STOCKS

The stocks have risen sharply and look bullish for the near term.

Dow (20743.00, +0.58%) has risen sharply and looking at the current momentum, a pause near 20800 looks less likely. A break above 20800 may help the index to extend the current rally towards 21000 in the coming sessions.

Dax (11967.49, +1.18%) has finally moved up after being stuck in the 11677-11930 zone for quite some time. While the rally continues we may see a test of 12100 in the near term.

Nikkei (19344.25, -0.19%) is not able to break above 19600 just now and continues to trade in the broad 19600-19000 region. Resistance near 19600-19620 levels could hold for some more time.

Shanghai (3249.73, -0.11%) looks bullish on the weekly charts and could eventually move up towards 3300-3400 in the longer run. A pause near 3300 is possible before moving higher towards 3400. Trend is up for the medium term.

Nifty (8907.85, +0.32%) has seen sharp rally since the beginning of the year and could test crucial resistance just below 9000 levels over the next couple of sessions. Thereafter a sharp fall towards 8700 could be expected in the medium term. We need to keep a close watch on the price action near 8950-8980 region.

COMMODITIES

Gold (1238) is trading within its sideways channel between 1217-47 with no directional bias. Gold-WTI ratio is also falling and currently at 22.58.

Silver (18.01) is also trading within its previous range of 17.60-18.35 with an immediate resistance at 18.03.

Brent (56.90) and WTI (54.06) both are trading within their respective ranges of 54-59 and 50-56. A close above 57.20(Brent) and 54.40(WTI) could open up higher levels.

Copper (2.74) is hovering around its pivot of 2.76 of its recent trading range of 2.60-83.It is still holding its upward trend line support at 2.68 since October 16. A close above 2.76 could open up its resistance of 2.83.

FOREX

The markets are waiting for the minutes of the last Fed meeting to be released tonight, possibly giving the investors a peek into Trump policies through the eyes of the governors.

Dollar Index (101.28) has corrected from 101.60, close to the upper end of the near term range 100.40-101.70 and now may move according to the Fed minutes coming out tonight. If it fails to rise above 101.70-90 tonight, then the chances of spending the rest of the week in the range of 100.40-101.70 may increase.

Euro (1.0548) retested the previous week low near 1.0520 and took a pause. The upside looks limited to 1.0580-90 in the near term with the lower targets of 1.0500-1.0450 still in play. EURGBP (0.8437) may decline to the major support near 0.83 soon to complete a bearish Head & Shoulders pattern and a break below 0.83 may trigger much deeper downside.

Pound (1.25007) is trying to resolve the range of 1.2375-1.2525 to the upside but it still requires a firm break above 1.2525 to rise further towards 1.2700.

Dollar-Yen (113.40) is consolidating its recent gains made in the last 2 days but may rise to 114.80-115.00 in the coming sessions.

Aussie (0.7692) is stuck in the very narrow range of 0.7650-0.7700 for the last 3 sessions but a break above 0.7700 may take it to a fresh high near the major resistance of 0.7750-0.7800 where it may create a top. On the other hand, a break below 0.7650 right now may open up lower targets of 0.7500. Wait and watch.

Dollar Rupee (66.92) tested the immediate support of 66.90 below which the major support band of 66.70-50 come into play while 67.15-20 can be tested again if 66.90 holds. It remains to be seen in the opening hour today if 66.90 holds or breaks. Bias neutral at this point.

INTEREST RATES

Overall the yields are stable but could face resistances above current levels which could hold in the medium term.

The German-US 2Yr (-2.09%) has fallen further from levels near -2.07% seen yesterday. We could possibly see a bounce from levels near -2.11% indicating that the fall in Euro could be limited just now. Overall the spread has been showing close relation with the Euro and could be a good indicator for near term movements in the Euro. (Refer to FOREX section above)

The US yields are almost stable and could possibly come off in the near term.

The Japanese yields are have started falling slightly and could see some more fall in the near term.

USDJPY - The pair triggered a recovery higher on Monday and followed through on Tuesday leaving risk further higher. On the downside, support comes in at the 113.00 level where a break if seen will aim at the 112.50 level. A cut through here will turn focus to the 112.00 level and possibly lower towards the 111.50 level. On the upside, resistance resides at the 114.00 level. Further out, we envisage a possible move towards the 114.50 level. Further out, resistance resides at the 115.00 level with a turn above here aiming at the 115.50 level. On the whole, USDJPY looks to extend its upside pressure.

Forever Fickle

US equity investors returned from the Presidents day holiday in a very bubbly mood as both the S&P 500 and Dow Industrials closed in on record territory again.

