Sunrise Market Commentary

• Rates: Underperformance of US Treasuries vs German Bunds?
  Risks for EMU PMI data are tilted to the downside of expectations which might trigger a test of nearby resistance at 164.90 though we don't anticipate a break higher. French election worries might continue to influence (EMU) risk sentiment. In the US, focus will gradually turn to Trumps' fiscal stimulus plans, causing underperformance of US Treasuries.
• Currencies: Dollar extends gradual rebound
  Yesterday, EUR/USD and USD/JPY held extremely tight ranges. Political uncertainty caps the topside of the euro. The dollar receives support from hawkish Fed speak as markets await Trumps' fiscal plans. Sterling is reversing the losses incurred after Friday's poor retail sales.

The Sunrise Headlines

• US markets were closed for Presidents' Day yesterday. Overnight, Asian equities are trading stronger, also Japanese ones despite a stronger dollar. European equities may start positive, but election uncertainty may hold them back.
• China's central bank said that it will extend a preferential scheme for some banks that will free up additional funds for lending, as long as they channel money to weaker, cash-starved sectors of the economy.
• Greece and its international lenders agreed to let teams of experts work out new reforms to Greek pensions, income tax and labour market that would allow Athens to eventually qualify for more cheap loans, euro zone officials said.
• Growth at Japanese manufacturers continued to improve in February as activity in the sector expanded at the fastest rate since early 2014. The preliminary February PMI increased from 52.7 to 53.5.
• Portugal has made a new early repayment of €1.7B to the IMF, meaning it has reimbursed half of the bailout loans provided by the IMF during the 2011 debt crisis, the Finance Ministry said.
• Philly Fed Harker repeated in an MNI interview that he could support a rate increase next month. 'I would not take March off the table at this point. We'll have to see how it plays out in the next few weeks'.
• Issuing another upbeat assessment of the economy, the Australian central bank said it expects wage pressures to rise gradually, but one factor that may force it to raise rates earlier might be an outbreak in catch-up pay demands.
• Today, attention goes to the EMU business confidence (PMI). Fed speakers on duty have recently spoken, but the appearance of Draghi will be scrutinized closely for signs that the election season is affecting policy. US Treasury starts its mid-month refinancing operation (see below).

Currencies: Dollar Extends Gradual Rebound

Dollar extends gradual rebound

On Monday, USD trading developed in thin markets, as US markets were closed for Presidents' Day. The dollar held very tight ranges against the euro and the yen even as political uncertainty on the French elections persisted. EUR/USD hovered in a narrow range in the 1.0605/30 area. USD/JPY stabilized in the low 113 area, awaiting more guidance from the US today.

Overnight, Asian equities show modest gains. The dollar rallied early in Asia as Fed's Harker reepeated that a rate in March isn't off the table. USD/JPY rebounded to the 113.70 area and trades currently around 113.55. EUR/USD fell below the 1.06 barrier, currently changing hand in the 1.0580 area. In the Minutes, the RBA was rather positive on the economy, taking into account the positive impact of higher commodity prices on the economy. Even so, the Aussie dollar is trading marginally softer in line with the broader USD rebound after the Harker comments. AUD/USD trades currently in the 0.7670 area.

Today, the advance EMU PMI's will be published. Markets expect a near stabilization at 54.3 for the EMU composite PMI. German confidence is expected stable at 54.8. For France a slight decrease to 53.8 from 54.1 is expected. The indicator indicates ongoing decent growth, but some downside risk might materialize due to political uncertainty. The US Markit PMI is no market mover. A slight increase is expected (55.3 vs 55 for manufacturing, 55.8 from 55.6 for services). Fed speakers Kaskhari, Harker and Williams spoke recently and probably won't bring no new info. Over the previous days, political uncertainty in France installed a modest risk-off trade in Europe. It weighed on the euro and was also slightly yen positive. The theme of political uncertainty in Europe will continue to play its role. At the same time, the focus in the US will turn to the Trump fiscal plan and to Fed comments. The combination of both factors suggests further USD buying against a weakish euro. USD/JPY rebounded on the Harker comments this morning. Any further gains probably need support from higher USD bond yields. We maintain a cautious USD positive bias in an day-to-day perspective. This applies especially to USD/EUR

