GBP/USD has made five waves up from January low which we see it as an impulsive wave up in wave 1-circled, followed by a recent three wave move that we see it as a flat in wave 2-circled, now completed. That said, cable can see more gains straight up from here and to a new high in a very strong impulsive manner if we consider that wave three of three can be around the corner.

GBPUSD, 4H

Is 20 your lucky number?

After the Dow Jones Industrial Average spent almost two months making headlines before triggering the 20K benchmark, a new headline hit the wires yesterday with S&P 500 breaching the $20 trillion market cap. In numerology, the number 20 points to constant changes and rising ambitions. For German theologian and mystic, Jacob Boehme, described the number 20 as “belonging to the Devil”,however, for an investor, this number represented more than 9% in returns on U.S. equities since the U.S. elections.

Same factors that pushed U.S. stocks since November 9 are again providing momentum after President Trump promised last week a phenomenal tax plan to be announced soon, but the greenback ignored the equities rally as all market participants will keep an eye on Yellen's speech later today when she testifies before congress.

The sideway price action in the U.S. dollar for the past three trading days suggests two things, either markets believe that Yellen won't reveal any new hints, or they're waiting for a sign to react upon. If she does indicate that the U.K.is ready to act as soon as March, we may see a decent rally in U.S. yields that's going to support the U.S. dollar andprobably limit any potential gains in equities.

Micheal Flynn resigns

Michael Flynn, the U.S. national security adviser sudden resignation late yesterday also seems to be impacting financial markets. The dollar declined slightly after the news broke out and Asian equities gave up on earlier gains. Market's don't want another source of uncertainty and the big question now is whether Trump's Russian scandal ends here or it's just the first domino to fall.

Inflation on the rise

On the data front, China's producer prices rose more than expected by 6.9% in January to hit its highest levels since August 2011, meanwhile consumer prices also grew at the fastest pace in about 3 years hitting 2.5%. The rise in food prices, energy, and raw materials is spreading across the world, and this will raise many concerns on how longer will major central banks deny the fact that inflation is back.

Germany which also saw inflation on the rise hitting 1.9% in January, reported its second GDP reading which confirmed that the economy grew at its fastest pace since 2011 at a rate of 1.9%, however, the unadjusted data came 0.5% below markets' forecast at 1.2%.

Sunrise Market Commentary

• Rates: Yellen slightly supportive for US Treasuries?
  Yellen's testimony for the US Senate is probably her final possibility to “pre-announce” tightening in March. We expect her to keep her lips sealed. Odds of a March rate hike are 30% and could suffer a blow, supporting US Treasuries short term, even if she holds on to the Fed's scenario of 3 rate hikes in 2017. 125-09/16 remains strong resistance for the Note future.
• Currencies: Dollar rally slows ahead of Yellen testimony
  Yesterday, the dollar gained slightly ground as the global equity rally continued. This morning, the risk-on sentiment eases after the resignation of Trump's security adviser. There are plenty of eco data, but USD traders will await Yellen's testimony before Congress. A balanced message might be slightly USD negative. Sterling traders will keep an eye on the UK CPI data.

The Sunrise Headlines

• Main US equity indices ended around 0.5% higher yesterday. Overnight, Asian risk sentiment deteriorated with indices recording modest losses (Japan underperforming) following the latest lapse of the Trump administration.
• Mike Flynn, President Donald Trump's national security adviser, resigned as he was under increasing fire over his conflicting statements about his contacts with Russian officials before the inauguration, the White House said.
• China's PPI picked up more than expected in January to near six-year highs (6.9% Y/Y) as prices of steel and other raw materials extended a torrid rally. China's CPI nears a three-year high (2.5% Y/Y) as fuel and food prices jumped.
• Dallas Fed Kaplan, voting FOMC member, said the US central bank should act soon to raise rates, or risk having to abandon its plan to do so slowly. Kaplan did not say when he hopes the next interest rate rise will be.
• US drillers have been bringing oil rigs back online in response to stabilising crude prices and the EIA now estimates that US crude production will climb by 80,000 barrels a day next month. Brent crude dropped back below $56/barrel.
• Matteo Renzi has triggered a leadership contest in his ruling centre-left Democratic party, opening up a tussle that he hopes to use as a springboard for a comeback at Italy's next general election.
• A US federal judge rejected a Justice Department request to suspend Seattle courtroom proceedings over President Trump's temporary ban on travel from seven Muslim-majority countries until an appeals court has fully reviewed it.
• Today's eco calendar heats up with UK CPI, EMU production, German ZEW and US NFIB small business optimism. Fed chairwoman Yellen testifies before the Senate while governors Lacker, Kaplan and Lockhaert speak as well.

Currencies: Dollar Rally Slows Ahead Of Yellen Testimony

Dollar rally slows ahead of Yellen testimony

On Monday, the dollar profited from the ongoing equity rally. However, the rise in core bond yields and in the dollar remained limited, as investors awaited today's testimony of Fed's Yellen before Congress. USD/JPY closed the session at 113.74 (from Friday's close of 113.22). EUR/USD finished the session at 1.0598 (from 1.0643).

Overnight, global risk sentiment deteriorated as the security adviser of US president Trump was forced to leave on allegations of improper contacts with Russian diplomats. The ‘Flynn issue' provides a good excuse to take profit on the recent equity and dollar rally. Asian equities show minimal losses, but Japan underperforms on yen strength. USD/JPY is trading in the 113.35 area. The China PPI was above consensus but had little impact on the markets. Dollar softness is lifting EUR/USD (1.0620) off the overnight low. The Aussie dollar profits from strong business confidence.

