News and Events:

Swiss CPI prints higher

The Swiss consumer price index came in slightly above median forecasts in January as it remained unchanged while economists were expecting a contraction of 0.1%m/m. On a year-over-year basis, the headline gauge rose 0.3%y/y - matching expectations - compared to a flat reading in December. Looking at the HICP gauge, (Harmonised Index of Consumer Prices, which enables a comparison of CPI measures across EU countries) inflation also rose 0.3%y/y in January, while on a month-over-month basis, it contracted 0.2%.

Despite the drop in clothing and footwear prices at the end of the Christmas sales period, the big picture did not change much during the first month of the year. EUR/CHF traded sideways at around 1.0660 amid the release. Even the rejection of the corporate tax reform on Sunday did not allow the CHF to weaken, suggesting that investors are willing to put up with more bad news from Switzerland. Indeed, in spite of the sharp rally in the equity market, the geopolitical environment, on both side of the Atlantic, has never been so uncertain. This uncertainty is encouraging international investors to keep part of their investments in safe haven assets. The Swiss franc is not the only asset enjoying this situation. Gold has risen more than 7.5% since 1st January. Given the current environment, we see no justification for a change in the current dynamic as the European political calendar, together with Trump's first 100 days, remain the main challenges of the year.

German & Eurozone ZEW should provide optimism

The biggest source of fear this year for financial markets is Europe's political uncertainties. Eurozone and German ZEW sentiment indicators will be released today. In particular, when it comes to Germany, markets are still anxious to get a sense of what is happening. The underlying difficulties of the Euro area should be reflected in the survey. For example, it is clear that the European elections (French, German and Dutch) should add significant downside pressures to economist sentiment, which from our vantage point should remain mixed.

However, this indicator does not fully reflect the underlying robustness of the largest European economy. The German 10Y is still on the rise since the start of the year - yielding around 0.33%. The deflation risk seems to be slowly fading and the annual Eurozone Core CPI is on the rise (0.9% y/y) and is now at its highest level in two years. Moreover, the ECB's objective of 1.7% in 2019 looks attainable and it seems that we are at a turnaround in terms of monetary policy.

Currency wise, the major driver for the euro is the political uncertainty and this definitely helps the ECB as it adds upside pressures on inflation and as result on growth. Our view is mixed on the single currency as there is a major risk of depreciation due to the continued rise of nationalist parties despite better economic data.

Today's Key Issues (time in GMT):

