It's been an interesting start to trading on Tuesday, following a lacklustre session at the start of the week driven largely by the Presidents day bank holiday in the US.

European equity markets have been buoyed this morning by a selection of PMIs for the eurozone, Germany and France which pointed to much stronger growth in the region than was expected, particularly in France which has for a long time been a drag on the region. It would appear that confidence in the euro area economy is finally on the rise and growth could finally pick up from the rather subdued rates we've seen in recent years, which is particularly surprising given that we're entering a period of heightened political uncertainty.

The uptick in the French services sector was both welcome and surprising given that we're only a few months away from an election in which the current front-runner - albeit only in the first round of voting - wants to withdraw the country from the eurozone and threaten dismantling the project altogether. While sentiment may be ease as we approach the election itself and possibly beyond, it's certainly encouraging as it would suggest that the foundations may well finally be in place for a stronger recovery in the region should it overcome the political hurdles facing it in 2017, not including Brexit which will likely persist for much longer.

Despite the boost from the data this morning, the euro is coming under pressure this morning, particularly against the US dollar which has been given a boost itself by an increase in hawkish commentary from Fed officials which has forced investors to re-evaluate their expectations for the March meeting. Expectations for a rate hike at the meeting remain quite low but they have picked up considerably and recent comments from Patrick Harker who claimed a rate hike in March is not off the table - echoing similar views of other officials including Chair Janet Yellen last week - are driving these moves. We'll hear from three Fed officials throughout today's session - including Harker who is due to speak again this afternoon - which may shed further light, particularly on the March meeting. Of the other two officials, Neel Kashkari is also a voter on the FOMC this year while John Williams will be in 2018.

Gold has been surprisingly resilient to the moves in the dollar so far this month despite the usual correlation between the two but it would appear the relationship may have strengthened once again today. Gold failed to break above its 2017 highs in recent days which may be a sign that the trend is weakening and with the dollar now responding positively to the Fed's position on interest rates, the path of least resistance for the yellow metal may well be lower with a key test below coming around $1,216.40.

Oil on the other hand is rallying again today in spite of the moves in the greenback and looks likely to seriously test the upper end of the trading range that it has been bound by for most of the year so far.

Given its ability to largely shrug off the substantial inventory builds over the last couple of weeks, it perhaps shouldn't come as a surprise that we're seeing these upper bounds being tested, particularly coming on the back of reports of high levels of compliance on the production cut which was agreed at the back end of last year.

The deflated Dollar was instilled with inspiration on Tuesday following hawkish comments from FOMC member Harker that rekindled expectations of a March interest rate hike. Harker's hawkish rhetoric has resonated with a growing chorus of Federal Reserve officials who have not ruled out taking action in spring and simply encouraged Dollar bullish investors to propel the Greenback above 101.50. Although the current March hike madness theme could uplift the Dollar higher in the short term, the visible lack of commitment to a timeline in raising US rates may swiftly cap upside gains. While the overall improving economic data and bullish sentiment towards the U.S economy could uplift the Greenback further, the ongoing Trump uncertainties and lack of clarity from the proposed fiscal policies could entice sellers to enter the scene.

Sterling struggles above 1.2400

Sterling has been gripped by political risk and further downside pressures should be expected once the formal Brexit negotiations commence. Bearish investors were on the offense on Tuesday after BoE Carney suggested that the rising inflation was solely attributed to a weak Pound. With the Brexit uncertainty being the main cause for Sterling's painful decline, a sharp rise in inflation that has little to do with improving economic fundamentals may quell expectations of BoE raising UK interest rates anytime soon. The Sterling/Dollar remains under pressure on the daily charts and a breakdown below 1.2400 could open a path lower towards 1.2300.

Euro slides on political instability

The Euro found itself under renewed seller pressures during Tuesday's trading session as investor anxiety over the rising Eurozone political instability heightened. Concerns continue to mount over Eurosceptic parties destabilizing the unity of the Eurozone and this has haunted investor attraction towards the currency. The threat of politician Marine Le Pen winning the upcoming election in late April has sparked jitters which continue to fuel the EURUSD parity dream. As of writing, the EURUSD has declined over 70 pips with bears currently eyeing 1.0500. From a technical standpoint, this pair is under extreme pressure on the daily charts and a breakdown below 1.0500 could encourage a further selloff lower towards the next relevant support at 1.0350.