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

EUR/USD: near the ST low on euro softness and USD strength

EUR/GBP

Sterling fights back after last week's setback

Yesterday, sterling reversed part of Friday's losses which were due to poor UK retail sales. We didn't see a specific driver for this comeback. At the Brexit-debate in the House of Lords, some members want more influence before the final vote, but for now there are no indications that the debate in the House of Lords will profoundly derail PM May's Brexit strategy. The CBI orders and output data were stronger than expected. The data were maybe a slightly supportive for sterling. EUR/GBP closed the session at 0.8517 (from 0.8561). Cable rebounded to close the day at 1.2463.

Today, the UK monthly budget data will be published. We don't expect the report to be of lasting importance for sterling trading. Good data might be slightly sterling supportive in a daily perspective. Overnight, the decline of EUR/USD also pushed EUR/GBP back below the 0.85 barrier. EUR/GBP recently hovered in a tight range north of the 0.8450 support, but a break didn't occur. Sterling sentiment softened slightly of late as the market feels that a BoE rate hike is still very far away. At the same time, euro softness due to political uncertainty is a risk for all euro cross rates, including for EUR/GBP. Longer term, we have a sterling negative view as the Brexit still has to (negatively) impact the UK economy. However, this is no issue at this stage. The test of 0.8450 support is rejected, but the upside momentum isn't convincing. In case or further EUR/USD softness, a retest of 0.8450 is still possible

EUR/GBP: new test of 0.8450 support avoided, but rebound fails to convince

Download entire Sunrise Market Commentary

After a muted trading session on Monday due to the U.S. holiday, the USD is finally showing signs of strength in early Asian trade as investors await economic data, speeches from several FED Presidents, and minutes of the latest FOMC meeting.

U.S. treasury yields moved up across the curve after declining for two consecutive days, albeit slightly, it still managed to provide the dollar a minor push.

The narrow trading ranges indicate that traders are reluctant to take big bets until they get a detailed plan on U.S. tax, trade, and spending plans. Tweets from Trump related to such policies will create some noise, but I believe the sideway trading will resume until February 28 when the President addresses a joint session ofCongress. This will probably provide a major indication on where the USD is headed, given that monetary policy seems to have lost influence lately.

European political risks can't be ignored either. The mounting nervousness over the outcome of France's Presidential election is clearly reflecting in fixed income markets. The spreads between the French and German yields rose to post Eurozone crisis highs in 2012 after polls yesterday showed far-right candidate Marine Le Pen narrowing the gap with her opponents.

The positive news in Europe came from Brussels, as the gridlock between the European Union and the IMF over releasing a new tranche of financial aid somehow eased. However, it's too early to rule out that an agreement could be reached. Greece will most likely refuse the implementation of new austerity measures, the IMF will keep pushing for debt reliefs, meanwhile Germans insist on IMF involvement.

PMI readings for the manufacturing and services sectors from France and Germany are expectedto show that economic activity remained healthy during the month of February, but expect little impact on the Euro given the scale of political risks.

Traders will have the chance to hear from Mark Carney today when he testifies before the U.K. parliament's Treasury Committee. What's going to be interesting is that his testimony comes after Bank of England upgraded its growth forecast in February 2, and since then signs of weakness in the economy emerged. Markets are currently seeing less probability of BoE tightening this year, but if Carney indicates that higher interest rates are still on the table during U.K.'s negotiation period, sterling may find some support.

Currency pair GBP/USD

The GBP/USD failed to break above resistance (red) several times which makes it more likely that an ABCDE (purple) contracting triangle chart pattern is taking place on the charts. The above chart is showing the bearish version of the triangle pattern but it primarily depends on whether price breaks above resistance (red) or below support (blue).