• Jan CPI MoM, exp -0,10%, last -0,10% CHF / 08:15
• Jan CPI YoY, exp 0,30%, last 0,00% CHF / 08:15
• Jan CPI EU Harmonized MoM, last -0,10% CHF / 08:15
• Jan CPI EU Harmonized YoY, last -0,20% CHF / 08:15
• Jan Producer & Import Prices MoM, exp 0,20%, last 0,20% CHF / 08:15
• Jan Producer & Import Prices YoY, exp 0,50%, last 0,00% CHF / 08:15
• 4Q South Africa Unemployment, exp 27,00%, last 27,10% ZAR / 08:30
• 4Q P GDP WDA QoQ, exp 0,30%, last 0,30% EUR / 09:00
• 4Q P GDP WDA YoY, exp 1,00%, last 1,00%, rev 1,10% EUR / 09:00
• Jan Money Supply M2 YoY, exp 11,30%, last 11,30% CNY / 09:03
• Jan Money Supply M1 YoY, exp 20,20%, last 21,40% CNY / 09:03
• Jan Money Supply M0 YoY, exp 8,90%, last 8,10% CNY / 09:03
• Jan New Yuan Loans CNY, exp 2440.0b, last 1040.0b CNY / 09:03
• Jan Aggregate Financing CNY, exp 3000.0b, last 1630.0b, rev 1626.0b CNY / 09:03
• Jan CPI MoM, exp -0,50%, last 0,50% GBP / 09:30
• Jan CPI YoY, exp 1,90%, last 1,60% GBP / 09:30
• Jan CPI Core YoY, exp 1,70%, last 1,60% GBP / 09:30
• Jan Retail Price Index, exp 266,2, last 267,1 GBP / 09:30
• Jan RPI MoM, exp -0,40%, last 0,60% GBP / 09:30
• Jan RPI YoY, exp 2,80%, last 2,50% GBP / 09:30
• Jan RPI Ex Mort Int.Payments (YoY), exp 3,10%, last 2,70% GBP / 09:30
• Jan PPI Input NSA MoM, exp 1,00%, last 1,80%, rev 2,70% GBP / 09:30
• Jan PPI Input NSA YoY, exp 18,50%, last 15,80%, rev 17,00% GBP / 09:30
• Jan PPI Output NSA MoM, exp 0,30%, last 0,10%, rev 0,20% GBP / 09:30
• Jan PPI Output NSA YoY, exp 3,20%, last 2,70%, rev 2,80% GBP / 09:30
• Jan PPI Output Core NSA MoM, exp 0,30%, last 0,00% GBP / 09:30
• Jan PPI Output Core NSA YoY, exp 2,20%, last 2,10% GBP / 09:30
• Dec House Price Index YoY, exp 6,50%, last 6,70%, rev 6,10% GBP / 09:30
• Dec Industrial Production SA MoM, exp -1,50%, last 1,50% EUR / 10:00
• Dec Industrial Production WDA YoY, exp 1,70%, last 3,20% EUR / 10:00
• Feb ZEW Survey Current Situation, exp 77, last 77,3 EUR / 10:00
• Feb ZEW Survey Expectations, last 23,2 EUR / 10:00
• Feb ZEW Survey Expectations, exp 15, last 16,6 EUR / 10:00
• 4Q P GDP SA QoQ, exp 0,50%, last 0,50% EUR / 10:00
• 4Q P GDP SA YoY, exp 1,80%, last 1,80% EUR / 10:00
• Jan NFIB Small Business Optimism, exp 105, last 105,8 USD / 11:00
• Dec Retail Sales MoM, exp -2,00%, last 2,00% BRL / 11:00
• Dec Retail Sales YoY, exp -4,60%, last -3,50% BRL / 11:00
• Jan PPI Final Demand MoM, exp 0,30%, last 0,30%, rev 0,20% USD / 13:30
• Jan PPI Ex Food and Energy MoM, exp 0,20%, last 0,20%, rev 0,10% USD / 13:30
• Jan PPI Ex Food, Energy, Trade MoM, exp 0,20%, last 0,10% USD / 13:30
• Jan PPI Final Demand YoY, exp 1,50%, last 1,60% USD / 13:30
• Jan PPI Ex Food and Energy YoY, exp 1,10%, last 1,60% USD / 13:30
• Jan PPI Ex Food, Energy, Trade YoY, last 1,70% USD / 13:30
• Fed's Lacker to Speak at University of Delaware USD / 13:50
• Fed's Yellen Appears Before Senate Banking Panel USD / 15:00
• Dallas Fed's Kaplan Speaks in Houston USD / 18:00
• Fed's Lockhart to Speak on Economy in Huntsville, Alabama USD / 18:15
• RBA'S Heath Speech at ABE Conference in Sydney AUD / 20:50
• Jan Foreign Direct Investment YoY CNY, exp 1,40%, last 5,70% CNY / 23:00
• Jan Tax Collections, exp 138200m, last 127607m BRL / 23:00

The Risk Today:

EUR/USD's selling pressures continue. the pair has broken strong hourly support given at 1.0620 (30/01/207 low). The break of this level is paving the way towards stronger hourly support at 1.0581 (16/01/2016 low) and 1.0454 (11/01/2017 low). Expected to see continued decrease. 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 still trading below strong resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should back bouncing lower 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 is now consolidating after its increase from support given at 111.36 (28/11/2016 low). Hourly resistance is given at 115.62 (19/01/2016 high). Expected to see continued sideways price action. 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 medium-term momentum is still bearish despite ongoing increase. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that the road is nonetheless clearly wide-open for further decline if the pair gets back below 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.

The pair is consolidating after yesterday's failure to sustain break above 114.00 barrier.