Commodity spotlight - WTI Crude

Oil markets received a welcome boost this week with prices edging to seven-week highs as optimism over the output cuts boosted attraction for the commodity. The signs of OPEC remaining in compliance with the global pact to cut production continue to fuel hopes of the oversupply woes coming to an end. While oil prices could edge higher amid the supply cut optimism, the concealed concerns of U.S shale boosting oil production and negatively impacting OPEC's efforts could create some headwinds in the future. WTI Crude exploded into gains on Tuesday as prices broke above the stubborn $54 resistance. If the momentum is sustainable, then the previous $54 resistance could transform into a support that opens a path higher towards $55.

Tuesday February 21: Five things the markets are talking about

The 'mighty' dollar is trading firmer across the board following a hawkish set of comments from Fed voter Harker. The Fed member from Philadelphia reiterated that next months March 14/15 meeting should be on the table for the next rate hike, adding that the Fed is not behind the curve, that the U.S economy is healthy, and that jobs growth is steady.

Note: Later today Minneapolis Fed's Kashkari and San Francisco Fed's Williams are due to speak.

Earlier, Europe's single unit came under pressure from concerns that France's far-right candidate Marine Le Pen would the win upcoming French presidential elections, putting more pressure on eurozone solidarity.

1. Equities produce mixed results

In Japan, stocks rallied overnight as a weaker yen (¥113.71) helped overall sentiment. The Nikkei climbed +0.7%, while the broader Topix rose +0.6%.

Note: Trading volumes were low as a holiday stateside left investors short of the usual leads.

Elsewhere, South Korea's Kospi index jumped +0.9% to the highest level since July 2015, while Hong Kong's Hang Seng slipped -0.8%, the most in more than a month, while China's Hang Seng China Enterprises Index lost -0.4% and the Shanghai Composite Index increased +0.4%.

In Europe, equity indices are trading mixed. The FTSE 100 is slightly underperforming, weighed down by shares of HSBC after the company released their FY16 results; major banking stocks trading generally lower across Europe. Elsewhere, commodity and mining stocks are trading mixed.

U.S equities are set to open in the black (+0.2%).

Indices: Stoxx50 +0.1% at 3,319, FTSE -0.3% at 7,279, DAX +0.4% at 11,879, CAC-40 +0.1% at 4,869, IBEX-35 flat at 9,523, FTSE MIB +0.5% at 19,068, SMI +0.4% at 8,548, S&P 500 Futures +0.2%.

2. Oil rallies to top of range as OPEC cuts output, gold falls

Oil prices have rallied overnight as data showed that hedge funds placing record bets on North Sea and U.S. crude as OPEC production cuts tightened supply.

Brent futures are up +50c at +$56.58 a barrel, while U.S. light crude (WTI) is up +50c at +$53.90.

Note: OPEC has agreed to cut output by almost -1.8m bpd during the first half of 2017, with industry data showing that most producers are sticking to the deal (+93% compliance).

Despite this, inventories remain bloated and supplies high, especially in the U.S. Last week's EIA report showed that crude and gasoline inventories soared to record highs as refineries cut output and gasoline demand softened. Crude inventories rose +9.5m barrels, while gasoline stocks rose by +2.8m barrels.

Gold (-0.2% to +$1,235.08 per ounce) prices eased slightly amid a firmer dollar as investors waited on clues on the timing of U.S. interest rate hikes in a host of speeches by Fed officials this week.

Note: The heads of five regional U.S. Federal Reserve banks are scheduled to speak this week

Elsewhere, iron ore futures have soared +3.2% after BHP Billiton warned that iron ore is at risk of declining in the near term after the component used to make steel jumped +34% this year.

3. French debt suffers Euro periphery spread problem

Investors are again selling the bonds of Europe's peripheral economies amid political concerns. This time around, France has joined the club.

Investors are worried that France will elect Marine Le Pen as its president, a candidate that has promised to take the country out of the eurozone. A poll yesterday showed Ms. Le Pen comfortably in the lead for April's first round of the presidential election - French 10-year bonds yields have jumped to +1.064%, while the spread with German bond yields have hit +0.84bps, the highest in more than four-years.

Note: In August, the gap was only +0.22bps.

Also rising are Italian and Portuguese 10-year yields, which are up by around +0.7% versus bunds in the last six-months.

In Greece, bond yields are lower this morning. Yesterday, the EU/ECB and IMF agreed to resume talks on the country's second bailout review for its third program.

Greek 2-year yield were lower by over -100bps and the 10-year was lower by -20bps (+8.30% and +7.05% respectively).

In the U.S, the yield on 10-year Treasuries has advanced +3bps to +2.44%.

4. Dollar finally finds traction

The 'mighty' dollar starts this holiday-shortened week on firmer footing, supported mostly by 'hawkish' Fed comments yesterday (Philly's Fed's Harker).

The EUR (€1.0536) has not been able to benefit from better data in this morning's Euro session - major European PMI Manufacturing Survey (see below) confirmed that growth momentum in region with Germany handily beating expectations and printed a six-year high.

