DAX Muted as Investors Looking for Cues

The DAX Index is quiet in the Friday session, as the index is down by 0.30%. Currently, the DAX is trading at 11,920.90 points. On the release front, there are no eurozone economic indicator, so it could remain a quiet day. On Thursday, the DAX briefly pushed across the symbolic 12,000 level, but has since retreated.

In tandem with other stock markets, the DAX shrugged off the Federal Reserve's January minutes. There were no dramatic hints as to the timing of the next move by the Fed. The most important comment was that policymakers believe that a rate hike "fairly soon" could be appropriate in order to head off an overheated economy. The minutes indicated that Fed policymakers remain confident that the central bank will raise rates gradually, given the strong performance of the US economy. At the same time, the minutes noted uncertainty about President Trump's fiscal stimulus plan but little concern over the risk of inflation. So the million dollar question of when the Fed will press the rate trigger remains unanswered. Although pressure is slowly building towards a move by the Fed, there does not appear a sense of urgency to raise rates at the next meeting in March. According to the CME Group, the odds of a March hike are only at 17%, while the likelihood of a hike in either May or June stands above 40%.

Investors are constantly looking for cues, but shouldn't count on the European Central Bank making any dramatic moves which will shake up the stock market. There's no arguing that the eurozone has recorded moderate growth and higher inflation in recent months. Nonetheless, the central bank appears in no rush to tighten monetary policy, which would be bullish for the euro. ECB President Mario Draghi will likely be reluctant to make any major moves which could entangle the ECB in hotly contested elections in France and Germany (France goes to the polls in April, followed by Germany in September). At the same time, "political risk" in Europe is affecting investor confidence and weighing on the euro and the stock market. In June, Britain stunned the continent by voting to leave the European Union, throwing British-EU relations into crisis mode. In France, Marine Le Pen, leader of the far-right National Front, is the front-runner in the first round and could conceivably be elected president. Le Pen wants to take France out of the eurozone and has promised a referendum on French membership in the EU. Germany's Angela Merkel, a pillar of stability on the continent, is in a tough election fight and voters may choose change rather than hand her a fourth term in office.

The main event of the day is Canada's CPI for January. The headline rate is expected to have ticked up to +1.6% yoy from +1.5% yoy the previous month, while no forecast is available yet for the core rate. The nation's Markit manufacturing PMI for the month showed that as a result of higher input costs, manufacturers raised their prices at one of the fastest paces since early 2014. Therefore, we see the case for both rates to have risen. Nevertheless, considering January's yoy change in oil prices, we see strong possibility for the headline rate to have increased by more than the core, something that has already become evident in the CPI prints of many advanced economies. Coming on top of the remarkably strong employment data for the month, another improvement in the CPI rates is likely to be a welcome development for the BoC, which at its latest policy meeting signaled that a rate cut is still on the table should downside risks materialize. Accelerating CPIs could diminish somewhat the likelihood for the Bank to introduce any further easing, at least in the near term, and could prove positive for the Canadian dollar.

USD/CAD traded lower yesterday as the disappointment of Wednesday's Fed minutes kept the greenback pressured throughout most of the day. The pair fell below the support (now turned into resistance) barrier of 1.3120 (R1) to hit support at 1.3080 (S1). Rising Canada's CPI rates could prove the catalyst for a dip below that level, something that could initially aim for our next support of 1.3050 (S2). Another break below that territory is likely to target the psychological zone of 1.3000 (S3). With regards to the bigger picture, on the daily chart, we see that USD/CAD remains below the prior long-term uptrend line drawn from the low of the 3rd of May 2016. As such, we consider the medium-term outlook to be cautiously negative, which enhances the case for the pair to drift lower in the near future.