Gains were capped by falling 30SMA and just under 114.28 pivot (Fibo 38.2% of 118.59/111.61 pullback).

The downside was so far protected by broken bear-trendline from 118.59 peak, currently at 113.25 (near Fibo 38.2% of 111.61/114.13 upleg).

Risk is turning at the downside, as slow stochastic is reversing from overbought territory – negative signal.

Firm break below the trendline/Fibo 38.2% support would trigger fresh acceleration and expose next pivot at 112.85 (daily Tenkan-sen) for stronger bearish signal.

Conversely, sustained break above 113.90/114.20 upper pivots, would improve near-term structure and signal extended recovery.

Res: 113.91, 114.20, 114.47, 114.93
Sup: 113.25, 112.85, 112.58, 112.20

The pair remains biased lower following yesterday's probe and marginal close below 55SMA pivot that generated fresh bearish signal. Break lower was not sustained for now, with temporary base forming at 1.0590 zone. Subsequent bounce is seen corrective and should be capped by hourly Ichimoku cloud that lies above (cloud is spanned between 1.0628 and 1.6656), before bears resume. Initial target lies at 1.0583 (50% of 1.0339/1.0827 upleg), ahead of strong supports at 1.0550/25 (daily cloud base/Fibo 61.8% of 1.0339/1.0822 rally). Firm break above hourly cloud (cloud top is at the same level with yesterday's high) would sideline immediate bears, in favor of stronger correction. Upper triggers lay at 1.0681 (Fibo 38.2% of 1.0827/1.0591) and 1.0708 (daily Tenkan-sen).

Res: 1.0628, 1.0640, 1.0656, 1.0681
Sup: 1.0590, 1.0550, 1.0525, 1.0509

'With inflation picking up from low levels, we cannot expect current monetary stimulus to last forever'. - Valdis Dombrovskis, European Commission

On Monday, the European Commission released its latest set of economic forecasts, suggesting that the Brexit vote and elections in Germany and France would have a significant impact on the Euro zone economy. The latest estimates suggest the region's economy is likely to expand 1.6% in 2017, following the preceding year's growth pace of 1.7%. However, it is highly expected to regain footing in 2018, growing at an annualized pace of 1.8%. Back in November, the Commission estimated the Euro zone's economy would grow 1.5% this year and 1.7% in 2018. The region's largest economy, Germany, is set to expand 1.6% in 2017, down from 1.9% in 2016. Meanwhile, economic growth is expected to climb from 1.2% to 1.4% in France, and keep steady at 0.9% in Italy. The key reason for the upward revisions to the forecasts was stronger than expected performance in the second half of 2016. The Commission also revised up its forecasts for the UK economy, despite the Brexit vote. The British economy is set to expand 1.5% in 2017 and 1.2% in 2018, compared to a 2% growth pace in 2016. In November, it said the economy would expand just 1% in 2017. The 2018-year growth forecast remained unchanged. In 2016, the British economy outperformed all other G7 economies. The Commission also said inflation would hit 1.7% this year but drop to 1.4% in 2018.

'The fact that the economy grew a fourth straight quarter on the back of exports should be considered a passing mark for policymakers'. - Hidenobu Tokuda, Mizuho Research Institute

Japan's economy expanded for the fourth consecutive quarter in the three-month period to December 2016 amid higher exports supported by the weak Yen. Figures released on Monday showed Japan's economy grew at an annualized pace of 1.0% in the Q4, following the preceding quarter's downwardly revised pace of 0.3% and falling behind analysts' expectations for a 0.3% expansion. Economic growth in the Q4 was mainly driven by stronger exports, which offset weak domestic demand. Last week, during a meeting with the Japanese PM Shinzo Abe, the US President Donald Trump accused Japan of using its monetary policy to weaken the Yen and benefit from it. The US Dollar rebounded sharply in the weak of the US 2016 presidential election, rising above 118 versus the Yen and rebounding from its October low of 101. Monday's data showed external demand contributed 0.2% to GDP in the Q4, with exports climbing 2.6%, the strongest growth in two years, while private consumption showed no growth, meeting analysts' projections. Meanwhile, housing investment advanced 0.2%, the slowest growth in four quarters, whereas capital expenditure jumped 0.9%, following a 0.3% drop in the previous quarter. The data also showed the GDP deflator, another measure of inflation, declined 0.1% in the past quarter, marking its second quarterly decline.

