment Change
• 08:55 GMT – German Unemployment Rate
• 09:00 GMT – Euro Zone Manufacturing PMI
• 09:30 GMT – UK Manufacturing PMI
• 13:00 GMT – German CPI
• 13:30 GMT – US Core PCE Price Index
• 13:30 GMT – US Personal Income
• 13:30 GMT – US Personal Spending
• 13:30 GMT – Canadian Current Account
• 14:45 GMT – US Manufacturing PMI
• 15:00 GMT – US ISM Manufacturing PMI
• 15:00 GMT – Bank of Canada Interest Rate Decision
• 15:30 GMT – US Crude Oil Inventories
• 18:00 GMT – FOMC Member Kaplan speaks

Thursday, March 2nd

• 00:30 GMT – Australian Building Approvals
• 00:30 GMT – Australian Trade Balance
• 06:45 GMT – Swiss GDP
• 08:15 GMT – Swiss Retail Sales
• 09:30 GMT – UK Construction PMI
• 10:00 GMT – Euro Zone CPI
• 10:00 GMT – Euro Zone Unemployment Rate
• 13:30 GMT – US Initial Jobless Claims
• 13:30 GMT – Canadian GDP
• 23:30 GMT – Japanese CPI
• 23:30 GMT – Japanese Household Spending

Friday, March 3rd

• 01:45 GMT – Chinese Caixin Services PMI
• 07:00 GMT – German Retail Sales
• 08:45 GMT – Italian Services PMI
• 08:50 GMT – French Services PMI
• 08:55 GMT – German Services PMI
• 09:00 GMT – Euro Zone Services PMI
• 09:00 GMT – Italian GDP
• 09:30 GMT – UK Services PMI
• 10:00 GMT – Euro Zone Retail Sales
• 14:45 GMT – US Services PMI
• 15:00 GMT – US ISM Non-Manufacturing PMI
• 18:00 GMT – Fed Chair Yellen speaks

Daily Pivots: (S1) 138.80; (P) 140.28; (R1) 141.15; More...

GBP/JPY dips notably today but stays in range of 138.53/142.79. Intraday bias remains neutral first. Overall, price actions from 148.42 are seen as a corrective pattern. Below 138.53 will bring deeper fall, possibly through 136.44 support. But strong support could be seen at 50% retracement of 122.36 to 148.42 at 135.39 to bring rebound. Above 142.79 will turn bias back to the upside for 144.77 and above.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. Main focus is on 38.2% retracement of 195.86 to 122.36 at 150.42. Rejection from there will turn the cross into medium term sideway pattern with a test on 122.36 low next. Though, sustained break of 150.42 will extend the rebound towards 61.8% retracement at 167.78.

Daily Pivots: (S1) 117.91; (P) 118.71; (R1) 119.18; More...

Intraday bias in EUR/JPY remains cautiously on the downside for the moment. Current development argues that whole rebound from 109.20 has completed at 124.08 already. Sustained trading below 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) will confirm. In such case, EUR/JPY should target 61.8% retracement at 114.88 and below. On the upside, though, break of 119.85 minor resistance will indicate short term bottoming and turn bias back to the upside for 121.32 resistance instead.

In the bigger picture, price actions from 109.20 medium term bottom are seen as part of a medium term corrective pattern from 149.76. Current development argues that it's completed at 124.08, ahead of 126.09 key resistance level. Deeper fall would be seen back to 109.20 low. Break there will extend the whole medium term down trend from 149.76 high.

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Daily Pivots: (S1) 1.3700; (P) 1.3767; (R1) 1.3830; More...

Intraday bias in EUR/AUD remains neutral for the moment. At this point, we'd still expect strong support from 1.3671 to contain downside to complete the correction from 1.6587. This is supported by bullish convergence condition in 4 hour MACD. Break of 1.3900 resistance will confirm short term bottoming and turn bias back to the upside for 1.4289 resistance. However, sustained break of 1.3671 will invalidate our view.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. We'd expect strong support from 1.3671 key level to contain downside and bring rebound. Up trend from 1.1602 should not be finished and will resume later. Break of 1.4721 resistance will indicate completion of such correction and turn outlook bullish for retesting 1.6587 high. However, sustained break of 1.3671 will invalidate our bullish view and would turn focus back to 1.1602 long term bottom.

Daily Pivots: (S1) 0.8428; (P) 0.8460; (R1) 0.8498; More...

EUR/GBP recovers today but stays in range of 0.8402/8590. Intraday bias remains neutral first. With 0.8590 resistance intact, we're holding on to our bearish view. That is, fall from 0.8851 is the third leg of the whole corrective pattern from 0.9304. Below 0.8402 will turn bias to the downside for 0.8303 first. Break will confirm our bearish view and target 0.8116 key cluster support level. However, on the upside, break of 0.8590 resistance will dampen our view and turn bias back to the upside.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

EUR/CHF Daily Outlook

Daily Pivots: (S1) 1.0632; (P) 1.0645; (R1) 1.0655; More...

EUR/CHF continued to stay in range above 1.0629 last week without any new development. Initial bias remains neutral this week first. As 1.0706 resistance stays intact, deeper decline is still expected in the cross. Firm break of 1.0620 key support level will extend the larger decline from 1.1198 to 1.0485 fibonacci level. However, break of 1.0706 resistance will indicate short term bottoming and turn bias back to the upside. Further break of 1.0749 resistance will raise the chance of medium reversal.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. Such correction is still in progress. Sustained trading below 38.2% retracement of 0.9771 to 1.1198 at 1.0653 will target 50% retracement at 1.0485. On the upside, break of 1.0897 resistance is needed to confirm completion of such fall. Otherwise, outlook will stay bearish.