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Daily Pivots: (S1) 119.35; (P) 119.72; (R1) 120.13; More...

EUR/JPY's corrective fall from 124.08 is still in progress and deeper decline could be seen. However, as it's treated as a correction, we'd expect strong support from 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) to bring rebound. On the upside, above 120.54 minor resistance will turn bias 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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Daily Pivots: (S1) 139.88; (P) 140.28; (R1) 140.75; More...

Intraday bias in GBP/JPY remains neutral for the moment. Overall, price actions from 148.42 are viewed as a corrective pattern, with fall from 144.77 has a leg. On the downside, below 138.52 will target 136.44 first. Break will target 50% retracement of 122.36 to 148.42 at 135.39. But we'd expect strong support from there to bring rebound. On the upside, above 141.96 will turn bias to the upside and probably extend the rise from 136.44 through 144.77.

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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A mixed trading day for U.S. stocks on Wednesday failed to provide direction to Asian equities today. While China, Hong Kong, and Korea led MSCI Asia ex-Japan to its highest levels since mid-2015, Japanese equities are unable to gain traction despite machinery orders rising 6.7% MoM in December and the Yen dropping slightly. A price action as such indicates that stocks are moving on specific corporate news rather than a global macro driven story, and with no tier one economic data on the calendar this indecisive performance is likely to resume into Europe trade.

The greenback traded slightly higher against a basket of currencies today, but remained within a very tight range. For the past three months, sentiments driven by expected fiscal and monetary policies drove the U.S. currency to its highest level in 14-years but the rally stalled as of late as these policies seem now to require more time than previously anticipated to come into force, and several comments from the White House weighed on the dollar. This is becoming more complicated now, as rising political uncertainty in Europe supports the U.S. currency, meanwhile on the other side, falling treasury yields plays an opposite role.

Concerns over the future of France, Germany and the Netherlands dragged the euro in the past couple of days, but the more exciting story developing now is in a much smaller country. Greece which has been ignored recently is back in the headlines as the IMF clashes with the Eurozone over the future of the heavy indebted country. Greece's debt to GDP which already stands at 176% and unemployment above 23% is required to achieve a primary surplus of 3.5% by next year. For some economists, this looks as mission impossible, and for Greece to survive, a haircut on its debt should be taken. However, with elections looming in Germany there's very little chance of this happening, and without a third bailout aid, Greece will be out of cash in July.

The pound continued to show resilience after British MPs voted to begin the Brexit process. After all this was widely anticipated and we don't expect to see any significant moves until article 50 is triggered and the formal negotiations begin.

With all these stories developing, investors are finding the yellow metal as the safest investment. Investors continued to increase their holdings in GLD as SPDR holdings rose for a sixth consecutive day. The more political tensions intensify, the more GLD is likely to attract investors, and the higher prices will go.

NZD falls as RBNZ signals neutral stance

Asia Mid-Session Market Update: NZD falls as RBNZ signals neutral stance, calls out market expectations of hikes premature

US Session Highlights

(US) DOE Crude: +13.8M v +2.5Me; Gasoline: -0.9M v +1Me; Distillate: +0.03M v +0.5Me

(US) MBA MORTGAGE APPLICATIONS W/E FEB 3RD: +2.3% V -3.2% PRIOR

(US) President Trump order to get rid of 2 regulatory initiatives for each new initiative is challenged in court by environmental group NRDC and others - press

(EU) ECB's Draghi: ECB will remain accommodative until at least the end of his term, Oct 2019 - France press report of earlier Draghi remarks

US markets on close: Dow -0.2%, S&P500 +0.1%, Nasdaq +0.2%

Best Sector in S&P500: Utilities

Worst Sector in S&P500: Financials

Biggest gainers: MCHP +6.0%, CTSH +5.0%, KSS +4.3%, XRX +4.1%, JWN +4.1%

Biggest losers: AKAM -10.6%, GILD -8.6%, AIZ -6.8%, ICE -4.8%, JEC -3.7%

At the close: VIX 11.5 (0.2pts); Treasuries: 2-yr 1.15% (-2bps), 10-yr 2.35% (-4bps), 30-yr 2.96% (-6bps)

US movers afterhours

PAYC: Reports Q4 $0.18 ex-items v $0.12e, R$87.8M v $86.2Me; extends existing stock repurchase plan; Guides Q1 Rev $114.5-116.5M v $114Me; +10.5% afterhours

IMPV: Reports Q4 $0.32 v $0.03e, R$78.4M v $70.2Me; Guides Q1 -$0.06 to -$0.02 v -$0.10e, R$67-69M v $68Me; +9.7% afterhours

PCMI: Reports Q4 $0.51 v $0.36e, R$586.6M v $578Me; +9.1% afterhours

SCSS: Reports Q4 $0.25 v $0.32e, R$313.4M v $314Me; +6.2% afterhours

WFM: Reports Q1 $0.39 adj v $0.39e, R$4.92B v $4.99Be; Q2 SSS to date tracking -3.2%; -1.5% afterhours