The dollar put in a wily rally yesterday as the dollar bulls, like their US equity counterparts, put on their happy face after returning from the US long weekend. These markets are very fickle, as last week the dollar could not hold a bid after Yellen's hawkish comments as well as the stellar US economic data, yet it turns on a dime after the Fed's Philadelphia President Patrick Harker mentioned that a March rate hike was still on the table. It is all a bit bewildering, but nonetheless a sign that the market is desperately searching for an opinion while lacking any serious conviction.

I suppose we could make the argument that the March probability is well underpriced, but I suspect it has more to do with the markets storyline shift to a more concerted focus on all things Fed; more so with the plethora of Fed-speak on tap later today, ahead of Thursday's FOMC meeting minutes. If the FOMC has any real intention of guiding the market above a 60% probability for a March liftoff, now would be the time to show their cards. While my market radar is telling me to beware of the dollar bull trap, the stage is indeed set for the Feds to come out firing on all cylinders this week, so it would be wise to tread cautiously until the airwaves clear.

Australian Dollar

The RBA minutes came and went with much ado about nothing. The Aussie dollar momentum was engulfed by a broader US dollar bid, but AUD continued to perform well in the crosses.

After all was said and done, we are back to yesterday levels as traders remain on ‘Lowe' watch. The Aussie bulls are not giving up on the Governor leaning a bit hawkish during his Friday speech, so the Aussie has remained bid on dips overnight.

Oil support was also evident in the commodity block. While we have seen this move before, headlines from OPEC Secretary General Barkindo suggest that there's a solid buy in and a chance of more production cuts to come. Also, he indicated that he expected greater compliance from Non-OPEC producers while adding that oil was not at the equilibrium price yet. All in all, a fairly impressive move higher on WTI prices.

Japanese Yen

I think we see a classic case of pre-Fed Speak and FOMC minutes jitters. We saw this play out before with recent USD bull runs running into serious resistance at the 114.50-115 zone. Some traders are heading for the outside chance the Feds will wax hawkish. However, if history tells us anything about this sitting Fed, they are more likely to obfuscate than flip the rate hike switch early.

While the Feds are grabbing headlines this week, EU politics are still a major play, and the threat of a French election risk aversion will likely cap USDJPY topside momentum in the absence of any definitive economic policy moves from the US administration.

While GBP/USD swiftly bounced from it's brief foray below $1.20, price has once again been capped by the range that you can clearly see in the daily chart below:

GBP/USD Daily:

The upper level of the range is definitely acting as resistance and the way it held again back in the first week of February puts Cable in play for shorts. Just keep in mind that it's a 700 pip range and we're already 250 pips off the highs. If that's too close to the middle and not playing the edges for you, then fair enough.

But as always, I would then look to zoom into an intraday chart and find an area of short term support turned resistance to manage risk around. …But there really isn't any level that is jumping out of the screen telling me I have to short.

GBP/USD Hourly:

This level on the hourly is all I can come up with, and I actually don't like it at all. It's one of those textbook levels that is just too good to be true and always ends up being chopped through.

It all depends how much weight you put on that higher time frame resistance level having held as to whether you short/add to existing shorts from here. There are still clear risk parameters off that HTF level, but for me there's not much else.

Daily Pivots: (S1) 1.0011; (P) 1.0027; (R1) 1.0044; More.....

USD/CHF surges sharply today but stays below 1.0118 temporary top. Intraday bias remains neutral first. Near term outlook stays cautiously bullish as long as 0.9929 minor support holds. Fall from 1.0342 could have finished at 0.9860 already. Above 1.0118 will turn bias back to the upside for retesting 1.0342. However, break of 0.9929 will likely extend the decline from 1.0342 through 0.9860 low.

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.

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Daily Pivots: (S1) 1.2359; (P) 1.2434; (R1) 1.2482; More...

GBP/USD is still bounded in range of 1.2346/2705 and intraday bias remains neutral. 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.

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Daily Pivots: (S1) 112.84; (P) 113.03; (R1) 113.29; More...

USD/JPY recovers today but remains bounded in range of 111.58/114.94. Intraday bias remains neutral first. 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.

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USD/CAD has posted gains in the Tuesday session. Early in North American trade, the pair is trading at 1.3130. On the release front, there are no Canadian events on the schedule. The US will release Flash Manufacturing and Service PMIs. On Wednesday, Canada releases Core Retail Sales, with the markets expecting a strong gain of 0.8%. In the US, the Federal Reserve will publish the minutes of the January policy meeting.

Canadian indicators started the week on a positive note, as Wholesale Sales in December jumped 0.7%, above the forecast of 0.3%. More good news is expected from Core Retail Sales on Wednesday, with an estimate of 0.8%. The week wraps up with CPI, which has posted two straight declines, as inflation levels remain weak. However, the markets are expecting a 0.3% gain in the January report. If these key indicators match or beat their estimates, the Canadian dollar could get a boost against the greenback.