The GBP/USD will need to finally show a breakout before a larger bullish or bearish move can be possible. A bearish breakout could see price fall down to the 61.8% Fibonacci level of wave B vs A at 1.2250. A bullish break above 1.25 could see price move towards the next resistance trend line (brown) on the 4 hour chart at 1.26.

Currency pair EUR/USD

The EUR/USD is at the Fibonacci levels of wave X (blue) which could be a bouncing zone if price is building a complex WXY correction within a larger wave 2 (puple). The Fibonacci levels of wave 2 (purple) could therefore also act as resistance. A break above the 100% level of wave 2 vs 1 invalidates the wave 1-2 (purple).

The EUR/USD could be complete a bearish ABC (green) within wave X (blue) at the 61.8% Fibonacci level. A break above the resistance trend line (red/orange) would confirm that whereas a break below the support trend line (green) makes the scenario unlikely.

Currency pair USD/JPY

The USD/JPY bounced at the 61.8% Fibonacci support level of wave 2 vs 1. A break below the 100% level would invalidate this wave 1-2 structure. A breakout above resistance (red) and the round 115 psychological level could confirm and start the wave 3 (blue). Wave 2 (blue) could expand potentially into a larger correction as well (see 1 hour chart).

The USD/JPY could be completing a bearish ABC (brown) zigzag within wave 2 (blue). A break above the red line invalidates wave B (brown). There could be another ABC zigzag (orange) within wave that wave B (brown).

Key Points:

• ABC wave still intact and could come into play this week.
• Recent bullishness shouldn't impact the medium-term forecast.
• Long-term trend line should hold firm.

The Swissy seems to have found the turning point in its potential ABC wave slightly earlier than anticipated which could mean further downsides are on the way. At first, this might appear to be at odds with the pair's behaviour over the past few sessions which could lead one to question whether or not the ABC wave is valid. Fortunately, there are a number of technical factors suggesting that the forecasted decline should take place.

Firstly, let's address the strong surges in buying pressure in the immediate wake of Thursday's plunge. Typically, one could argue that this shows that the USDCHF still has some serious underlying bullish sentiment at work. However, what seems more likely in this context is that the pair simply took a slide too early in a knee jerk response to the ongoing political turmoil in the US. These subsequent rallies are then an attempt to correct what, in hind sight, looks to have been a bit of an overreaction.

Whilst the distinction is slight, it is important as this bullish price action probably has the momentum to bring the pair back to the 38.2% Fibonacci level but it is unlikely that we see gains extend further. Instead, a reversal should be seen as the USDCHF attempts to get back on track and complete that forecasted 'C' leg.

There are a number of technical signals that would support this outcome for the Swissy. Firstly, the Parabolic SAR is firmly bearish now and, therefore, we can expect losses to resume within a handful of sessions. Secondly, even if we do have further upside movement, stochastics will be pushed into overbought territory which could help the bears to wrest control of the pair back from the bulls once again. When this decline does finally resume, it is worth noting that it won't take much to see the 12, 20, and 100 day moving averages move into a bearish configuration which could help to keep selling pressure high moving forward.

Ultimately, as has been discussed before, this downtrend should end around the 0.9784 mark as the final leg of the wave intersects the long-term ascending trend line. Whilst we will have to take a look closer to the time, given the relative robustness of the trend line it will be unlikely that we see losses go much beyond this point. Of course, there always remains the threat of a major fundamental upset which could exacerbate the pair's tumble, especially as a result of the Franc's safe haven status in the era of Trump. Therefore, keep an eye on the news and on your twitter feed.

There have been a couple of interesting developments lately in US-China trade relations.

First: Donald Trump has chosen a more conciliatory path with China. His telephone call with China's president Xi Jinping on 9 February was described by the White House as a 'lengthy' and 'extremely cordial' conversation and Trump agreed to support the One China policy at the request of Xi Jinping. Chinese state media also wrote in a new and more optimistic tone about US-China relations following the call. The change of style by Trump on the China issue is positive with respect to avoiding a conflict between the two nations.