Also, Germany's Bundesbank February Monthly Report yesterday noted that the domestic economy would stay on a strong footing in the coming months thanks to high industrial and construction activity. Nonetheless the ECB is seen to remain "accommodating" for this year.

USD/JPY is up +0.1% at ¥113.47, while GBP/USD is down -0.3% at £1.2431. For the pound, much of the focus is likely to be on the large upward revisions to the BoE's growth forecasts - well above the consensus - and is considered "unrealistically optimistic."

5. Eurozone PMI's stronger than expected

This morning, the composite PMIs for the eurozone in February came in much stronger than expected, jumping to 56.0 from 54.4 in January to reach its highest level in six-years.

Note: Consensus had expected a drop to 54.3.

The pickup seems set to continue over coming months, with new orders also at highs not seen in six years, while businesses hired workers at the fastest pace since August 2007, before the financial crisis.

Also, the ECB will be content that a rise in prices charged by businesses is at t the fastest rate since July 2011.

The Japanese yen is lower in the Tuesday session. Currently, USD/JPY is trading at 113.60. On the release front, Japanese Flash Manufacturing PMI improved to 53.5, beating the estimate of 52.1. This marked a sixth consecutive month above the 50-point line, which separates expansion from contraction. Elsewhere, All Industries Activity came in at -0.3%, shy of the forecast of -0.2%. This ended a streak of five straight gains. There are no major events in the US today. On Wednesday, the Federal Reserve releases the minutes of the January policy meeting.

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".

European PMI data fails to inspire Euro currency

Notes/Observations

Major European Feb Preliminary PMI Manufacturing Survey confirmed growth momentum in region (Germany and Euro Zone handily beats expectations to hit 6-year highs

Overnight:

Asia:

PBOC stated it was conducting an evaluation of a targeted RRR cut this month; Changes to take effect on Feb 27th; Adjustments to targeted rates would be made both upward and downward (**Note: On Jan 20th: China PBoC cut the RRR for its five largest banks on a temporary basis to alleviate seasonal pressures (refers to China Lunar New Year).

China Commerce Ministry (MOFCOM) stated that it expected 2017 consumption growth to remain robust; will evaluate and respond if US changes China tariffs. Trade war should not be an option between China and the US; cooperation was the only way

Bank of Japan (BOJ) Gov Kuroda reiterated view that BOJ was still far from inflation target thus appropriate to continue its powerful easing

Japan Feb Preliminary PMI Manufacturing registered its 6th month of expansion and highest level in 35 months (53.5 v 52.7 prior)

Europe:

Eurogroup's Dijsselbloem: No political agreement on signing off Greek reform review at this time, talks remain complicated with lots of work still needed to be done

Americas:

Fed's Harker (hawk, voter) reiterated view that would not take March hike off the table and did not believe the Fed was behind the curve

Fed's Mester (hawkish, non-voter): Would be comfortable raising rates at this point if economy keeps current pace of performance; Fed not behind the curve on rates - President Trump named General H.R. McMaster as his new National Security Adviser

Economic data

(JP) Japan Jan Nationwide Dept Sales Y/Y: -1.2% v -1.7% prior; Tokyo Dept Store Sales Y/Y: -1.5% v -1.0% prior

(CH) Swiss Jan Trade Balance (CHF): 4.7B v 2.7B prior, Real Exports M/M: -4.0% v 9.7% prior; Real Imports M/M: -5.3% v -0.6% prior

(FI) Finland Jan Unemployment Rate: 9.2% v 7.9% prior

(FR) France Jan Final CPI M/M: -0.2% v -0.2%e; Y/Y: 1.3% v 1.4%e

(FR) France Jan Final CPI EU Harmonized M/M:-0.3% v -0.2%e; Y/Y: 1.6% v 1.6%e

(FR) France Feb Preliminary Manufacturing PMI (miss): 52.3 v 53.5e (5th month of expansion), Services PMI: 56.7 v 53.9e, Composite PMI: 56.2 v 53.8e v 54.1 prior

(DE) Germany Feb Preliminary Manufacturing PMI (beat): 57.0 v 56.0e (27th month of expansion and highest since May 2011), Services PMI: 54.4 v 53.6e, Composite PMI: 56.1 v 54.8e

(HK) Hong Kong Jan CPI Composite Y/Y: 1.3% v 1.6%e

(EU) Euro Zone Feb Preliminary Manufacturing PMI (beat): 55.5 v 55.0e (44th month of expansion and highest since Apr 2011), Services PMI: 55.6 v 53.7e, Composite PMI: 56.0 v 54.3e