RBA Governor Lowe reiterates that the Bank is likely to stay on hold

Overnight, RBA Governor Philip Lowe testified before the House of Representatives Standing Committee on Economics. His comments reflected his Wednesday speech and as a result, the reaction in the Aussie was muted. The Governor noted that further easing would mean more borrowing and consequently, higher house prices. Too much household borrowing today can create problems tomorrow, he added. With regards to the exchange rate of the Australian dollar, he said that he would like the currency to be lower, but it's hard to say that it is overvalued. The fact that the Bank is most likely to keep its fingers off the easing trigger in the coming months, combined with the surge in iron ore prices, and the not so harsh comments on the Aussie's level, are the main reasons we expect the Australian currency to remain supported. We recall that one of our favorite proxies for further AUD appreciation is EUR/AUD, due to Eurozone's political risks.

EUR/AUD traded higher yesterday after it hit support at 1.3655 (S1) to stop near the 1.3725 (R1) resistance. Having in mind that a new poll on the French election yesterday showed that both Macron and Fillon got a pickup following Bayrou's withdrawal, we see the likelihood for the euro to continue its relief bounce. A break above the 1.3725 (R1) resistance is possible to result a move above the upper bound of the downside channel that has been containing the price action since the 30th of January, and perhaps aim for 1.3780 (R2) level next. However, even if the pair continues to trade higher in the days to come, we would treat such a recovery as providing renewed selling opportunities. The uncertainty surrounding the monetary union has nothing but diminished and as we head into the ballots, we expect the common currency to come under renewed selling interest. The broader outlook of EUR/AUD is also in line with our view that any further recovery is very unlikely to lead to a strong bull run. On the 10th of February, the pair broke below the downside support line drawn from the 10th of March 2016, which is a sign of acceleration in the longer-term downtrend. Therefore, we expect the bears to take the reins again at some point in the near future and aim for another test near the 1.3600 (S2) territory.

As for the rest of today's events

During the European day, we get France's and Sweden's consumer confidence indices, both for February. The French index is expected to have remained unchanged, while the Swedish one is expected to have declined marginally. In any case, neither of these indicators is usually a major market mover.

In the US, new home sales are expected to have rebounded in January, which appears normal to us following December's plunge. Despite a potential rebound, we remain somewhat pessimistic with regards to the future performance of the housing sector. Mortgage rates have spiked following Trump's election and as a consequence, banks have tightened restrictions on mortgage lending. We believe that affording a house may get more difficult in 2017 and could discourage potential buyers to even try applying for a mortgage. We also get the nation's final U of M consumer sentiment index for February.

Daily Pivots: (S1) 1.0073; (P) 1.0107; (R1) 1.0136; More.....

USD/CHF lost momentum after hitting 1.0140 and retreated. With 4 hour MACD crossed below signal line, intraday bias is turned neutral. With 0.9966 minor support, further rise is still expected. Above 1.0140 will target 1.0342 high. Based on neutral medium term outlook, we'd be cautious on topping at around 1.0342. Meanwhile, break of 0.9966 will indicate completion of the rebound. And intraday bias will be turned back to the downside for 0.9860.

In the bigger picture, prior rejection from 1.0327 resistance argues that USD/CHF is staying in a medium term sideway pattern. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone. Meanwhile firm break of 1.0342 will target 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

Daily Pivots: (S1) 112.90; (P) 113.31; (R1) 113.72; More...

USD/JPY weakens mildly today but staying in range of 111.58/114.94. Intraday bias remains neutral at this point. Corrective fall from 118.65 could extend lower through 111.58. But we'd still expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. On the upside, above 114.94 resistance should confirm completion of pull back from 118.65. In such case, intraday bias will be turned back to the upside for retesting 118.65.

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 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

Daily Pivots: (S1) 1.2406; (P) 1.2457; (R1) 1.2499; More...

GBP/USD continues to gyrate in range of 1.2346/2705. Intraday bias remains neutral at this point. Price actions from 1.1946 are viewed as a consolidation pattern, with rise from 1.1986 as the third leg. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

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.