'It's Le Pen's anti-euro stance that's worrying.' – Mark Gilbert, Bloomberg

Pair's Outlook

As it was forecasted before, the common European currency found support against the US Dollar in the 55-day simple moving average, which on Tuesday was at 1.0604 level. However, the forecast of a decline of the Euro against the Greenback still remains intact, as the latest rebound is seen as a consolidation after three consecutive trading sessions of losses for the Euro. The next level, where the pair will be heading is the weekly S1, which is located at 1.0568. Although, it is unclear where exactly the rate will encounter resistance, which will propel it lower.

Traders' Sentiment

SWFX traders have not changed their opinion, as 51% of open positions are long on Tuesday. In the meantime, 58% of trader set up orders are to sell the Euro.

'We were heavily underweight (on sterling) but we have now eased that to a neutral stance.' – Lombard Odier (based on Business Recorder)

Pair's Outlook

The GBP/USD currency pair resumed trade in its consolidation trend on Monday, climbing back above the 1.25 handle. Since the Sterling keeps gravitating towards the 1.25 mark, a bearish development today would not be a surprise. However, the 20-day SMA kept providing the Cable with rather strong support lately, and with the help of the weekly PP, could spark more GBP-buying. Fundamental data might also provide a boost, providing the Pound with the opportunity to reach the 1.26 major level, with the weekly R1 being the closest resistance there. Technical studies, on the other hand, are unable to confirm either scenario.

Traders' Sentiment

Both bullish market sentiment and the share of sell orders slid 1% point over the day, now taking up 61% and 54% of the market, respectively.

'The news [Michael Flynn's resignation] weighed on the dollar against the yen because it's a hard situation to understand, and also to understand what kind of broader fallout it will have.' – Sony Financial Holdings (based on Reuters)

Pair's Outlook

Despite all odds, the USD/JPY currency pair inched higher on Monday, breaching our bearish trend-line. An adjustment is not yet required, as a negative outcome today would still reinstate it. The 20-day SMA is the nearest support, but more attention should be paid to the weekly pivot point, which is located at 112.89. Moreover, the Buck is likely to experience trouble with further gains, as a number of strong resistance areas rests up to the 115.50 level. A successful surge beyond this mark would open the door for reaching the main target, namely the longer-term trend-line, which currently lies on top of the 118.00 level.

Traders' Sentiment

There are 55% of traders with a positive outlook towards the US Dollar today (previously 58%). Meanwhile, the portion of purchase orders remains unchanged at 56%.

'I would not expect to see much volatility, don't think anyone is really confident enough to put on any sort of directional trades at the moment until they hear from Yellen.' – Daniel Hynes, ANZ (based on Reuters)

Pair's Outlook

The yellow metal was in a rebound on Tuesday morning, as it had found support during the late hours of Monday's trading session near the 1,220 level. The move was expected, and occurred exactly as forecasted. However, the future movements of the bullion is rather unclear due to a fundamental factor, as chairwoman of the Fed, Janet Yellen, is set to speak in the second half of Tuesday's trading session. Her comments are likely to drive the bullion's prices, as she comments on US monetary policy.

Traders' Sentiment

Traders remain long, as 54% of traders open positions are long. Meanwhile, 56% of trader set up orders are to buy the metal.

EUR/USD

Current level - 10618

The bias remains bearish and only a break through the crucial 1.0658 high will signal a reversal of the whole slide from 1.0828

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 113.38

My outlook here is still positive, for a violation of 114.10, towards 115.65. Key support lies at 112.50.

GBP/USD

Current level - 1.2542

The rise from 1.2440 low is corrective, preceding a slide towards 1.2415 support area. Trigger on the downside is 1.2479 low.