(UK) Jan Public Finances (PSNCR): -£26.5B v +£36.3B prior; Public Sector Net Borrowing: -£9.8B v -£14.5Be, Central Government NCR: -£27.8B v £19.3B prior, PSNB ex Banking Groups: -£9.4B v -£14.0Be

Fixed Income Issuance:

(EU) EFSF opened its book to sell 4-year and 39-year bond (duel tranche) via syndicate

(BH) Bahrain to sell $600M in Oct 2028 bonds; yield guidance seen at 6.85%

(ES) Spain Debt Agency (Tesoro) sold total €2.2B vs. €2.0-3.0B indicated rangein 3-month and 9-month Bills

Sold €610M 3-month Bills; Avg Yield: -0.415% v -0.477% prior; Bid-to-cover: 3.56x v 5.13x prior

Sold €1.63B 9-month Bills; Avg Yield: -0.332% v -0.342% prior; Bid-to-cover: 3.12x v 2.39x prior

(UK) DMO opened book to sell £4.0B in 0.125% 2065 Inflation-linked Gilt (UKTi) via syndicate; guidance seen -0.25bps to flat

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 3,319, FTSE -0.3% at 7,279, DAX +0.4% at 11,879, CAC-40 +0.1% at 4,869, IBEX-35 flat at 9,523, FTSE MIB +0.5% at 19,068, SMI +0.4% at 8,548, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading mixed after a generally positive end to the Asian session overnight; FTSE 100 slightly underperforming weighed down by shares of HSBC after the company released their FY16 results; major banking stocks trading generally lower across Europe; peripheral lenders in the Italian FTSE MIB and Spanish IBEX trading mixed; Energy stocks trading higher as Brent and WTI contracts trade higher intraday; Commodity and mining stocks trading mixed despite this as copper currently trades lower.

Upcoming scheduled US earnings (pre-market) include Advance Auto Parts, AerCap Holding, Cracker Barrel, Crestwood Equity Partners, Ecolab, Fresh Del Monte Produce, Franklin Electric, Genuine Parts, Home Depot, Henry Schein, Macy's, McDermott International, Medtronic, New Media Investment, Quanta Services, Sonic Automotive, Scripps Network, Gentherm, Travelport, Wabtec, Westlake Chemical, and Wal-Mart.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Air France AF.FR +2.0% (analyst upgrade), Galliford Try GFRD.UK +0.9% (H1 results), InterContinental Hotels IHG.UK % (FY16 results), SEB SK.FR % (FY16 results), Wolseley WOS.UK % (agreement to merge Tobler with Walter Meier)]

Consumer Staples: [Kerry Group KYGA.UK % (FY16 results)]

Financials: [HSBC HSBA.UK % (FY16 results)]

Healthcare: [Neovacs ALNEV.FR % (€65M agreement)]

Industrials: [Alstom ALO.FR % (€100M contract), Anglo American AAL.UK % (FY16 results), BAM Kon BAMNB.NL % (FY16 results), John Wood WG.UK % (FY16 results)]

Materials: [BHP Billiton BLT.UK % (FY16 results), Polyus Gold PGIL.UK % (FY16 results)]

Technology: [Eltel ELTEL.SE % (Q4 results), Sage Group SGE.UK % (analyst upgrade)]

Telecom: [Telefonica TEF.ES % (Confirms to sell 40% stake in Telxius to KKR for $1.28B)]

Speakers

EU's Moscovici: Close to an agreement on Financial Transaction tax (Tobin tax); hopes it can be achieved today at EcoFin

Sweden Central Bank (Riksbank) Gov Ingves reiterated view that expansionary policy needed to remain.

Various European officials and Finance Ministers commented ahead of EcoFin meeting in Brussels

Netherlands Fin Min Dijsselbloem:Expected an agreement on fighting tax avoidance and reiterated that saw no liquidity problem for Greece at this time (**Note: In line with yesterday's Eurogroup comments)

Spain Fin Min de Guindos stated that EU Financial Transaction Tax to be discussed in March

Bank of International Settlements (BIS) confirmed Mexico Central Bank Gov Carstens appointment to its top position had been postponed by two months until Dec 1st (**Note: Carstens was expected to stay on in his role in the Mexican Central Bank through Nov 2017 at the request of President Pena Nieto)

BOE Gov Carney with MPC members Haldane, McCafferty, Vlieghe testified at Treasury Select Committee on Quarterly Inflation Report (QIR)

BOE's Haldane (chief economist): There were large two-way risks to interest rate outlook

China official stated that the country had huge excess capacity in coal and steel sectors but added that the domestic economic development was stable

Currencies

The USD remained on firm footing aiding by comments on Monday from Fed's Harker putting the diverging monetary policy as the key driver of price action. Harker on Monday reiterated view that would not take March hike off the table

The EUR/USD could not find any benefit from better data in the session. The major European PMI Manufacturing Survey confirmed growth momentum in region with Germany handily beating expectations and hitting a 6-year high. Bundesbank Feb Monthly Report on Monday did note that the domestic economy would stay on a strong footing in the coming months thanks to high industrial and construction activity. Nonetheless the ECB seen remaining onto its accommodating policy for quarters to come.