Today, in EMU the Q4 GDP (expected unchanged) and December industrial production (expected weak) probably won't have much impact on FX trading. The German February ZEW confidence is more timely. The market expects a small decline (15 from 16.6), but the recent good stock market performance suggests a potentially good outcome. In the US, the NFIB small business sentiment is expected to have declined slightly, following a leap upwards after the Trump election. With the index at a historic high level, the decline may be a bigger than expected, but shouldn't be a great concern. The January PPI is expected to have eased to 1.5% Y/Y from 1.6% Y/Y. Core PPI is expected to have dropped to 1.1% Y/Y from 1.6% Y/Y in December. If anything, the global data point to a slightly softer dollar, especially if global sentiment would turn further risk-off. However, the focus will be on the Yellen testimony. For an in depth analyses see the fixed income part of this report. The Fed chair will keep a balanced approach, but confirm that the Fed is nearing its targets. However, she will probably refrain from hinting to a march rate hike. The dollar started the week in good shape. A less positive risk sentiment and Yellen abstaining from hints on a March rate hike might (temporary) block the most recent USD rebound. USD/JPY is more vulnerable to negative headlines/soft Yellen speak than USD/EUR.

Global context: The dollar is/was in a corrective downtrend since the start of January as the Trump reflation trade petered out. Interest rate differentials in favour of the dollar narrowed. Trump's communication became a source of uncertainty, also for the dollar. At some point, absolute interest rate support should provide a USD floor, especially as the Fed is expected to continue its policy normalisation. Last week, the dollar showed tentative signs of a bottoming out process, supported by the ‘Trump tax promise'. Price action earlier last week showed that euro weakness might become a factor too. As we see the 1.0874 as solid resistance, a sell EUR/USD on upticks approach might be considered. 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. For now, the USD/JPY rebound doesn't convince us.

EUR/USD: Topside test rejected. Dollar succeeds a cautious/gradual comeback

EUR/GBP

UK CPI nearing the 2.0% mark

On Monday, EU's Juncker repeated calls for EU unity going into the start of the Brexit negotiations, but without impact on sterling. EUR/GBP initially held a tight range around the 0.85 pivot. Later in the session, the decline of EUR/USD also weighed (slightly) on EUR/GBP. The pair closed the session at 0.8461 (from 0.8513) nearing the 0.8450 support. The positive risk sentiment was also slightly supportive for Cable that closed the session at 1.2526 (from 1.2491).

This morning, the Flynn risk-off correction is slightly negative for sterling. The global context (Yellen speech) will be important for sterling trading. Even so, the focus will be in the UK price data. The input PPI already showed a substantial rise in pipeline inflation and this is expected to continue (from 15.8% Y/Y to 18.5 Y/Y). CPI is expected to decline 0.5% M/M but due to base affects this will still push Y/Y inflation to 1.9% (from 1.5% Y/Y in December). Core inflation is expected at 1.7% Y/Y from 1.6% Y/Y. Of late, the pass-through of higher PPI inflation into CPI inflation was modest. BoE governor Carney isn't in a hurry to take a tough stance on inflation. So, data in line with the consensus probably won't support further sterling gains. CPI jumping above 2.0% might be a short-term sterling positive. Overall euro softness also remains a downside risk for EUR/GBP. We look how the test of the key 0.8540 support turns out. In case of a break, the 0.8304 area is the next MT support. At least partially stop-loss protection on EUR/GBP longs may be considered.

EUR/GBP testing the 0.8450 support ahead of the UK inflation data

Download entire Sunrise Market Commentary

In the US, the main event will be Fed Chair Yellen's semi-annual Humphrey-Hawkins testimony on monetary policy before the Senate Committee on Banking, Housing, and Urban Affairs. She will present the same testimony before the House Committee on Financial Services tomorrow. Although the testimony will be the same on both occasions, we expect market participants to pay extra attention to the Q&A sessions. In particular they may be on the lookout for any fresh hints regarding her view on the economy, and whether she is likely to vote in favor of a rate hike in the upcoming policy meetings. The Fed Chair was relatively upbeat in her latest speech, indicating that the US is near maximum employment and that inflation is moving toward the Fed's goal. She also said that the timing of the next rate hike will depend on the economy over the coming months. Given that since then, US data have been generally strong if one overlooks the disappointing wage growth print in January, we do not see a material reason for Yellen to deviate from her previously optimistic stance. Overall confident remarks from the Fed chief with regards to the economy and the Fed's progress towards its dual mandate could cause the probability for a March hike to surge, and may thereby bring USD under renewed buying interest. Currently, that probability is almost 18% according to the Fed funds futures.

EUR/USD traded lower on Monday after it tested as a resistance the prior upside support line taken from the low of the 16th of January. However, the slide was stopped by the 1.0590 (S1) support level, marked by the low of the 19th of January. The pair has been trading within a short-term downside channel since the 2nd of February and as such we maintain the view that the near-term bias is negative. A clear dip below 1.0590 (S1) would confirm a forthcoming lower low on the 4-hour chart and is possible to open the way for our next support of 1.0540 (S2).

Overnight: China's inflation data amplify the global reflation theme

China's CPI and PPI data for January showed that inflationary pressures continue to accelerate in the world's second largest economy, adding to the global reflation theme that has driven market action in recent weeks. Both the CPI and the PPI rates rose by more than forecast. The main beneficiary from these news was the Australian dollar, which rose somewhat against its counterparts on the news and continued even higher in the following hours. With regards to the PBoC, the Bank has been tightening its policy in recent weeks in order to halt some of the depreciation pressure on the yuan. As such, we think that accelerating inflation gives the Bank more room to tighten its policy even further in the foreseeable future, if needed.