USD/CAD has posted gains in the Thursday session. Early in North American trade, the pair is trading at the 1.31 line. On the release front, Canadian Corporate Profits posted a gain of 3.6%. This marked a second straight gain after four straight declines. In the US, unemployment claims rose to 244 thousand, slightly above the estimate of 242 thousand. As well, Treasury Secretary Robert Mnuchin will speak at an interview with CNBC. Friday will be busy, as Canada releases CPI. In the US there are two key events - New Home Sales and UoM Consumer Sentiment.

On Wednesday, the Federal Reserve released the minutes of its January policy meeting. However, there were no dramatic comments in the minutes, which were slightly dovish in tone. The key statement in the minutes was that a rate hike "fairly soon" could be appropriate in order to head off an overheated economy. The minutes indicated that Fed policymakers remain confident that the central bank will raise rates gradually, given the strong performance of the US economy. At the same time, the minutes noted uncertainty about President Trump's fiscal stimulus plan but little concern over the risk of inflation. Bottom line? Although pressure is slowly building towards a rate hike, there does not appear a sense of urgency to raise rates at the next meeting in March. According to the CME Group, the odds of a March hike are only at 17%, while the likelihood of a hike in either May or June stands above 40%.

Canadian consumers are in a surly mood and cut back in spending in December, to the surprise of the markets. Core Retail Sales declined 0.3%, compared to a forecast of +0.8%, while Retail Sales dropped 0.5%, missing the forecast of +0.1%. Will inflation levels point upwards despite weak consumer spending? The week wraps up with a host of inflation indicators on Friday, highlighted by CPI. The index has posted two straight declines, but the markets are expecting a 0.3% gain in the January report. If CPI exceeds expectations, the Canadian dollar could continue to move higher.

Daily Pivots: (S1) 1.0508; (P) 1.0541 (R1) 1.0589; More.....

Intraday bias in EUR/USD is turned neutral again on recovery from 1.0493. 4 hour MACD also turned above signal line. Nonetheless, with 1.0678 minor resistance intact, deeper decline is expected. We're viewing fall from 1.0828 as resuming the larger down trend. Below 1.0493 will target 1.0339 low first. Break will confirm our bearish view and target parity. However, break of 1.0678 will dampen our view and turn focus back to 1.0828 resistance instead.

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.

Dollar drifts lower in early US session after comments from US treasury secretary Steve Mnuchin. Regarding the long awaited "phenomenal" tax overhaul, Mnuchin just said that the administration is "primarily focused on a middle income tax cut and a simplification for business." He also reiterated that "any tax cuts for the wealthy getting canceled out with closed loopholes." Mnuchin is aiming to pass the reform before Congress' recess in August. However, some analysts doubt the possibility of this due to the complex agenda of Congress. Regarding the economy, he noted that Trump's administration is aiming for "sustainable growth of 3% or more". And the he's exploring 50- and 100-year debt with "very slight premium".

Regarding Dollar, Mnuchin noted that "strength of the he world, the leading reserve currency, and a reflection of the confidence that kind of people have in the U.S. economy." And, "for longer-term purposes, an appreciation of the dollar is a good thing, and I would expect longer-term, as you've seen over periods of time, the dollar does appreciatedollar has a lot to do with kind of where our economy is relative to the rest of the world, and that the dollar continues to be the leading currency in t."

Released from US, initial jobless claims rose 6k to 244k in the week ended February 18, slightly above expectation of 240k. Prior week's figure was revised down by 1k to 238k. That's the 103 straight week of sub 300k reading and suggests solid underlying strength in the job market. Continuing claims dropped 17k to 2.06m in the week ended February 11. Also from US, house price index rose 0.4% mom in December

Elsewhere, UK CBI reported sales rose to 9 in February. German Gfk consumer sentiment dropped 0.2 to 10.0 in March. German GDP was finalized at 0.4% qoq in Q4. Japan corporate service price index rose 0.5% yoy in January. Australia private capital expenditure dropped -2.1% in Q4.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0508; (P) 1.0541 (R1) 1.0589; More.....