Second: however, only four days later The Wall Street Journal reported that the US was eying a new tactic to press China on the trade issue. According to the article, the commerce secretary would designate the practice of currency manipulation as an unfair subsidy when employed by any country, instead of singling out China. US companies would be able to bring anti-subsidy actions themselves to the US Commerce Department against China or other countries.

Apparently, the new National Trade Council in the White House headed by China hawk Peter Navarro is drawing up the plan. The plan aims to balance the goal of challenging China on trade and currency while keeping relations with the country on an 'even keel'.

Using this tactic, the US would avoid singling out China, as it would also include other nations. However, it might also mean that the US would add a country such as Germany, which the Trump administration has accused of having a much undervalued currency through its membership of the euro.

The change of tactic by the Trump administration would also solve another problem: it is very difficult for the US government to label China a 'currency manipulator' according to the three criteria stipulated by the US Treasury Department, as China meets only one of the three.

Another tack that the US administration is considering taking according to The Wall Street Journal is to produce alternative trade deficit numbers, which would increase the US trade deficit and thus support the case for 'defensive steps' on trade. The new method would exclude re-exports when calculating exports in the trade balance statistics. Re-exports are goods that are imported and then re-exported without any value added to the goods. The motivation for the adjustment would be the idea that only exports of goods that are produced on US soil count as real exports.

The problem with this method is that it does not also subtract the imports that go into the re-export from the import side of the trade balance. Hence, it would adjust only one side of the deficit (exports) but not the other (imports) and, therefore, it would give a very distorted picture. This picture would overstate the US trade deficit and for Trump underline how much the US is losing from trade. It would affect the deficit with Mexico and Canada in particular, with China less affected.

Has Trump changed his mind on China?

What to make of all this? While it is positive that Trump has chosen a more friendly tone with China, it is too early to disregard the risk of a trade war. We doubt that the Trump administration has changed its view that China has manipulated the currency or used unfair trade practices for many years.

The economic White Paper produced during the presidential campaign by Peter Navarro and secretary of commerce Wilbur Ross makes it very clear that China plays a dominant role in why US growth slowed after 2001 – the year of the Chinese accession into the WTO.

In addition, Navarro has used a lot of his research in recent years to show how China is responsible for the weakening of US manufacturing in recent decades, not least in the book 'Death by China', which he made into a documentary and which Donald Trump endorsed on the movie's website with the words: 'Death by China is right on...I urge you to see it'.

The Trump team sees the manufacturing sector as instrumental for an economy's strength and wants to defend the US against what it sees as 'unfair trade practices' .

That Trump has mainly changed tactics but not his views is also indicated by his very clear comments on the Chinese currency just one week prior to the telephone talk with Xi Jinping: 'Every other country lives on devaluation. You look at what China's doing...They play the money market, they play the devaluation market and we sit there like a bunch of dummies'. In addition, only about a month ago Trump said 'Certainly they are manipulators' when asked about the Chinese currency policy in an interview with The Wall Street Journal.

Trade war still a risk this year

Only time can tell what the next episode of the Trump show will bring. However, we are not yet convinced that he has suddenly gone soft on China and put his campaign goals of protecting the US against unfair Chinese trade policies back in the drawer.

It's hard to gauge what the grand plan for Trump is to level the playing field with China. Unpredictability seems to be part of his negotiating style. Suddenly questioning the One China policy on Taiwan after his election may have been part of a strategy to scare China and show what he is capable of if China retaliates in response to US protectionist measures.

Watching the Chinese media's response to his threats, Trump may also have realised that the Chinese will not change any trade practices themselves. His way forward could be to take his own steps to protect US manufacturing from China, while at the same time talking smoothly to the Chinese leadership.

If Trump takes 'defensive' measures towards China (or other countries), China cannot be expected to sit back and watch without retaliating. However, if it comes to a trade war, it would enable Trump to paint a picture at home that he has been very open and friendly and merely taken fair measures to level the playing field but that China is the one retaliating in an aggressive way.