USD/JPY holding steady around the 113.50 area

Greece bond yields were notably lower in the session. On Monday during the Eurogroup meeting the EU/ECB and INF agree to resume talks on the country's 2nd bailout review for its third program. Greek 2-year yield were lower by over 100bps and the 10-year was lower by 20bps (8.30% and 7.05% respectively)

Fixed Income:

Bund futures trade at 164.41 down 17 ticks trading towards lows on a rebound in European Indices. Yields have also seen strength on the back of Greek Yields falling on progress in negotiations over the next bailout tranche. A move back towards highs targets yesterday high at 164.68 followed by 164.94. Support remains at 164.05 then 163.62, 163.13, 162.92 followed by 162.44.

Gilt futures trade at 126.06 down 24 ticks tracking Bunds and Treasuries lower. Resistance remains at 126.70 followed by 127.16. Support moves to 125.63 then 125.30. Short Sterling trade flat to down 1bp with Jun17Jun18 inching higher to 13/14bp.

Tuesday liquidity report showed Monday's excess liquidity fell to €1.301T down €1B from €1.302T prior. Use of the marginal lending facility rose to €1.5B from €623M prior. Corporate issuance saw Daimler and parker Hannifin some of the names come to market selling Euro denominated Bonds.

Looking Ahead

(IL) Israel Jan Leading 'S' Indicator M/M: No est v 0.5% prior

(PT) Portugal Dec Current Account: No est v -€0.2B prior

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

06:00 (IE) Ireland Jan CPI M/M: No est v 0.0% prior; Y/Y: No est v 0.0% prior

06:00 (IE) Ireland Jan CPI EU Harmonized M/M: No est v -0.1% prior; Y/Y: No est v -0.2% prior

06:00 (TR) Turkey to sell 9.2% 2021 Bonds

06:30 (EU) ESM to sell €1.5B in 6-month Bills

06:45 (US) Daily Libor Fixing

08:00 (RU) Russia announces weekly OFZ bond auction

08:15 (UK) Baltic Dry Bulk Index

08:50 (US) Fed's Kashkari (Voter, dove) in MN - 09:00 (EU) Weekly ECB Forex Reserves: No est v €279.9B prior

09:00 (NZ) Fonterra Global Dairy Trade Auction

09:45 (US) Feb Preliminary Markit Manufacturing PMI: 54.7e v 55.0 prior, Services PMI: 55.7e v 55.6 prior, Composite PMI: No est v 55.8prior

09:50 (UK) Bank of England (BOE) Bond Buying Operation (over 15 years)

10:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds

10:30 (CA) Canada to sell 3-month, 6-month and 12-month Bills

11:30 (US) Treasury to sell 4-Week Bills

11:30 (US) Treasury to sell 3-Month and 6-Month Bills

12:00 (US) Fed's Harker (Voter) on economic outlook

13:00 (US) Treasury to sell 2-Year Notes

14:00 (AR) Argentina Jan Trade Balance: No est v $0.1B prior

15:00 (MX) Mexico Citibanamex Survey of Economists

15:30 (US) Fed's Williams (Non-voter)

EUR/USD has posted losses in the Tuesday session, as the pair trades at 1.0540. After a quiet start to the week, there are a host of events on Tuesday. In the eurozone, Manufacturing PMIs in Germany and the Eurozone continued to indicate expansion. German Flash Manufacturing PMI climbed to 57.0, beating the estimate of 56.2. The Eurozone report followed suit and improved to 55.5, above the forecast of 55.0. In the US, we'll get a look at Flash Manufacturing and Flash Services PMI reports. On Wednesday, the Federal Reserve releases the minutes of the January policy meeting.

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”.

Recent eurozone numbers have been steady, with the economy expanding and inflation levels moving upwards. Nonetheless, the ECB appears reluctant to make any changes to current monetary policy. The ECB released the minutes of its January policy meeting on Thursday. The minutes indicated that the central bank continues to have little appetite for reducing stimulus. Policymakers stated that the recent climb in inflation could prove to be temporary and there is political uncertainty ahead. France and Germany, the two largest economies in the eurozone, go to the polls later this year, as does the Netherlands. Inflation has moved close to the central bank's target of around 2 percent, prompting calls from Germany and elsewhere to tighten monetary policy. At this point in time, a majority of ECB policy makers are in favor of maintaining course the asset-purchase program, which ends in December. However, if growth and inflation numbers continue to climb, there will be increased pressure and louder voices calling for a tightening in monetary policy.