FISV: Reports Q4 $1.16 v $1.16e, R$1.43B v $1.48Be; -2.6% afterhours

QLYS: Reports Q4 $0.23 v $0.18e, R$52.2M v $52.8Me; Guides Q1 $0.17-0.19 v $0.20e, R$52-53M v $54.8Me; -7.1% afterhours

IRBT: Reports Q4 $0.49 v $0.39e, R$212.5M v $206Me; Guides initial FY17 $1.35-1.65 v $1.69e, R$770-785M v $763Me; -9.1% afterhours

Politics

(US) Ninth Circuit Court of Appeals will not be issuing ruling on Trump travel ban today - press

(US) Senate confirms Jeff Sessions as the next US Attorney General by 52-47 margin

Asia Key economic data:

(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE UNCHANGED AT 1.75%; AS EXPECTED

(NZ) NEW ZEALAND DEC BUILDING PERMITS M/M: -7.2% V -9.6%PRIOR (2nd straight decline)

(AU) AUSTRALIA Q4 NAB BUSINESS CONFIDENCE: 5 V 6 PRIOR

(AU) AUSTRALIA DEC HIA NEW HOME SALES M/M: +0.2% V +6.1% PRIOR; 2nd straight increase

(JP) JAPAN Q4 HOUSING LOANS Y/Y: 3.1% V 2.7% PRIOR

(JP) JAPAN JAN M2 MONEY STOCK Y/Y: 4.1% V 4.0%E; M3 MONEY STOCK Y/Y: 3.5% V 3.5%E

(JP) JAPAN DEC CORE MACHINE ORDERS M/M: 6.7% V 3.0%E; Y/Y: 6.7% V 4.5%E

Asia Session Notable Observations, Speakers and Press

Markets stateside as well as in Asia appear to have reached an equilibrium, with sessions of modest losses alternating with those of modest gains; Few macro catalysts are observed, even as bond markets rally continues to put in question the confidence of 3 FOMC rate hikes this year. Investors are now looking forward to Fed Chair Yellen's Congressional testimony next week as key determinant of near term policy bias.

Fixed income markets had begun to price in the possibility of RBNZ preparing for a rates liftoff after the latest quarterly inflation data returned to target range for the first time in over 2 year. However today's RBNZ statement, economic projections, and subsequent commentary delivered a squarely neutral assessment. While acknowledging progress on inflation, RBNZ is not convinced the upward pressure can be sustained and also noted elevated uncertainty from external factors. NZD/USD was most volatile among the majors, selling off by 100pips below $0.72.

PBoC has once again skipped its reverse repo operations, calling liquidity conditions ample; Separately, a local press report speculated the central bank will continue to tighten policy, even though economists have suggested that last week's 10bp hike in reverse repo yields were an adjustment to fundamentals rather then a start of a trend.

Ahead of the high profile Abe-Trump summit tomorrow, Japan PM signaled he is prepared to discuss the currency issues at G20, with local press also calling for more formal framework for cooperation between US and Japan. BOJ Dep Gov Nakaso also noted that while the central bank is prepared to consider raising long-term rates target in the future, momentum behind inflation does not yet justify the shift.

China:

(CN) China Ministry of Commerce (MOFCOM) Spokesperson Sun Jiwen: Urges other countries to drop protectionism

(CN) White House press secretary: Pres Trump sent letter to China Pres Xi; Looking forward to constructive relationship - press

(CN) PBOC may continue tightening of monetary conditions in 2017 - Chinese press

Japan:

(JP) Japan PM Abe: To suggest to Trump to talk about currency issues at G20 and G7

(JP) Japan PM Abe to propose new cabinet level framework for US-Japan talks on trade, security, and macroeconomic issues - press

(JP) Japan Chief Cabinet Sec Suga: nothing has been decided on US/Japan economic framework

(JP) BOJ Dep Gov Nakaso: Momentum towards price target not yet sufficiently firm; BOJ should consider raising long term rate increase in near future, though momentum toward hitting price goal not yet sufficient

Australia/New Zealand:

(NZ) RBNZ Gov Wheeler: comfortable with a neutral bias, neutral bias was the right one to have at this point; Market a bit ahead of itself in pricing in 2017 rate hike.

Asian Equity Indices/Futures (00:00ET)

Nikkei -0.4%, Hang Seng +0.4%, Shanghai Composite +0.4%, ASX200 +0.2%, Kospi +0.2%

Equity Futures: S&P500 flat; Nasdaq flat; Dax flat; FTSE100 flat

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

EUR 1.0675-1.0700; JPY 111.70-112.30; AUD 0.7610-0.7645; NZD 0.7190-0.7280

Apr Gold +0.3% at $1,243/oz; Mar Crude Oil +0.6% at $52.60/brl; Mar Copper +0.3% at $2.67/lb

(CN) PBOC SETS YUAN MID POINT AT 6.8710 V 6.8849 PRIOR

(CN) PBOC skips reverse repo operations (5th consecutive halt)

SPDR Gold Trust ETF daily holdings rise 5.7 tonnes to 832.7 tonnes; 6th consecutive increase; Highest since Dec 16th