What's more, the persistent surge in the PPI rate is likely to be welcomed by foreign central banks struggling to hit their inflation targets, such as the ECB and BoJ. Considering that falling Chinese producer prices between 2012 and 2016 may have held down imported inflation in the Eurozone and Japan, the turnaround in that dynamic may actually boost imported inflation in those nations and thereby, support their overall inflation prints.

Therefore, we believe that the consistent increase in China's PPI rate could diminish somewhat the likelihood for any further aggressive easing measures by the likes of the ECB and the BoJ, and may thereby ease some of the recent depreciation on the euro and the yen. Having said that though, the near-term outlook for both currencies is still cautiously negative in our view, bearing in mind Eurozone's political risks and the BoJ's yield-control framework amid an environment of rising global yields.

Today's highlights:

During the European day, we get CPI data for January from the UK. The consensus is for both the headline and the core CPI rates to have risen further. Even though further surge in these rates may support the pound at the release, we do not expect such an increase to materially affect the BoE's neutral policy stance, at least in the short-term. After all, at the press conference following the latest BoE meeting, Governor Carney made it clear that on the whole, the MPC remains willing to "look through" above-target inflation, and that investors should not expect rate hikes anytime soon.

EUR/GBP slid yesterday, falling below the support now turned into resistance of 0.8490 (R1) and the neckline of a head and shoulders pattern which started to form since the 22nd of December. This keeps the short-term bias negative and as such, we would expect a dip below 0.8450 (S1) to set the stage for extensions towards our next support of 0.8380 (S2). Accelerating UK inflation today could prove the catalyst for such a slide. As for the bigger picture, the rate continues to trade above the long-term uptrend line taken from the lows of November 2015. As such, we would like to see a decisive close below that line before we get confident on larger bearish extensions.

In Germany, the ZEW survey for February is due out. The forecast is for the expectations index to decline, but for the current conditions figure to tick up. On balance, we think that deteriorating expectations are likely to overshadow improving current conditions. Even though this survey is usually not a major market mover for the common currency, this could cause the German DAX to correct a bit lower. We also get the nation's GDP data for Q4 and the final CPI figures for January. From Eurozone, we get the 2nd estimate of Q4 GDP and industrial production data for December.

As for the US economic data, we get the NFIB small business optimism index and the PPI, both for January. Nonetheless, considering that investors will likely have their gaze locked on Yellen, these indicators may pass unnoticed.

Besides Chair Yellen, we have two more FOMC members scheduled to speak today: Dallas Fed President Robert Kaplan and Atlanta Fed President Dennis Lockhart.

Market movers today

The main event today will be Fed Chairman Janet Yellen's semi-annual testimony before the Senate Banking Committee. Focus will be on any hints regarding the timing of the next hike. We look for a June hike but the risk is still skewed towards an earlier hike. The Fed's Robert Kaplan (voter, dove) yesterday said that ‘it is my view that moving sooner rather than later will make it more likely that future removals of accommodation can be done gradually'.

German GDP is due to be released this morning. We look for a stronger-than-consensus rise of 0.7% q/q (consensus 0.5% q/q). It also points to upside risk to consensus of 0.5% q/q for euro area GDP. Strong surveys suggest that euro area growth finished 2016 on a strong note. German ZEW was strong in January but we look for a small decline in February in line with the recent drop in the German ifo expectations index.

In the US, it is time for NFIB small business optimism, which rose sharply last month – most likely due to upbeat expectations about deregulation and tax cuts. We might see a small setback as there are not yet any details on the tax plan. US producer prices are also up today.

Nothing in Scandi today.

Selected market news

Stock markets finished higher again yesterday but Asian markets are a bit lower after news that the national security adviser Michael Flynn resigned due to contacts with Russia earlier, see Reuters. The USD has weakened slightly on the news.

Treasury Secretary Steven Mnuchin was sworn in yesterday, paving the way for an announcement soon on tax reform. Not least, news on a corporate tax cut is much awaited by markets.

Chinese inflation numbers surprised strongly on the upside as producer prices (PPI) rose to a new cycle high of 6.9% y/y (consensus 6.5% y/y, previous 5.5% y/y). CPI inflation was also higher than expected at 2.5% y/y (consensus 2.4% y/y, previous 2.1% y/y) driven by an increase in the core inflation (excludes food) which moved up to 2.5% y/y from 2.0% y/y. It's still below the 3% target but has a clear trend upwards. Today's numbers increase the likelihood of further tightening from the PBoC as economic data also looks robust currently. An increase in the official lending rate can no longer be ruled out. So far, the PBoC has tightened mainly through a small lift to repo rates in money markets and ordering banks to restrain lending in Q1. But official policy rates have not been touched.

The Chinese numbers add to the global reflation case. In addition, a more moderate Trump on the foreign political scene has also dampened the risk of a trade war for now and triggered further increases in commodity prices, adding more fuel to reflation.

China inflation rises to new multi-month highs

Asia Mid-Session Market Update: China inflation rises to new multi-month highs; Risk trade dented by NSA Flynn resignation

US Session Highlights

(US) NY Fed Jan Survey of Consumer Expectations: inflation expectations highest since summer 2015; household spending expectations lowest since Jan 2016 - OPEC Sec Gen Barkindo: prelim numbers show a very high level of compliance with supply cut agreement - press

(US) Pres Trump: US will be seeking to “tweak” the terms of its trade relationship with Canada.