Overnight, the RBA released the minutes from its February policy meeting. The tone of these minutes was little changed from the statement accompanying the decision, as it echoed similar upbeat comments with regards to the domestic economy. The Bank judged that the negative GDP growth print in Q3 was only temporary, and that despite the downtick in the underlying CPI rate for Q4, the actual figure was more or less in line with the RBA's own forecasts. As for the AUD, the officials did not appear particularly worried with regards to its recent appreciation. The only new comment on the Aussie was that it has strengthened over the past two months, but that was mainly due to rising commodity prices. Given that these minutes simply confirmed much of what we already learned from the statement, the reaction in the Aussie was limited at the release. AUD/USD traded somewhat lower after it hit resistance near the 0.7690 (R1) level. Nevertheless, the rate is still trading above the uptrend line taken from the low of the 13th of January, which keeps the short-term outlook positive. A break above 0.7690 (R1) is possible to open the way for another test near the 0.7730 (R2) barrier, marked by the peak of the 16th of February. For now though, given the negative divergence between our short-term oscillators and the price action, we remain skeptical that further correction could be looming. If the bears manage to push the rate below 0.7650 (S1), then we may experience extensions towards the key support of 0.7600 (S2).

Looking ahead with regards to the Aussie, we see the case for the currency to remain somewhat supported in the foreseeable future. The RBA has shown little appetite for further easing lately, and has shifted to a neutral stance. At the same time, iron ore prices have surged in the past months, something likely to continue to support Australia's commodity-oriented economy. What's more, the fact that Australia's yields are still among the most competitive within the G10, could be another factor that drives flows into AUD. However, we prefer to avoid the USD as a counterpart. Instead, EUR appears a much better play considering that Eurozone's political uncertainties have started to escalate (see below).

French election poll shows Le Pen gaining ground

A new poll on the French presidential election showed a narrowing gap between the two main candidates, Emmanuel Macron and Marine Le Pen. The new poll confirmed that Le Pen is likely to crush her main rivals in the first round of the election, and while she is still expected to lose the second round, the gap between her and Macron is shrinking. Even though the reaction in the euro was not major at the release of this poll, the fact that media headlines have begun to focus increasingly more on this election is important, in our view. We think that incoming polls showing Le Pen gaining even more ground against her main rivals are likely to weigh on the common currency, as investors price in higher risk of European disintegration. EUR/USD edged south and fell below the support (now turned into resistance) barrier of 1.0600 (R1). Given that the pair has resumed its downfall after testing as a resistance the prior upside support line taken from the low of the 16th of January, we believe that the near-term bias remains negative. A clear dip below 1.0560 (S1) is possible to open the way for another test near the 1.0500 (S2) support area.

Any negative reaction in EUR though could be more clearly visible against safe haven currencies, such as JPY and CHF, which may attract safe-haven flows as political uncertainty mounts. That said, we prefer EUR/JPY over EUR/CHF as a proxy for further euro weakness, considering that the SNB remains active in the FX market in order prevent the franc from appreciating materially.

Today is a PMI day

During the European day, we get the preliminary manufacturing and services PMIs for February from several European nations and the Eurozone as a whole. Expectations are for most indices to have declined, albeit marginally. In January, the bloc's composite PMI survey was very optimistic on all economic fronts, indicating strong employment growth, intensifying inflationary pressures, and a relatively robust pace of economic growth. Even though a tick down in February's index may hurt the euro somewhat, as long as it remains at elevated levels, we do not expect such a decline to be a reason for the ECB to consider further easing.

From the US, we get the preliminary Markit manufacturing and services PMIs for February. Both indices are forecast to have ticked up. Even though investors usually pay more attention to the ISM indices, considering that there are no other US data releases throughout the day, and that both figures are expected to rise, we may see a positive reaction in USD on the news.

We have three speakers scheduled for today: BoE Governor Mark Carney, Minneapolis Fed President Neel Kashkari and San Francisco Fed President John Williams.

News and Events:

Swiss exports correct to the downside

After surging to a record level in December (+9.7%m/m), Swiss exports contracted significantly in January, sliding 4%m/m in real terms. Despite the fact that this is not good news for the Swiss economy, it is a normal adjustment for us, especially after such strong growth in December. Looking at the details of the report, we notice that the split among industries is quite uneven. The pharmaceutical and chemical industry had a solid month with exports rising to a record of CHF 9bn (+17%y/y). Outside the pharma industry, the picture is not that bright as exports fell 5%m/m, with the watch industry recording one of its worst months (-11%y/y).

