EUR/USD

Current level - 10553

The downtrend has been reversed at 1.0493 low and the intraday outlook is positive, for a rebound towards 1.0602, en route to 1.0630 resistance area. Initial minor support lies at 1.0530.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 113.16

The intraday bias is neutral after yesterday's rebound above 112.80. Key resistance is projected at 114.00.

GBP/USD

Current level - 1.2445

Despite yesterday's slide below 1.2480 support, the overall outlook remains rather positive above 1.2380 key support, for another upswing beyond 1.2520 high.

'The dollar fell while Treasuries advanced after minutes from the Federal Reserve's latest meeting showed officials confident they can raise rates gradually amid little threat that near-term inflation will accelerate.' - Jeremy Herron, Bloomberg

Pair's Outlook

The common European currency surged against the US Dollar on Thursday morning, as the currency exchange rate continued the late Wednesday's surge. The surge was initiated by the dovish FOMC meeting minutes, which caused the Greenback to fall all across the board. However, this occurred almost perfectly in the borders of a descending medium term channel, and the previous forecast of a decline of the currency pair is still in force. In fact, it is most likely that the pair will retreat once more to the weekly S1 at 1.0529 by the end of the day.

Traders' Sentiment

Traders have not changed the proportions of their open positions, as 54% of SWFX traders remain bullish on the Euro. Meanwhile, 58% of trader set up orders are to buy the Buck.

'There may well be a case to say investors are still looking for the weaker aspect of data and focusing on that - the Brexit trade is an easy one to hang on now, as is the euro political risk trade ... over the last couple of days.' – BMO Capital Markets (based on Business Recorder)

Pair's Outlook

The British Pound remained rather muted against the US Dollar during the last three days, with the tough support area circa 1.24 keeping the pair afloat. Even though there is some room for another leg down, same as yesterday, assuming the weekly pivot point at 1.2449 manages to hold the Cable—a positive development would not be a surprise. However, the main target, namely the resistance around 1.25, is unlikely to be breached due to lack of potential market movers. Meanwhile, technical indicators also keep giving bullish signals in the daily timeframe, unable to confirm the possibility of the positive outcome.

Traders' Sentiment

There are 57% of traders being long the Sterling today, whereas 53% of all pending orders are to sell the British currency.

The US dollar slid yesterday after the minutes from the latest FOMC policy meeting disappointed those who were looking for hints that a March hike is underway. Although Fed officials expressed confidence that a rate increase might be appropriate "fairly soon" if incoming information on the labor market and inflation was in line with or stronger than their current expectations, this was tempered by other comments that showed little concern about near-term inflation risks. Many Fed voters saw only a modest risk of inflation pressures increasing significantly and judged that the Fed would have "ample time" to respond if inflation emerged. On top of that, several members continued to be concerned about the downside risks to economic activity associated with further appreciation of the dollar. With regards to Trump's fiscal promises, policymakers noted that the uncertainty surrounding the subject should not deter the Committee form taking further steps in removing policy accommodation. Nevertheless, some were mindful that adjusting policy in anticipation to these policies might have different consequences than currently anticipated. All these points combined passed a different message to market participants than the one they got from Yellen's testimony last week. As such, the dollar weakened and the probability for a March action has ticked down. According to our model, which is based on the yields of the Fed funds futures, that probability is now 26% versus 28% yesterday.

Due to the fact that the meeting statement was relatively balanced, we did not expect this level of hesitation in these minutes. Nonetheless, the outcome confirms our assessment that the Committee has turned more dovish this year through the rotation of voting rights. As such, we stick to our guns that a March hike is unlikely and that the next increase in interest rates will probably take place in June. We would like to see some clarity around fiscal reform, some acceleration in wage growth, as well as an uptick in the core PCE price index rate, before we reconsider this view.

USD/JPY slid as soon as the minutes were out to challenge once again the 113.00 (S1) support territory. If USD-bears remain in charge today and manage to break that barrier, then we expect them to aim for our next support of 112.60 (S2), defined by the low of the 17th of February. However, although there is the possibility for further declines, the short-term path of the pair remains sideways. The rate has been oscillating between 111.60 and 115.50 since the 11th of January. We would like to see an escape from that range before we assume a forthcoming trending direction.