Japan manufacturing PMI at multi-year highs

Asia Mid-Session Market Update: Japan manufacturing PMI at multi-year highs; USD rallies on hawkish comments from Fed's Harker; HSBC earnings disappoint

US Holiday Hours

CYH: Reports Q4 $0.46 v $0.12e, R$4.47B v $4.42B

PLKI: Restaurant Brands International said to be near agreement to acquire Popeyes - press

(GR) EU official: Meeting between creditors and Greek Fin Min Tsakalotos went well, progress was made, auditors to return to Athens by next week - press

Asia Key economic data:

(JP) JAPAN FEB PRELIMINARY PMI MANUFACTURING: 53.5 V 52.7 PRIOR; multi-year high, 6th month of expansion

(JP) Japan Dec All Industry Activity Index M/M: -0.3% v -0.2%e

(KR) South Korea Q4 Household Debt (KRW) q/q: 1.34T v 1.29T prior (record high)

(KR) South Korea Feb First 20-days Exports y/y: 26.2% v +25.0% prior; Imports y/y: 26.0% v +25.9% prior

(AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 113.7 v 116.4 prior

Politics

(US) President Trump names General H.R. McMaster as his new National Security Adviser - US press

(FR) French police said to have raided the office of National Front's Le Pen on suspicion of EU funds misuse - press

Asia Session Notable Observations, Speakers and Press

Asia equity markets are slightly higher, though trading conditions remain muted after Monday's US holiday. Nikkei225 is one of the better performing indices on weakness in JPY, while tepid earnings season in Australia continues to weigh on S&P/ASX 200.

USD traded firmer following hawkish set of comments from Fed voter Harker, particularly gaining vs JPY, NZD, and EUR. Harker reiterated that March meeting should be on the table for next rate hike, adding the Fed is not behind the curve, the economy is healthy, and job growth is steady. USD/JPY was up some 40pips in the wake of comments, EUR/USD fell about 30pips, and NZD/USD was off by 30pips.

Japan flash manufacturing PMI offered a glimpse of February economic data, and the signs were positive. 53.5 was a multi-year high, as New Export Orders and Employment components increased at a faster rate while Backlog of work rose for the first time in over a year and Inventories fell.

RBA meeting minutes expanded on neutral-hawkish rate decision earlier this month, noting higher terms of trade impact on growth and rising prices of commodities renewing mining investment; On inflation, RBA tone was more measured, stating the headwinds could be more persistent than assumed, but also noting wage inflation could rise more quickly if labor conditions improve.

Late in the day, HSBC (and the Hang Seng) slumped after the banking giant released underwhelming FY16 results. Net profit of $19.3B missed expected $20.3Be, and Adj Rev slowed to $50.2B v $51.4B y/y; CET1 ratio came in 30bps to 13.6% and ROE slowed drastically to 0.8% v 7.2% y/y. HSBC also underscored some of the risks going forward, namely the "threat of populism impacting policy choices in upcoming European elections, possible protectionist measures from the new US administration impacting global trade, uncertainties facing the UK and the EU as they enter Brexit negotiations, and the impact of a stronger dollar on emerging economies with high debt levels."

China:

(CN) PBOC says it is conducting an evaluation of a targeted RRR cut this month; Changes to take effect on Feb 27th; Adjustments to targeted rates will be made both upward and downward - financial press

(CN) China Commerce Ministry (MOFCOM): Expect 2017 consumption growth to remain robust; China to assess and react if US rolls out tariffs - press

(CN) China researcher: trade war unlikely to weaken China - China Daily

(CN) China's 3rd batch of free trade zones may start this month - Chinese press

Japan:

(JP) Bank of Japan (BOJ) Gov Kuroda: BOJ still far from inflation target; appropriate to continue powerful easing

(JP) Japan Fin Min Aso: Cannot comment on border tax being considered by the US

Australia/New Zealand:

(AU) Westpac's Evans: See nothing in RBA minutes to change our view that RBA will be on hold throughout 2017 and 2018 - SMH