After Fed Chair Janet Yellen's upbeat take on the US economy, the markets are keen to review the Fed policy minutes, which will be released on Wednesday. Testifying before Congress last week, Yellen noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen strongly hinted that a rate hike was imminent, leaving the markets to speculate if the Fed prefers to make a move in March or June. If the US economy stays on track in 2017, analysts expect two or three rate hikes of a quarter-point. At the same time, the Fed wants to take into account the economic stance of the new administration, but this remains an elusive goal. Donald Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump has fired back by bitterly attacking the media, and lost in the mayhem is a clear and coherent economic policy. Although Trump has been in office for just over a month, the perception of a muddled and disoriented White House is creating uncertainty in the markets, and is, as Trump would say, "bad for business".

Dollar surges broadly today as US markets are back from holiday. There is finally some support from hawkish Fedspeaks. Philadelphia Fed president Patrick Harker is quoted today saying that he would "not take March off the table" for rate hike. He maintained that three hikes this year is "appropriate" depending on developments. Cleveland Fed president Loretta Mester said the trend in inflation is "moving up". And, she's "comfortable" that inflation is moving towards Fed's target. And, it the economy keep on with the currency way, she's "comfortable" for a rate hike at this point. Technically, EUR/USD is heading back to 1.0520 temporary low and break would drag the pair lower. That would correspond to 101.60 resistance in dollar index.

Eurozone PMIs beat expectations

Eurozone PMI manufacturing rose 0.3 pts to 55.5 in February, above expectation of 55.0. Eurozone PMI services rose to 55.6, up from 53.7 and beat expectation of 53.7. Germany PMI manufacturing rose to 57.0, up from 56.4, above expectation of 56.0. Germany PMI services rose to 54.4, up from 53.4, beat expectation of 53.6. France PMI manufacturing, however, dropped to 52.3, up from 53.6, below expectation of 53.5. France PMI services rose to 56.7, up from 54.1, above expectation of 56.0. Markit noted that "the pace of Eurozone economic growth improved markedly to hit a near six-year high in February." And, "job creation was the best seen for nine and a half years, order book growth picked up and business optimism moved higher, all boding well for the recovery to maintain strong momentum in coming months."

Also from Europe, UK public sector net borrowing dropped to GBP -9.8b in January. Swiss trade surplus widened to CHF 4.73b in January.

Japan PMI manufacturing hit 3-year high

Japan PMI manufacturing rose to 53.5 in February, up from 52.7 and beat expectation of 52.1. That's also the highest level since March 2014. Markit noted that "Japan's manufacturing engine shifted into a higher gear during February, as faster increases in output, new business and employment were reported." And, "encouragingly, with backlogs of work accumulating for the first time in 14 months, the added pressures on capacity should ensure growth will be maintained at a solid pace during at least the first half of this year." Also from Japan, all industry activity index dropped -0.3% mom in December, below expectation of -0.2%.

RBA minutes: cautious over subdued household consumption

RBA minutes for the February meeting contained little news. Indeed, it reinforced our view that the central bank would leave the monetary policy unchanged for the rest of the year. The market currently prices in further rate cut this year, followed by rate hike in 2018. The central bank acknowledged the -0.5% GDP contraction in 3Q16. While attributing most of the weakness to temporary factors including 'disruptions to coal supply and bad weather', policymakers also warned that 'slower growth in consumption had also been a factor'. However, they assured that such weakness should not have continued into 4Q16. On the growth outlook, the central bank suggested that 'GDP growth was expected to pick up to around +3% in year-ended terms later in 2017, and to remain above estimates of potential growth over the rest of the forecast period'. More in RBA Minutes: Cautious Over Subdued Household Consumption

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0597; (P) 1.0615 (R1) 1.0627; More.....

EUR/USD drops sharply today but stays above 1.0520 temporary low. Intraday bias remains neutral first and outlook is unchanged. With 1.0713 minor resistance intact, we're holding on to our bearish view. That is, corrective rise from 1.0339 has completed at 1.0828 already. Below 1.0520 will target 1.0339 first. Break will extend the larger down trend to parity. However, above 1.0713 will dampen our view and turn focus back to 1.0828 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

Daily Pivots: (S1) 1.0597; (P) 1.0615 (R1) 1.0627; More.....

EUR/USD drops sharply today but stays above 1.0520 temporary low. Intraday bias remains neutral first and outlook is unchanged. With 1.0713 minor resistance intact, we're holding on to our bearish view. That is, corrective rise from 1.0339 has completed at 1.0828 already. Below 1.0520 will target 1.0339 first. Break will extend the larger down trend to parity. However, above 1.0713 will dampen our view and turn focus back to 1.0828 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.

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