US markets on close: Dow +0.7%, S&P500 +0.5%, Nasdaq +0.5%

Best Sector in S&P500: Financials

Worst Sector in S&P500: Telecom

Biggest gainers: GT +5.9%, REGN +4.4%, NUE +4.3%, CCI +3.0%, STX +2.9%

Biggest losers: NVDA -4.6%, ATVI -3.2%, GPS -3.0%, EQT -2.8%, EXPE -2.6%

At the close: VIX 11.1 (+0.2pts); Treasuries: 2-yr 1.21% (flat), 10-yr 2.43% (+3bps), 30-yr 3.03% (+2bps)

US movers afterhours

GUID: Reports Q4 $0.09 v $0.06e, R$29.5M v $28.7Me; Guides initial FY17 $0.28-0.36 to $ v $0.29e, R$112-118M v $115Me; +3.9% afterhours

CSOD: Reports Q4 $0.00 v -$0.03e, R$109.9M v $109Me; Guides Q1 R$109-111M v $112Me; +3.9% afterhours

BKD: Reports Q4 -$1.45 (unclear if comp) v $0.47e, R$1.21B v $1.22Be (2 est); -5.3% afterhours

HIBB: Guides Q4 $0.53-0.55 v $0.68e, R$247M v $255Me; SSS - 2.2%; -5.4% afterhours

AMKR: Reports Q4 $0.42 v $0.27e, R$1.02B v $1.03Be (1 est)- Guides Q1 -$0.11 to 0.05 v $0.11e, R$860-940M v $970Me, gross margin 13-17%; -10.9% afterhours

Politics

(US) President Trump's National Security Adviser Michael Flynn resigned; Keith Kellogg is now acting National Security Adviser - financial press

(US) Federal judge in Virginia also rules against upholding President Trump's executive order on immigration - press

(US) Steven Mnuchin confirmed by US Senate as the next US Treasury Secretary in 53-47 vote

Asia Key economic data:

(CN) CHINA JAN CPI M/M: 1.0% (11-month high) V 0.2% PRIOR; Y/Y: 2.5% (32-month high) V 2.4%E

(CN) CHINA JAN PPI Y/Y: 6.9% V 6.5%E (5th straight increase and highest since Aug 2011)

(JP) JAPAN DEC FINAL INDUSTRIAL PRODUCTION M/M: 0.7% V 0.5% PRELIM; Y/Y: 3.2% V 3.0% PRELIM

(AU) AUSTRALIA JAN NAB BUSINESS CONFIDENCE: 10 (19-month high) V 6 PRIOR; CONDITIONS: 16 (9-year high) V 10 PRIOR

(NZ) New Zealand Jan Food Prices M/M: +2.8% v -0.8% prior (First rise in 5 months)

(NZ) New Zealand Jan REINZ median home price y/y: +9.4% v +11% prior; Home sales y/y: -14.7% v -10.7% prior

Asia Session Notable Observations, Speakers and Press

'Re-flation Trump trade' sent US equities to record highs on Monday, but risk is on the back foot in the latter part of the Asia session. After days of DOJ investigations, National Security Advisor Michael Flynn has submitted his resignation after acknowledging he gave 'incomplete information regarding phone calls with the Russian ambassador' about US sanctions prior to inauguration, potentially sending the US administration into damage control mode. White House press Sec Spicer will hold a press conference on Tuesday and may be faced with questions about the timing when the cabinet became aware of compromising intel on Flynn, particularly in light of Pres Trump stating Flynn had his confidence as recently as Monday. S&P futures are down slightly, Gold is up $5 from the lows above $1,330, and USD/JPY is off by 40pips below 113.30.

China released its January CPI and PPI numbers that topped expectations while hitting multi-year highs. PPI remained especially notable as it rose for the 4th month and reached the highs not seen since 2011. CPI increase was more heavily skewed to food inflation (2.7% v 2.4% prior) as non-food component slowed to 0.7% v 2.0% prior. China Stats Bureau noted the CPI was skewed by the Lunar New Year effect, since it came in January this year as opposed to February of last year. Also of note in China, US financial press report indicating US Commerce Sec may not choose to name the country a currency manipulator, but rather designate the practice of currency manipulation as an unfair subsidy when employed by any state.

AUD benefited from strong NAB Business Conditions reaching multi-year highs. NAB economist noted the employment index improvement was expecially notable since it had previously 'stubbornly muted'. Comments from UBS economist said the NAB data puts RBA into 'rate hike territory'.

Toshiba remains in focus on Japan. After confirming several recent press reports estimating rougly ¥700B charge related to Westinghouse writedown, the company has once again postponed its earnings release as it continues to work with its auditor on the review. A Nikkei report earlier today also noted the company may not be able to continue as a 'going concern', potentially requiring bankruptcy proceedings and/or state bailout.

China:

(CN) US said to consider new currency strategy to pressure China from undervaluing currency to boost exports - financial press

(CN) China NBS: Jan CPI boosted due to Lunar New Year factors

(CN) China National Development Reform Commission (NDRC): Expect to invest more than CNY800B in railway improvements in 2017 v CNY801.5B in 2016 - Chinese press

Japan:

(JP) BOJ Gov Kuroda: Will not alter monetary policy just because global yields are rising

(JP) Japan Fin Min Aso: PM Abe has proposed an economic dialogue to US president Trump - press

Australia/New Zealand:

(AU) UBS economist: Latest NAB Business confidence data suggests conditions have moved into 'rate hike territory' - AFR

(NZ) Westpac: New Zealand housing prices showed marked slowdown in Jan - press

(NZ) New Zealand Jan REINZ median home price y/y: +9.4% v +11% prior; Home sales y/y: -14.7% v -10.7% prior

Asian Equity Indices/Futures (00:00ET)