Intraday bias in EUR/USD is turned neutral again on recovery from 1.0493. 4 hour MACD also turned above signal line. Nonetheless, with 1.0678 minor resistance intact, deeper decline is expected. We're viewing fall from 1.0828 as resuming the larger down trend. Below 1.0493 will target 1.0339 low first. Break will confirm our bearish view and target parity. However, break of 1.0678 will dampen our view and turn focus back to 1.0828 resistance instead.

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.

Economic Indicators Update

Markets appear to be caught in limbo on Thursday, with European equities mixed and US futures pointing to a similar open on Wall Street.

The minutes from the Federal Reserve on Wednesday, which we were hoping would provide additional clarity on its interest rate expectations, instead displayed the uncertainty the central bank has about how to proceed, largely due to the unknown effects of what Donald Trump's stimulus plans will have on the economy and inflation. In effect, the Fed is as much in limbo as investors are because markets have rallied strongly at the prospect of "phenomenal" tax cuts and major spending but as of yet, nothing has been delivered.

The way markets are continuing to grind higher, it would appear investors are unwilling to go against the rally but at the same time, there's little conviction in it either. At some point, in the absence of details on Trump's tax and stimulus plans he rally may run out of steam. Hopefully Treasury Secretary Steve Mnuchin will today offer some insight into what these plans may entail in order to give investors a taste of what's to come and justify the levels we now find ourselves at.

Beyond that I think we can expect the Fed to proceed with caution and come the March meeting, if it has no details on Trump's stimulus plans it will likely wait until May or June. However, as we've seen from recent efforts, it is keen to keep March on the table because should Trump announce substantial measures, the Fed may wish to hike in March in order to avoid falling behind the curve and needing to raise at a faster pace later this year.

We'll probably get more of the same rhetoric when we hear from Robert Kaplan and Dennis Lockhart later today. Kaplan – a voting member on the FOMC – has previously kept his cards close to his chest warning that rates should rise sooner rather than later while also driving home the need to tighten gradually. We'll also get jobless claims data today as well as oil inventory data from EIA after API reported a small build on Wednesday.

USD/JPY continues to trade close to the 113 line this week. The pair has dipped on Wednesday and is trading at 112.88. On the release front, Japanese SPPI edged up to 0.5%, above the forecast of 0.4%. In the US, today's highlight is unemployment claims, with an estimate of 242 thousand. As well, Treasury Secretary Robert Mnuchin will speak at an interview with CNBC.

On Wednesday, the Federal Reserve released the minutes of its January policy meeting. However, there were no dramatic nuggets in the minutes. The Fed stated that a rate hike "fairly soon" could be appropriate in order to head off an overheated economy. The minutes indicated that Fed policymakers remain confident that the central bank will raise rates gradually, given the strong performance of the US economy. At the same time, the minutes noted uncertainty about President Trump's fiscal stimulus plan but little concern over the risk of inflation. Bottom line? Although pressure is slowly building towards a rate hike, there does not appear a sense of urgency to raise rates at the next meeting in March. According to the CME Group, the odds of a March hike are only at 17%, while the likelihood of a hike in either May or June stands above 40%.

With the Japanese yen hovering at low levels, imports have become pricier for Japanese consumers. Predictably, the response has been a drop in consumer spending. In its monthly economic report, the government lowered its assessment of consumer spending, the first downgrade in 11 months. Conversely, the weak yen has been a boom for exports, prompting the government to raise its assessment of exports for the first time in four months. The report did not change the overall assessment that the economy is recovering at a moderate clip. Japanese policymakers are concerned about the protectionist stance under President Donald Trump. Japanese Prime Minister Shinzu Abe met recently with Trump in Washington and defused a currency policy crisis. Still, Trump is unhappy with the trade balance between the two countries, so we can expect some disagreements over trade issues to arise.