French politics still on the spotlight

Yesterday, Veteran French centrist Francois Bayrou announced that he will not run for President and offered his support to the independent candidate Emmanuel Macron. According to the polls, Bayrou's support was only 5%, but his withdrawal gives Macron a significant boost towards victory. EUR/USD spiked higher on the news, after it hit support near the 1.0500 (S1) territory, got another boost later in the day from the Fed minutes, and stopped near the 1.0570 (R1) line. Anything that reduces, or at least not increases, the possibility of Le Pen becoming President is seen as positive for the common currency. The combination of that and the disappointment from the Fed minutes may keep EUR/USD supported for a while. A break above 1.0570 (R1) is possible to challenge our next resistance of 1.0600 (R2). Nevertheless, we don't expect any further recovery to develop into a strong bull run, given that we still have a long way to go before any election outcome is certain. A fresh poll showed that Marine Le Pen has increased her lead in the first round, which proves that Europe's political risks have nothing but diminished. However, the common currency did not react to that poll, as the far right leader is still expected to lose by a large margin in the runoff. With this uncertainty still in place, we expect euro-bears to take charge again soon and drive the battle in EUR/USD back down for another test near 1.0500 (S1). However, we recall that one of our favorite proxies to play further weakness in the common currency is EUR/JPY, given that the yen may enjoy some safe haven flows in case uncertainty mounts further.

Overnight, Australia's capital expenditure index for Q4 tumbled 2.1% qoq, much more than the expected 1.0% qoq slide. The Aussie slid on the release, but that doesn't change our outlook with regards to the currency. The RBA's intention to remain on hold in the foreseeable future combined with the surge in iron ore in past months are likely to keep the AUD supported. As we noted yesterday, we believe that EUR/AUD is one of the better proxies for exploiting any further Aussie gains, considering that the political risks in Eurozone could keep the euro on the back foot in coming months.

As for today's events

During the European day, we have a relatively light calendar in terms of economic releases. From Germany, we get the final GDP figures for Q4 as well as the Gfk consumer sentiment index for March, though neither of these indicators is usually a major market mover.

In Norway, the oil investment expectations survey for Q1 is due to be released, though no forecast is available for the figure. Considering the nation's heavy reliance on oil exports, this number will be closely watched. We see the case for oil investment expectations to have risen from the previous quarter, given that oil prices have remained elevated in recent months, following the OPEC consensus. Something like that may bring NOK under renewed buying interest.

From the US, we get initial jobless claims for the week ended 17th of February. The forecast is for the figure to have ticked up, something that would bring the 4-week average down.

We have two speakers scheduled on Thursday: ECB Executive Board member Peter Praet and Atlanta Fed President Dennis Lockhart.

'The topside remains capped by the 55 day ma at 114.96. We view the recent low at 111.59 as an interim low. Between these two limits the market is sidelined.' – Commerzbank (based on FXStreet)

Pair's Outlook

The FOMC Minutes barely affected the markets yesterday, as no clear clue concerning a future interest rate hike was provided. As a result, the US Dollar closed with a 33-pip loss against the Japanese Yen, retaining its position above 113.00. Technical indicators keep giving mixed signals in the daily timeframe, but the weekly ones now are giving distinctly bullish, implying the USD/JPY pair could soon break out from its consolidation trend. However, in order to fully achieve this goal the Greenback is required to stabilise above the 115.00 major level, meaning the tough resistance, formed by the weekly R1, the monthly PP, the Bollinger band and the 55-day SMA, needs to be overcome.

Traders' Sentiment

Today 53% of all open positions are long (previously 52%). The share of purchase orders also edged higher, namely from 63 to 65%.

'Gold continues to tread water post the Federal Open Market Committee minutes, probably the highlight of a very light data week.' – Jeffrey Halley, OANDA (based on Reuters)

Pair's Outlook

The yellow metal remains near the 1,235 mark, and near that level the bullion has been fluctuating for the past six consecutive trading sessions. However, the flat trading is consistent with the forecasts, as the bullion continued to be squeezed in a medium term triangle pattern. A breakout to the upside is expected in the upcoming trading sessions, and it is most likely to occur at the start of next week. In such case it is highly likely that the metal's price would reach the 1,250 mark.

Traders' Sentiment

SWFX traders remain bullish on the metal, as 56% of open positions are long on Thursday. In addition, 62% of trader set up orders are to buy the metal.

'Businesses will likely become more cautious over investment and employment as the economy shows increasing signs of slowing and uncertainties over the outlook are magnified by 'Brexit' negotiations coming to the forefront after the government triggers Article 50.' - Howard Archer, IHS Markit

The British economy showed first signs of Brexit vote influence, as the overall growth slowed, seeing the annual GDP growth rate holding steady at 2%, behind expectations for a 2.2% increase. Nevertheless, according to the second GDP estimate released by the Office for National Statistics on Wednesday, the UK economy expanded 0.7% in the Q4, the strongest performance since the last quarter of 2015, compared with a 0.6% growth pace observed in the previous quarter. In the report, the ONS highlighted that economic growth was mainly boosted by upwardly revised manufacturing output, which expanded 1.2% from 0.7% registered previously. As to the expenditure side, net trade and household consumption supported the economy, while capital spending levels set negative impact on the overall economic performance in the United Kingdom. In the meantime, the weak Pound is expected to support exports in the foreseeable future, though risks brought by the Brexit are still in place.