Nikkei -0.6%, Hang Seng flat, Shanghai Composite -0.2%, ASX200 -0.1%, Kospi -0.3%

Equity Futures: S&P500 -0.1%; Nasdaq -0.1%; Dax -0.1%; FTSE100 -0.1%

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.0590-1.0625; JPY 113.25-113.80; AUD 0.7635-0.7690; NZD 0.7165-0.7195

Apr Gold +0.3% at $1,230/oz; Mar Crude Oil +0.3% at $53.06/brl; Mar Copper +0.3% at $2.79/lb

SPDR Gold Trust ETF daily holdings rise 4.2 tonnes to 840.9 tonnes; 8th consecutive increase; Highest since Dec 15th

(CN) PBOC SETS YUAN MID POINT AT 6.8806 V 6.8898 PRIOR

(CN) PBOC to inject combined CNY130B v CNY100B on Feb 2nd in 7-day, 14-day and 28-day reverse repos

(JP) Japan MoF sells ¥2.17T in 0.1% 5-year JGB bonds; avg yield -0.089% v -0.116% prior; bid-to-cover 4.26x v 3.66x prior

(AU) Australia MoF (AOFM) sells A$150M in 1.25% 2022 Bonds; avg yield: 4785%; bid-to-cover: 4.83x

Asia equities/Notables/movers by sector

Consumer discretionary: 1958.HK BAIC Motor Corp Ltd +2.0% (guidance); 3389.HK Hengdeli Holdings +1.0% (guidance); TWE.AU Treasury Wine -4.7% (H1 result); DMP.AU Domino ’ s Pizza +2.5% ; COH.AU Cochlear -3.7% (H1 result); NCK.AU Nick Scali +10.4% (H1 result); JBH.AU JB Hi-Fi -3.1%
(Credit Suisse cuts rating); 7936.JP Asics Corp -10.3%, 6098.JP Recruit Holdings +1.4% (9-month result); 9041.JP Kintetsu Corp -1.2%, 2501.JP Sapporo Holdings -6.0% (9-month result); 2587.JP Suntory Beverage & Food -2.9%, 2503.JP Kirin Holdings Co -3.5% (FY16/17 result)

Financials: 1109.HK China Resources Land +1.2% (Jan result); CGF.AU Challenger Financial Services Group -2.4% (H1 result); OCBC.SG Oversea-Chinese Banking Corp -3.4% (Q4 result); NOBL.SG Noble Group +9.1% (potential strategic investment)

Industrials: RIC.AU Ridley Corp -3.3% (H1 result); AZJ.AU Aurizon Holdings -3.4% (Macquarie cuts rating); 6479.JP Minebea +17.2% (9-month result)

Technology: 7731.JP Nikon Corp -13.9% (9-month result); 6728.JP Ulvac Inc +17.3% (Nomura raises rating); 6773.JP Pioneer Corp -6.6% (9-month result); 6502.JP Toshiba Corporation

7.8% (May issue first-ever risk warning; May delay earnings, in disagreement with auditors)

Materials: 1090.HK DaMing International Holdings +3.2% (guidance); 5706.JP Mitsui Mining & Smelting +13.4% (9-month result); 486.HK RUSAL -4.4% (Onexim sold stake)

A note on lower timeframe confirming price action…

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails – essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

EUR/USD

After whipsawing through a H4 trendline resistance extended from the low 1.0579 and tapping fresh offers at the underside of a H4 supply at 1.0667-1.0650 in the early hours of yesterday's segment, we can see that he EUR continued to weaken against its US counterpart. In one fell swoop, the pair swallowed both H4 support at 1.0621 (now a resistance) and the 1.06 handle, leaving price free to challenge the nearby December opening level at 1.0590.

Looking across to the higher-timeframe structures, it's clear to see that the weekly bears remain in the driving seat for the time being. In conjunction with this, daily demand at 1.0589-1.0662 is also holding on by just a thread at the moment. The next downside target on the higher timeframes can be seen at a daily support level coming in at 1.0520, which happens to be sited only a few pips above the 2017 yearly opening level at 1.0515/weekly support area at 1.0333-1.0502.

Our suggestions: In the event that a H4 close is seen beyond December's opening level today, the next H4 support in the firing range can be seen at the 2017 yearly opening level (which as we already know sits just beneath a daily support at 1.0520). This could set the foundation for a reasonable short trade today if the H4 candles retest the broken H4 levels as resistance (as per the black arrows) and pencil in a H4 bear candle.

Data points to consider: German Prelim GDP release at 7am. US PPI data at 1.30pm, Fed Chair Yellen speaks at 3pm followed by FOMC member Kaplan taking the stage at 6pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Watch for a H4 close below the1.0590 region and then look to trade any retest seen thereafter ([waiting for a H4 bear candle to form following the retest is advised before pulling the trigger] stop loss: ideally beyond the trigger candle).

GBP/USD

In recent sessions, we saw the GBP/USD settle just above December's opening level at 1.2516, following a modest retest seen from the 1.25 handle. Provided that the bulls defend 1.2516 as support today, we see little standing in the way of price challenging the H4 mid-way resistance at 1.2550, which happens to align nicely with a H4 Quasimodo resistance left shoulder (see black arrow).

As far as structure goes, there is unfortunately very little direction seen from the bigger picture at this time. The weekly candles are currently trading mid-range between the 2017 yearly opening level at 1.2329 and a weekly Quasimodo resistance coming in at 1.2673. By the same token, a similar pattern exists on the daily chart. Daily price is loitering between a daily demand at 1.2252-1.2342 (bolstered by a daily trendline support stretched from the high 1.3437) and a daily supply penciled in at 1.2728-1.2657.