Imports continued to shrink in January, falling 5.3%m/m in January after sliding -0.6% in the previous month. All in all, the trade balance reached an all-time high to CHF 4.73bn, the highest level since September 2016. The constantly improving Swiss trade activity is a thorn in the side for the SNB as it is lifting the bank’s foreign exchange reserves. The 12-month trade balance average hit CHF 3.22bn in January, compared to 3.06bn a year ago.

For now, the Swiss franc is still appealing for investors who want to take shelter from the ongoing uncertainty - especially ahead of the parliamentary and presidential elections across EU countries. However, the Swiss economy will continue to suffer from the situation and the outlook is not that great should political uncertainty in the European Union further deepen. In spite of the probable intervention of the SNB on the FX market last week, EUR/CHF hit 1.0635 this morning, suggesting that the marginal effect of the intervention has dwindled.

Aussie suffers against the dollar ahead of RBA meeting minutes

The minutes from the Reserve Bank of Australia only provided a minor update from the February statement on monetary policy.

The discussions were around the surprising 0.5% contraction in real GDP for the third quarter of 2016. Officials account that the decline was due to short-term factors such as bad weather, which had a strong impact on the construction sector, and on the coal supply weakness.

What remains concerning for Australian policymakers are the consumption forecasts. Indeed, the savings rate is not falling and wages growth remains low. Uncertainties remain strong regarding labour data and unemployment rate forecasts are mixed. Yet there are expectations for better job market conditions, which should add upside pressures on inflation.

There is certainly nothing really surprising about these minutes and we continue to believe that the official cash rate will remain unchanged this year. Financial markets are only pricing in a 25% likelihood a rate hike before year-end. As a result, markets were slightly disappointed this morning and sent the AUD lower against the greenback. We target 0.76 over the next few weeks.

Watching for March hints

Traders will be watching today's FOMC early February meeting minutes especially vigilantly for any signal of a March interest rate hike. Fed Chair Yellen made it clear in her testimony to the US congress last week that March will be a live meeting. Investors have been pulling in expectations for an earlier rate hike due to an upward surprise in both growth and inflation data. US headline CPI rose 0.6% in January at its fastest pace since Feb 2013, while the annual pace quickened to 2.5%. However, with the real focus in stronger then anticipated inflation, volatile components (gasoline, new car sales and clothing) indicted that part of the price surge will normalise in the coming months. Despite the read clearly in Yellen's discomfort zone (and hawks Lacker and Rosengren's aggressive comments), it is unlikely to force a hike in our view. In broader terms, we suspect that the lack of wage growth suppressed by the low participation rate will keep the Fed from jumping the gun. Fed members will also like to stay prepared to adjust for disruptive incoming fiscal and trade policy. Fed funds are pricing in approximately a 20% hike in March and 47% in June. We remain our outlook for two 25bp increase in 2017 (June and September) and two additional 25bp hike in 2018. This subdued rate path will fail to excite the USD bulls, while giving other nations' central banks time to shift to less accommodating monetary policy and therefore lessening the US yield advantage. Markets will also be reading for hints as to discussion among Fed policymakers about timing on shrinking the Fed’s massive, $3 trillion plus, balance sheet. Traders should watch for USD to firm ahead of report but likely sell off should our outlook materialise.

Today's Key Issues (time in GMT):