Global markets were relatively unmoved during late trading on Wednesday after the slightly hawkish minutes from the Federal Reserve failed to convince participants of a March interest rate hike. Although many Fed members have repeatedly voiced that it may be appropriate to raise interest rates again 'fairly soon', it is the lack of commitment to a hiking timeline and overall ambiguity that continues to leave investors empty handed. With the Trump uncertainty still a major theme and concerns continue to heighten over how his policies may impact the US economic outlook, the central bank may be encouraged to maintain a cautious stance till the second quarter of 2017. While there continues to be discussions of the growing chorus of hawkish Fed officials opening the doors for a March hike, it seems unlikely that rates will be hiked in March with June looking more possible. A scenario where US economic data repeatedly exceeds expectations with the labour force displaying stability could prompt the central bank to surprise markets by taking action in May.

Commodity spotlight – WTI

WTI Crude displayed sharp levels of volatility on Wednesday as markets re-evaluated the intricate supply and demand dynamics that have driven the global oil markets. The ongoing developments with OPEC and U.S shale simply placed oil prices on a rollercoaster ride with the oversupply fears still lingering in the background. Although OPEC members have respected their pledge to cutting production and stabilising oil markets, the threat that U.S shale has benefited from the OPEC cut deal continues to spark concerns of the overall production deal falling apart. WTI Crude remains pressured below $55 on the daily charts with recent comments from Qatar’s oil minister on how some major oil producers are not in compliance with production cuts, exposing prices to downside shocks. WTI Crude remains buoyed around $54, but weakness below this level could open a path lower towards $52.

Currency spotlight – EURUSD

The political uncertainty enshrouding the Eurozone has left the Euro vulnerable to heavy losses this week. From a technical standpoint, the EUR/USD has come under renewed selling pressure on the daily timeframe with sellers exploiting the downside momentum to take prices lower towards 1.0500. With there being consistently lower lows and lower highs coupled with lagging indicators pointing to the downside, the prerequisites of a bearish trend have been fulfilled. A decisive breakdown below 1.0500 could encourage a further decline lower towards the next relevant support at 1.0350.

Sunrise Market Commentary

• Rates: French election fever temporary out of the way?
  Bayrou's shout out to Macron might ease French election fever short term and trigger some spread narrowing. On core bond markets, the Bund could return some of yesterday's impressive gains, also as the Bund rally ran into 165.48 resistance, the 62% retracement level of the Oct-Dec decline. Today's eco calendar isn't really inspiring for trading.
• Currencies: Euro decline slows as French political tensions ease
  Yesterday, the euro reversed initial steep losses as French centrist candidates join forces, avoiding further fragmentation. Today, the eco calendar is thin. Some consolidation on the recent wild (euro) swings might be on the cards. However, we don't see a change of trend, yet. EUR/GBP again failed to break the 0.8450 support in a sustainable way

The Sunrise Headlines

• US stock markets extended their record race, gaining more than 0.5% after Monday's public holiday. Overnight, Asian equity sentiment is less bullish, with most indices recording small gains.
• Shares in Fannie Mae and Freddie Max tumbled by more than a third on after a court struck a blow to a group of investors in their quest to overturn the government's decision to take all of the US mortgage giants' profits
• China home prices increased last month in the fewest cities in a year, signalling property curbs to deflate a potential housing bubble are taking effect. New home prices, excl. subsidized housing, gained last month in 45 of the 70 cities
• BoJ Governor Kuroda said the chance the central bank will deepen negative interest rates is low for now, backing market expectations that no additional monetary easing is forthcoming in the near future.
• The head of Australia's central bank, Lowe, gave the clearest signal yet that further cuts in interest rates would not be in the national interest as the danger of a debt-fuelled boom and bust was just too severe.
• Political uncertainty is slowing trade growth, a World Bank report has concluded, indicating that the rise of Donald Trump may already be casting a shadow over the global economy.
• Cleveland Fed Mester said policy makers don't want to surprise the market on interest rates and they have to be “nimble” to adjust their outlook amid global and domestic risks.
• Today's eco calendar contains German IFO, the second reading of UK Q2 GDP, finale EMU CPI data, US existing home sales and FOMC Minutes. Fed Powell speaks on the economic outlook and Germany and the US tap the market

Currencies: Euro Decline Slows As French Political Tensions Ease

Euro sell-off slows, at least temporary.