Our suggestions: On account of there being little higher-timeframe convergence seen on the H4 chart, we will not be looking for anything other than a bounce today. With this in mind, a bounce from 1.2516/1.25 is possible, in our opinion. However, it'll only be considered a valid bounce if, and only if, it's accompanied by a lower-timeframe buy signal (see the top of this report). The other key thing to keep in mind here is that one would also require a relatively small stop loss in order to achieve reasonable risk/reward up to the 1.2550 neighborhood.

Data points to consider: UK CPI at 9.30am. US PPI data at 1.30pm, Fed Chair Yellen speaks at 3pm followed by FOMC member Kaplan taking the stage at 6pm GMT.

Levels to watch/live orders:

• Buys: 1.2516 ([wait for a lower-timeframe signal to form before looking to execute a trade] stop loss: dependent on where one confirms the level).
• Sells: Flat (stop loss: N/A).

AUD/USD

Despite the commodity currency closing the day in negative territory yesterday, the pair may very well be in the process of carving out a bottom against its US counterpart. Going into the US session, we can see that the pair momentarily surpassed the H4 trendline support taken from the high 0.7695, and came within striking distance of connecting with a H4 demand area seen at 0.7617-0.7630. The H4 trendline remains in play as of now, which could lead to a short-term bounce back up to the H4 mid-level resistance at 0.7650.

Given the above factors, how do things stand on the higher timeframes? Well, from the weekly chart, the Aussie remains lurking nearby a weekly trendline resistance taken from the high 0.8163, followed closely by a weekly supply zone logged in at 0.7849-0.7752 (bolstered by yet another weekly trendline resistance stretched from the high 0.7835). What's more, positioned closely to the weekly trendline resistance (0.8163) is a daily Quasimodo resistance penciled in at 0.7734 and a daily resistance at 0.7720.

Our suggestions: Assuming that the H4 bulls are able to lift price back above the 0.7650 mark today, a long from here could be something to think about. On the assumption that a H4 bullish close is seen beyond this number, and price retests it as support as well as forms a lower-timeframe buy signal (see the top of this report), we would look to long this market, targeting the 0.77 handle. The main ingredient behind our thinking here that there's room seen, albeit not much, for further upside on the bigger picture (see above).

Once/if price crosses swords with 0.77, our team will shift from longs to shorts since between the underside of the weekly supply at 0.7752 and the daily resistance at 0.7720, we have a relatively strong-looking higher-timeframe sell zone in the making.

Data points to consider: Chinese CPI at 1.30am. US PPI data at 1.30pm, Fed Chair Yellen speaks at 3pm followed by FOMC member Kaplan taking the stage at 6pm GMT.

Levels to watch/live orders:

• Buys: Watch for a H4 close above the 0.7650 region and then look to trade any retest seen thereafter ([waiting for a lower-timeframe signal to form following the retest is advised before pulling the trigger] stop loss: dependent on where one confirms this level).
• Sells: 0.7752/0.7720 ([wait for a H4 bear candle to form before pulling the trigger] stop loss: ideally beyond the trigger candle).

USD/JPY

The USD/JPY, as you can see, started the week off on a positive note, gapping over 30 pips north into the jaws of a H4 supply zone drawn from 113.96-113.43. In spite of this, buying pressure diminished rather quickly following a whipsaw through the top edge of the H4 area, which saw the unit consolidate throughout the remainder of the day between 114.16/113.43.

With the weekly candles currently reflecting a bullish stance from just ahead of the weekly support area at 111.44-110.10, and daily price looking on course to gravitate higher up to a daily resistance area at 115.62-114.60, the current H4 supply may be on the verge of giving way.

Our suggestions: Beyond the current H4 supply area, we see room for price to challenge December's opening base at 114.68, which, as you may have noticed, is positioned within the lower edge of the aforementioned daily resistance area. Should a H4 close take shape above the H4 supply today, as the higher-timeframes suggest, and is followed up with both a retest and a lower-timeframe buy signal (see the top of this report), our desk would look to buy, targeting the 114.68 boundary.

Data points to consider: US PPI data at 1.30pm, Fed Chair Yellen speaks at 3pm followed by FOMC member Kaplan taking the stage at 6pm GMT.

Levels to watch/live orders:

• Buys: Watch for a H4 close above 113.96-113.43 and then look to trade any retest seen thereafter ([waiting for a lower-timeframe signal to form following the retest is advised before pulling the trigger] stop loss: dependent on where one confirms this zone).
• Sells: Flat (stop loss: N/A).

USD/CAD

During the course of Monday's trading, the H4 candles managed to find a foothold around the underside of 1.31 and clock a low of 1.3054 on the day. While this is the fourth consecutive bearish day for the pair, we feel the market's structure is signaling oversold conditions at the moment. Directly ahead we have the H4 mid-level support 1.3050, which, of course, could hold price higher today. Beyond here, however, sits a H4 demand base coming in at 1.3006-1.3035, which happens to be bolstered by both a weekly demand area at 1.3006-1.3115 and a daily support level at 1.3006. Apart from this, the H4 demand area also boasts the following converging structures: February's opening level at 1.3039, a H4 trendline support taken from the low 1.2968, a H4 AB=CD (see black arrows) 127.2% approach terminating around 1.3036 mark and to top it off there's also the daily trendline support taken from the low 1.2654 intersecting with this H4 zone.