(AU) AUD/USD : Deutsche Bank chief economist: AUD may rise to $0.80 and beyond on strength in exports - SMH

(AU) ANZ: New "Fed-Style" inflation indicator suggests inflation in Australia won't fall any further - press

(NZ) According to Seek.com, January National new online job ads rose 5.0% y/y; Auckland rates rose 7.2% y/y - NZ Herald

Asian Equity Indices/Futures (23:30ET)

Nikkei +0.7%, Hang Seng +0.1%, Shanghai Composite +0.3%, ASX200 -0.2%, Kospi +1.1%

Equity Futures: S&P500 +0.2%; Nasdaq +0.3%; Dax flat; FTSE100 flat

FX ranges/Commodities/Fixed Income (23:30ET)

EUR 1.0575-1.0615; JPY 113.05-113.70; AUD 0.7665-0.7690; NZD 0.7150-0.7185

Apr Gold -0.4% at $1,234/oz; Apr Crude Oil +0.5% at $54.05/brl; Mar Copper -0.4% at $2.74/lb

(CN) PBOC to inject combined CNY100B v CNY170B prior in 7-day, 14-day and 28-day reverse repos

(CN) PBOC SETS YUAN MID POINT AT 6.8790 V 6.8743 PRIOR; 2nd straight weaker setting

Asia equities / Notables / movers by sector

Consumer discretionary: SEK.AU SEEK -1.9% (H1 result)

Financials: 5.HK HSBC -3.8% (FY16 result); WBC.AU Westpac Banking Corp flat (Q1 metrics); SCG.AU Scentre Group -1.2% (FY16 result); FXL.AU FlexiGroup -2.1% (H1 result)

Industrials: WOR.AU WorleyParsons -5.9% (Credit Suisse cuts rating); BKN.AU Bradken +0.2% (H1 result); MND.AU Monadelphous Group +11.8% (H1 result); 6472.JP NTN Corp +5.5% (Nomura raises rating)

Technology: ALU.AU Altium -5.7% (guidance); BXB.AU Brambles Limited -2.4% (Deutsche Bank cuts rating)

Materials: IGO.AU Independence Group -5.0% (H1 result); SAR.AU Saracen Mineral Holdings -3.9% (H1 result)

Energy: OSH.AU Oil Search -2.1% (FY16 result); CTX.AU Caltex Australia +1.3% (FY16 result)

Healthcare: GXL.AU Greencross Limited +6.0% (H1 result)

Telecom: 762.HK China Unicom +0.5%, 728.HK China Telecom Corp. +0.5% (Jan result)

Utilities: 9507.JP Shikoku Electric Power Co. Inc +5.7% (raises guidance)

Market movers today

In the US, service and manufacturing PMIs for February are due to be released. Both PMIs are at levels indicating a tailwind for the overall economy and have furthermore been rising steadily since late summer 2016. We expect this to continue and look for an increase in both PMIs in February.

In the euro area, PMI figures from Germany, France and the euro area are also due out. Overall, we expect PMIs to see a downward correction in line with the fall across other survey indicators (IFO and ZEW expectations). In manufacturing, recent months have shown an increase in output, but the order-inventory balance indicator has weakened and points to a downward correction in manufacturing PMI. In service, we also expect a decline in line with the other survey indicators. Still, even with the expected decline in February, PMIs remain at solid levels.

In the UK, the Article 50 marathon debate in House of Lords continues today. More than 190 members (record) will be speaking during the two-day debate: 80 yesterday and 110 today. Members of the House of Lords have proposed around 30 amendments to the bill and speeches will be monitored closely for signs of the mood among the members and whether the bill in contrast to our expectation could be delayed.

The Fed's Harker (voter, hawkish) and Kashkari (voter, dovish) are scheduled to speak tonight. We will look for communication about the expected timing of a US rate hike. We still expect the Fed to deliver the next rate hike in June, but think risks are skewed towards an earlier rate hike.