• Feb P Markit France Manufacturing PMI, exp 53,5, last 53,6 EUR / 08:00
• Feb P Markit France Services PMI, exp 53,9, last 54,1 EUR / 08:00
• Feb P Markit France Composite PMI, exp 53,8, last 54,1 EUR / 08:00
• Jan Money Supply M3 YoY, last 3,00% CHF / 08:00
• Feb P Markit/BME Germany Manufacturing PMI, exp 56, last 56,4 EUR / 08:30
• Feb P Markit Germany Services PMI, exp 53,6, last 53,4 EUR / 08:30
• Feb P Markit/BME Germany Composite PMI, exp 54,8, last 54,8 EUR / 08:30
• Feb P Markit Eurozone Manufacturing PMI, exp 55, last 55,2 EUR / 09:00
• Feb P Markit Eurozone Services PMI, exp 53,7, last 53,7 EUR / 09:00
• Feb P Markit Eurozone Composite PMI, exp 54,3, last 54,4 EUR / 09:00
• Jan Public Finances (PSNCR), last 36.3b GBP / 09:30
• Jan Central Government NCR, last 19.3b GBP / 09:30
• Jan Public Sector Net Borrowing, exp -14.4b, last 6.4b, rev 4.2b GBP / 09:30
• Jan PSNB ex Banking Groups, exp -14.0b, last 6.9b, rev 4.7b GBP / 09:30
• BOE Governor Mark Carney Speaks in U.K. Parliament GBP / 10:00
• BOE Chief Economist Andy Haldane Publishes Annual MPC Report GBP / 10:00
• Fed's Kashkari Speaks on Economy in Golden Valley, MN USD / 13:50
• Feb P Markit US Manufacturing PMI, exp 55,3, last 55 USD / 14:45
• Feb P Markit US Services PMI, exp 55,8, last 55,6 USD / 14:45
• Feb P Markit US Composite PMI, last 55,8 USD / 14:45
• Bank of England Bond Buying Operation GBP / 14:50
• Feb 17 Bloomberg Nanos Confidence, last 57,3 CAD / 15:00
• Fed's Harker to Speak on Economic Outlook USD / 17:00
• Fed's Williams Speaks to Students in Boise, Idaho USD / 20:30
• RBA's Lowe Speech in Sydney AUD / 21:30
• Jan Unemployment Rate, exp 5,40%, last 5,30% RUB / 23:00
• Jan Real Disposable Income, exp -2,90%, last -6,10% RUB / 23:00
• Jan Real Wages YoY, exp 2,00%, last 2,40% RUB / 23:00
• Jan Retail Sales Real MoM, exp -27,00%, last 18,30% RUB / 23:00
• Jan Retail Sales Real YoY, exp -5,10%, last -5,90% RUB / 23:00
• Jan Formal Job Creation Total, exp -45324, last -462366 BRL / 23:00
• Jan Tax Collections, exp 137340m, last 127607m BRL / 23:00
• SURVEY: Private Capital Expenditure 2017-18 A$84.8b AUD / 23:00

The Risk Today:

EUR/USD is back below 1.0600. Hourly resistance is given at 1.0679 (16/02/2017 high) while hourly support can be found at 1.0521 (15/02/2017 low). The technical structure suggests that the current underlying move is a bearish consolidation. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD is lying within a symmetrical triangle below strong resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should breakout towards support given at 1.2254 (19/01/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY's demand is fading after its increase from support given at 111.36 (28/11/2016 low). Bearish pressures arise around hourly resistance given at 115.62 (19/01/2016 high). The technical structure suggests further weakness. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF's short-term bullish momentum is back to bullish. The pair lies within an uptrend channel. Hourly resistance is implied by upper bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that the pair is likely to strengthen again above parity. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

EUR/USD

Current level - 10583

The outlook remains negative below 1.0600 resistance, for a slide towards 1.0520 low. Crucial on the upside is 1.0630 high.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 113.47

The bias is positive above 113.20 support, for a test of 114.00 resistance area. Crucial on the downside is 113.00 area.

GBP/USD

Current level - 1.2446

The intraday bias is neutral and only a break through the dynamic resistance at 1.2500 could unleash a rise towards 1.2610 resistance.

EURUSD

The EURUSD was indecisive yesterday. Price traded lower earlier today in Asian session hit 1.0578. The bias is bearish in nearest term testing 1.0520/00 area which is a good place to buy with a tight stop loss. Immediate resistance is seen around 1.0600/20 area. A clear break above that area could lead price to neutral zone in nearest term retesting 1.0680 key resistance. On the downside, a clear break and daily close below 1.0520/00 would expose 1.0400 – 1.0350 region. Overall I remain neutral.

GBPUSD

The GBPUSD had a moderate bullish momentum yesterday topped at 1.2482. The bias remains neutral in nearest term. Immediate resistance is seen around 1.2520. A clear break above that area could trigger further bullish pressure testing 1.2580. Immediate support is seen around 1.2435. A clear break below that area could trigger further bearish pressure testing 1.2380/40 area. Overall I remain neutral.

USDJPY

The USDJPY had a bullish momentum earlier today in Asian session hit 113.69. The bias is bullish in nearest term testing 114.00/30 area but overall I still prefer a bearish scenario at this phase and any upside pullback should be seen as a good opportunity to sell. Immediate support is seen around 113.35. A clear break below that area could lead price to neutral zone in nearest term testing 112.65 area.

USDCHF

The USDCHF was indecisive yesterday. Price traded higher earlier today in Asian session hit 1.0060. The bias is bullish in nearest term testing 1.0100 area. Immediate support is seen around 1.0025. A clear break below that area could lead price to neutral zone in nearest term testing 0.9980 area or lower. Overall I remain neutral.