Our suggestions: While buying from the H4 demand area may very well be tempting considering its confluence, we still have to remain cognizant of the 1.30 figure seen just below it. This watched number could act as a magnet to price and pull the pair through our H4 buy zone! Therefore, to be on the safe side, we will wait for a reasonably sized H4 bull candle to take shape here before pressing the buy button. This will by no means guarantee a winning trade, but what it will do is show buyer interest within a high-probability reversal zone.

Data points to consider: US PPI data at 1.30pm, Fed Chair Yellen speaks at 3pm followed by FOMC member Kaplan taking the stage at 6pm GMT.

Levels to watch/live orders:

• Buys: 1.3006-1.3035 ([wait for a reasonably sized H4 bull candle to form before pulling the trigger] stop loss: ideally beyond the trigger candle).
• Sells: Flat (stop loss: N/A).

USD/CHF

Kicking this morning's report off with a look at the weekly chart, we can see that weekly price is currently edging above the 2016 yearly opening level at 1.0029. In order to confirm this break, however, we would require a closing weekly candle. The story on the daily chart shows that price recently crossed above the daily trendline resistance taken from the high 0.9956, but immediately touched gloves with the underside of a daily supply coming in at 1.0122-1.0060. Swinging across to the H4 candles, the pair broke through both H4 resistance at 1.0041 and the H4 mid-way resistance at 1.0050, and ended the day respecting the H4 AB=CD (see black arrows) 161.8% extension line at 1.0069.

Our suggestions: In light of recent action, selling right now, even though the unit is bolstered by a daily supply and a H4 161.8% ext., is a risky play in our book. Not only do the H4 candles have to contend with nearby H4 mid-way support at 1.0050, a H4 support at 1.0041 and a H4 trendline support taken from the high 1.0136, but also there's the daily trendline support etched from the high 0.9956 to consider, as well as the recent break above the 2016 yearly opening level! As a result of the above, we feel it best to remain on the sidelines for now.

Data points to consider: CHF PPI at 8.15am. US PPI data at 1.30pm, Fed Chair Yellen speaks at 3pm followed by FOMC member Kaplan taking the stage at 6pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

DOW 30

The DOW is absolutely on fire! The market extended Friday's gains yesterday, allowing the unit to tap fresh record highs of 20440. According to Bloomberg, banks rallied and investors continued to assess corporate earnings that are posting the best growth since 2014.

Given that there is absolutely no weekly resistance levels in sight, the best we can do for the time being is continue looking to ‘buy the dips'. The closest higher-timeframe area can be seen at 20003-20091: a daily demand that is positioned directly above a daily support barrier at 19964.

Our suggestions: While the H4 demand area at 20197-20218 boasts little higher-timeframe (structural) convergence and sits quite a distance from current price, there is very little else to work with at the moment! Despite this H4 demand positioned in-line with the current uptrend, trading this area without additional confirmation, nevertheless, is not something our desk would be comfortable with. Waiting for a reasonably sized H4 bull candle to print before pressing the buy button would, in our opinion, be the safer route to take here.

Data points to consider: US PPI data at 1.30pm, Fed Chair Yellen speaks at 3pm followed by FOMC member Kaplan taking the stage at 6pm GMT.

Levels to watch/live orders:

• Buys: 20197-20218 ([wait for a H4 bull candle to form before looking to execute a trade] stop loss: ideally beyond the trigger candle).
• Sells: Flat (stop loss: N/A).

GOLD

For those who have been following our reports on gold recently you may recall our desk highlighting a short position we took from 1239.6, with a stop logged in at 1245.4. As mentioned in Friday's report, we liquidated 70% of the position around the H4 demand area at 1227.6-1230.5 and reduced risk to breakeven. Our next port of call for profit taking is still seen at February's opening base drawn from 1211.5. However, before this can be achieved, price will have to overcome the H4 demand area seen at 1221.5-1224.8.

Fortunately for us, bullion fell to the downside during Monday's segment and also pierced below the above noted H4 demand. Whether or not this move was enough to consume the majority of stop orders beyond this zone is difficult to tell. However, what we will say is that the H4 candles have yet to generate any follow-through buying following the whipsaw, and instead reflect somewhat of a bearish tone at present.

The above – coupled with an upside rejection being seen from the underside of a weekly resistance level at 1241.2, and a very weak-looking daily support area at 1232.9-1224.5, could trigger further selling today.

Our suggestions: What is still quite notable from recent trade is the possible H4 AB=CD pattern (see black arrows) terminating at the H4 161.8% ext. at 1207.8. Notice that it not only bottoms nearby the February opening level at 1211.5, it is also located nearby a H4 trendline support etched from the low 1145.9 (1207.8/1211.5 zone). Not only is this a reasonable area to take profits on our current short position at 1239.6, it's also a platform in which one could potentially hunt for long opportunities. With this area lacking higher-timeframe (structural) convergence, however, we would require a H4 bull candle to form here in order to validate this area before pulling the trigger.

Levels to watch/live orders:

• Buys: 1207.8/1211.5 ([wait for a H4 bull candle to form before looking to execute a trade] stop loss: ideally beyond the trigger candle).
• Sells: 1239.6 ([live order] stop loss: breakeven).

Currency pair EUR/USD

The EUR/USD is building a bearish trend channel (red/green line). Price should reach the 161.8% Fibonacci level of wave 3 (blue) before breaking the resistance (red) otherwise the channel is invalid. The angle of the support trend line (blue) is suggesting that the bearish momentum is slowing down.

The EUR/USD completed an ABC within wave 4 (green) and is now potentially retracing back towards the Fibonacci resistance of wave 4 (blue). A break above the Fibonacci resistance and trend line (red) invalidates the formation of a wave 3 (blue) and there could be a larger bullish ABC correction.