Yesterday, euro weakness due to political uncertainty dominated FX trading. The euro sold off even as regional data (IFO) were strong. EUR/USD dropped temporary below 1.05. The decline of EUR/JPY also weighed on USD/JPY. Later, uncertainty on France eased as centrist Bayrou supported independent candidate Macron, avoiding further fragmentation and diminishing the risk of a Le Pen victory. The euro rebounded. Later, the Fed minutes didn't provide concrete evidence on a March rate hike and weighed slightly on the dollar. EUR/USD rose further to close the session at 1.0558. USD/JPY finished at 113.31.

Overnight, most Asian equity indices show modest losses. Yen cross rates made quite some big swings yesterday and the yen trades still rather strong. This is a slightly negative for regional markets. Even so, Japanese/regional equities reversed part of the earlier losses. USD/JPY is trading in the 113.25 area. EUR/USD is little changed in the 1.0560 area.

Today, EMU eco data are second tier (final Q4 German GDP, French INSEE business confidence and Italian retail sales). US data have also limited potential to move USD. The January Chicago National Activity Index is expected flat (versus 0.14 previously). Initial claims have been very low in past weeks and no change is expected. We listen closely to the speeches of ECB Praet, especially as tensions in EMU markets flared up. Atlanta Fed Lockhart speaks but retires at the end of the month. Dallas Fed Kaplan is a moderate hawk. Over the previous days, French election worries fuelled uncertainty on European markets and weighed on the euro. The political uncertainty in France eased a bit after centrist Bayrou support centrist candidate Macron. Uncertainty might easily return later on, but in a dayto- day perspective, it might ease pressure on the euro. Even so, we don't expect the EUR/USD rebound go far. Markets await Trump's fiscal plan and its impact on Fed thinking. A decent fiscal easing (tax cuts/spending) should be USD supportive. However, we don't see much pro-USD prepositioning yet. If there is no high profile news on France or on US fiscal policy, some consolidation in EUR/USD and USD/JPY is likely, with equities guiding the intraday moves

Global context. The dollar corrected lower since the start of January as the Trump reflation trade slowed down. Two weeks ago, the dollar bottomed out, supported by Trump's tax promise. Underlying euro weakness due to political uncertainty in the area is a factor too. We see 1.0874 as solid resistance and favour a sell EUR/USD on upticks approach. The downside test of USD/JPY was rejected. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) remains a key support. The comments of Yellen before Congress (and of other Fed members) were USD supportive, but had little lasting impact on yields. We keep a USD positive bias, but remain more cautious on the upside potential of USD/JPY compared to USD/EUR.

EUR/USD: rebounds off recent lows on Bayrou comments

EUR/GBP

EUR/GBP: again no sustained break of 0.8450 support

Euro weakness pushed EUR/GBP further below the 0.8450 support. The pair touched an intraday low just north of 0.84. Some ST consolidation kicked in. The details of the UK Q4/2016 GDP painted a mixed picture and weighed on sterling. EUR/GBP initially rebounded to the 0.8440/50 area. Later in the session, the pair was further supported by the post-Bayrou rebound of EUR/USD. EUR/GBP closed the session at 0.8481. Cable finished the day at 1.2450. Sterling trading was dominated by the gyrations in the euro cross rates. Even so, yesterday's price action should have disappointed sterling bulls.

Today, UK CBI Retail/Distributive trades reports will be published. Usually, the FX market doesn't react much to the data and so the report won' be a game-changer. However, the CBI data are interesting after recent very poor ONS retail sales data. We especially look for the market reaction in case of a poor report. EUR/GBP recently hovered in a tight range north of the 0.8450 support. Sterling sentiment softened slightly as a BoE rate hike is still very far away. Yesterday, a (temporary) acceleration of the euro sell-off pushed EUR/GBP temporary to the 0.84 area, but a sustained break of the 0.8450 level again didn't occur. Longer term, we have a sterling negative view as the Brexit will negatively impact the UK economy. However, this is no issue at this stage. Euro weakness prevails. A sustained break below 0.8450 would open de way for a return to the EUR/GBP 0.8304 correction low, the next key support. We maintain a neutral bias on sterling short-term. Both EUR/GBP and cable show no clear trend.

EUR/GBP: no sustained break of 0.8450 support

Download entire Sunrise Market Commentary

Daily Pivots: (S1) 140.35; (P) 141.18; (R1) 141.90; More...

GBP/JPY is trading in range of 138.53/142.79 and intraday bias stays neutral for the moment. 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.

Subscribe to our daily and mid-day newsletter to get this report delivered to your mail box