Selected market news

Risk appetite has improved this morning and most regional Asian equity indices and USD/JPY trade higher after European equity markets closed broadly flat yesterday in a relatively uneventful day. In Japan, the manufacturing PMI rose to the highest level since March 2014 at 53.5, underscoring that the global manufacturing business cycle is still solid. Details in the PMI report were also solid with both new orders and output improving.

The tone in the Minutes from the Reserve Bank of Australia's (RBA) monetary policy meeting on 7 February was relatively optimistic and the RBA expects GDP growth to pick up to around 3% later in 2017 and to remain above estimates of potential growth. We expect the RBA to keep its key rate unchanged in the coming 12 months and we still think the RBA wants to limit the upside in AUD and is ready to soften its tone in case the exchange rate appreciates excessively.

The European fixed income market remains in focus for investors, and French government bonds once again slumped yesterday as political uncertainty reduces investors' appetite for exposure to France. The 10-year yield spread between France and Germany yesterday reached the widest level since 2012. Monday's OpinionWay poll showed a 1pp gain to Marine Le Pen, who now has support from 27% of the votes in the first round. Moreover, polls suggest that Le Pen is rapidly narrowing the gap to her rivals in the second round. Hence, while Emmanuel Macron is likely to defeat Le Pen by 58% to 42% in the second round, according to the poll, his advantage has halved in less than two weeks.

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'

On household consumption, RBA indicated that the subdued growth in the second and third quarters was 'consistent with subdued growth in household income' and this would continue to 'constrain consumption growth over the forecast period'. The minutes, however, suggested that growth in retail sales volumes for 4Q16 had increased, as 'households' perceptions of their personal finances had remained around average and expectations of unemployment had been low relative to recent years'. As elaborated in the minutes, the forecasts for consumption growth were closely related to labour market developments and households' expectations about their income growth. Employment had risen modestly in 4Q16 and 'all of the increase had been in the full-time component, reversing the pattern of the previous few quarters'. Moreover, 'forward-looking indicators had been consistent with some pick-up in employment growth over the period ahead'.

Policymakers remained cautiously optimistic over non-mining business investment. They noted that strongest growth in the aspect was seen in New South Wales and Victoria over recent years. They added that 'while non-residential building construction was likely to remain subdued in coming quarters, the increase in approvals over the past year across a range of sectors suggested that non-residential building construction would contribute to GDP growth towards the latter part of the forecast period'.

The unemployment rate drifted lower to 5.7% in January, after soaring to 11-month of 5.8% in December. RBA described the job market as 'mixed' and cautioned over the 'uncertainty about the momentum in the labour market'. However, it also acknowledged the increase in full-time employment growth over the past year and forecast that the unemployment rate would 'edge lower' in coming months.

Daily Pivots: (S1) 140.18; (P) 140.71; (R1) 141.47; More...

GBP/JPY is staying in range of 138.53/142.79 and intraday bias is turned neutral first. Break of 138.53 will extend the fall to 136.44. Overall, price actions from 148.42 are seen as a corrective pattern. 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.

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.

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Daily Pivots: (S1) 119.71; (P) 120.01; (R1) 120.31; More...

EUR/JPY is still bounded in range of 119.32/121.32. Intraday bias remains neutral at this point. On the downside, below 119.32 will extend the corrective fall from 124.08. In that case, we'd expect strong support from 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) to contain downside and bring rebound. On the upside, break of 121.32 minor resistance should revive the case that such correction is completed. And, intraday bias would then be turned back to the upside for 123.30/124.08 resistance zone.

In the bigger picture, price actions from 109.20 medium term bottom are seen as part of a medium term corrective pattern from 149.76. There is prospect of another rise towards 126.09 key resistance level before completion. But even in that case, we'd expect strong resistance between 126.09 and 141.04 to limit upside, at least on first attempt. Nonetheless, decisive break of 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) will argue that rise from 109.20 is completed and turn outlook bearish for 61.8% retracement at 114.88 and below.

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