Currency pair GBP/USD

The GBP/USD is trying to break above the resistance trend line (dotted orange) of the larger contracting triangle chart pattern. This could lead to a potential breakout towards the larger resistance zone (brown). A bearish continuation could see price push towards 1.05.

The GBP/USD bullish breakout could lead to bullish momentum as part of waves 3 (orange/purple). A break below the support trend line (green) would invalidate the wave bullish trend.

Currency pair USD/JPY

The USD/JPY is building a bull flag (purple lines) after breaking above resistance (dotted red). A break above the flag could see price continue towards the next Fibonacci target of wave 3 (blue).

The USD/JPY broke below the support trend line (dotted green) which could indicate a larger wave 2 (brown) retracement. A bearish ABC zigzag (orange) could unfold towards the Fibonacci levels of wave C vs A and 2 vs 1.

Global Markets:

• Asian stock markets: Nikkei down 0.30 %, Shanghai Composite lost 0.15 %, Hang Seng declined 0.10 %, ASX 200 gained 0.05 %
• Commodities: Gold at $1227 (+0.12 %), Silver at $17.84 (+0.10 %), WTI Oil at $53.05 (+0.25 %), Brent Oil at $55.75 (+0.25 %)
• Rates: US 10-year yield at 2.44, UK 10-year yield at 1.29, German 10-year yield at 0.33

News & Data:

• China CPI (YoY) Jan: 2.5% (est 2.4% prev 2.1%)
• China PPI (YoY) Jan: 6.9% (est 6.5% prev 5.5%)
• Australia NAB Business Survey (Jan):
• Conditions: 16 (rev prev 10)
• Confidence: 10 (prev 6)
• Australia ANZ Roy Morgan Weekly Consumer Confidence Index (w/e 12 Feb): 116.4 (prev 117.5)
• PBoC Fixes USDCNY Reference Rate At 6.8806 (prev fix 6.8898)
• Fed’s Kaplan: Fed Should Be Taking Steps to Remove Additional Amounts of Accommodation
• Kaplan: Fed Should Raise Rates Sooner Than Later

Markets Update:

The US Dollar declined slightly in Asia, as risk appetite improved and the demand for risk currencies increased. AUD/USD rose from 0.7635 to 0.7675 following stronger than expected NAB business confidence data. Higher than anticipated inflation and PPI data from China additionally boosted the positive sentiment in markets.

Nevertheless, USD/JPY came under pressure shortly after the Tokyo open. The pair declined from 113.75 to 113.35 and support is now seen at 113.10, followed by 112.60.

While it has been rather quiet in the FX market in the past 24 hours, there will be plenty of data releases today with potential to move the market. Further, Fed Chair Janet Yellen will testify later in the day.

Upcoming Events:

• 07:00 GMT – German CPI
• 07:00 GMT – German GDP
• 08:15 GMT – Swiss CPI
• 09:00 GMT – Italian GDP
• 09:30 GMT – UK CPI
• 10:00 GMT – German ZEW Economic Sentiment
• 10:00 GMT – Euro Zone GDP
• 10:00 GMT – Euro Zone Industrial Production
• 10:00 GMT – Euro Zone ZEW Economic Sentiment
• 13:30 GMT – US PPI
• 13:50 GMT – FOMC Member Lacker speaks
• 15:00 GMT – Fed Chair Yellen speaks
• 18:00 GMT – FOMC Member Kaplan speaks
• 18:15 GMT – FOMC Member Lockhart speaks
• 23:30 GMT – Australian Westpac Consumer Sentiment

Key Points:

• ABC wave looking fairly likely to take shape.
• EMA crossover should see the B leg complete properly.
• Long-term trend line should cap downside risks at the end of the wave.

The Swissy has an interesting set up developing which could lead to both some upside and downside trading opportunities over the coming weeks. In the near-term, gains could continue to be posted all the way back up to the 1.0187 handle. In the medium-term however, we could see the USDCHF sinking back to test the trend line around the 0.9789 mark.

One of the key drivers of these moves is the development of a rather solid looking ABC wave. These waves have been seen for many crosses since the post-election rally and there is no real reason to suspect that the Swissy will be much different. Although, before we can be certain that this is indeed an ABC wave, we will have to see this pair move back to the 1.0187 mark.

Fortunately, we have some evidence to suggest that this is likely to come to pass within the next few weeks. Firstly, the daily EMA’s are on the cusp of having a bullish crossover which typically denotes a shift in sentiment from bearish to bullish. Indeed, the parabolic SAR has already inverted to signal that bullish momentum is on the rise and should be carrying the pair higher. Moreover, now that the USDCHF has closed above the key 38.2% Fibonacci level, there should be little in its way.

However, the brevity of this rally may be somewhat more pronounced than we would typically expect. This comes largely by virtue of the historical zone of resistance around the 1.0187 handle which should prove to be our reversal point. Whilst, yes, the pair has pushed beyond this price recently, the fact that it also coincides with the appropriate retracement for the B leg of the corrective wave should hinder attempts to break through again.

Once this reversal has occurred, losses should extend back to around the 0.9789 level before the USDCHF reaches yet another impasse. At this level, some strong historical support will come into play as a result of the long-term ascending trend line. Interestingly, this point once again coincides with the appropriate retracement typical of the forecasted ABC wave which won’t go unnoticed by traders.

Ultimately, whether or not this pattern eventuates is largely dependent on both US and Swiss economic data, alongside Trump’s day-to-day influence. However, due the likely uptick in market fears as Brexit approaches, we can expect the Franc’s safe haven status to begin to drag the pair lower in the medium-term. Of course, this broadly fits with the technical analysis above and is worth keeping in mind.