(JP) Japan MoF sells ¥723B in 0.6% (0.6% prior) 30-yr bonds; Avg yield: 0.907% v 0.745% prior; Bid to cover: 3.23x v 3.33x prior

Asia equities/Notables/movers by sector

Consumer discretionary: 751.HK Skyworth Digital +1.8% (Jan result); 2432.JP DeNA Co +1.9% (9-month result); 034230.KR Paradise Co -0.8% (Q4 result)

Consumer staples: 2607.JP Fuji Oil Holdings +5.5% (9-month result); 168.HK Tsingtao Brewery Co +5.3% (Carlsberg to bid stake); RHL.AU Ruralco Holdings +4.1% (ACCC not oppose acquisition)

Financials: 6881.HK China Galaxy Securities Co +1.1% (Jan result); PMV.AU Premier Investments -2.2%; AMP.AU AMP Capital +3.8% (FY16 result)

Industrials: 2238.HK Guangzhou Automobile Group +3.1%, 1958.HK +2.7% BAIC Motor Corp (Jan result); 6448.JP Brother Industries -7.9% (9-month result); 4118.JP Kaneka Corp -11.5% (9-month result); 052690.KR Kepco Engineering & Construction +7.0% (offer to join UK project); 1919.HK COSCO Shipping Co +10.4% (Maersk to be profitable this year); 7202.JP Isuzu Motors -0.2% (9-month result)

Technology: 3436.JP Sumco Corp +6.6% (Q4 result)

Materials: RIO.AU Rio Tinto -0.9% (FY16 result); 3863.JP Nippon Paper Industries -1.5% (9-month result)

Energy: AGL.AU AGL Energy +4.5% (H1 result); 1662.JP Petroleum Exploration +3.6% (9-month result)

Telecom: 035720.KR Kakao Corp +5.6% (Q4 result)

Market movers today

The market is still scrutinizing any news from the FOMC and tonight we have both Bullard and Evans on the wires.

Initial jobless claims will also be watched to get a first idea of the strength of the US labour market in February.

In Norway, it is time for mainland GDP. We estimate 0.3% q/q growth in Q4. See more in Scandi markets on page 2.

Selected market news

Risk appetite returned to the European government bond market yesterday and especially the periphery bond markets, including France, performed well and spreads tightened against Germany. French 10Y yields dropped close to 10bp. However, bunds were also supported and German 10Y yields were pushed below 0.3% again. German 2Y yields were pushed to a record low of -0.80%, fuelled by the ECB now buying bonds with a yield below the depo rate at -0.40% and the tight repo situation.

There is no single explanation behind the sudden support to France and periphery markets. But many investors probably concluded that the spread levels, for example, for France, which we have not seen this wide since the debt crisis in 2012, were starting to look attractive. Short covering was probably also a part of the story. Reassuring words from ECB president Mario Draghi furthermore supported sentiment. According to Bloomberg, Draghi said that he sees the ECB maintaining an accommodative policy until the end of his term in October 2019. It seems that Draghi is well aware that any talks about ECB tapering or less accommodative policy are very negative for periphery bond markets. The European bond market has also been weighed down by a severe supply wave this week with new bonds from the Netherlands, Belgium, Finland and the EFSF. The supply is now slowing down.

But it does not mean that the market is out the woods yet. More Italian supply is coming to the market already on Monday, the French political situation is still very uncertain and despite Draghi's reassurance, the ECB tapering discussion could soon resurface. The concern about the Italian banking sector is a never ending story. Finally, the stand-off between Greece, the EU and not least the IMF continues. Yesterday, the Dutch Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem said that if the IMF will not take part or withdraws from the Greek bailout programme, the Netherlands would withdraw too. Greek 2Y yields are again trading dangerously close to 10%.

In the US equity market, financials came under pressure as little news on deregulations were seen and as the recent rally in bonds spooked investors, as it threatens to erode income for US banks. It seems that the market is starting to lose some of its patience with the Trump administration as little news on the promised pro-growth policies including tax-cuts are seen. The major indices all ended more or less flat. The energy sector did well, as oil prices were pushed higher by bullish gasoline stock and demand data.

Key Points:

• Greece and Germany on a debt collision course.
• Greece unlikely to meet budget or debt repayment schedule.
• The question is now political as to whether Greece remains part of the EU.

It appears that history is again turning full circle as the formerly 'solved' Greek debt crisis returns to raise its ugly head and again threaten the wider Eurozone. The past week has seen the IMF again enter the fray and suggest that a looming debt Armageddon could potential pose a risk to the broader stability of the Eurozone. However, despite evidence that the previous bailout programs are not working, Germany is standing their ground and yelling a resolute no to any mention of debt relief for the embattled Greek nation.

Increasingly, the IMF is becoming unwilling to throw good money after bad, and continue to fund Greece's survival,without the prospect of debt cuts to provide for a relatively achievable recover for the nation. The renowned institution has, quietly behind the scenes, been pushing for a debt relief deal from Germany but is meeting staunch resistance. In fact, German Finance Minister Wolfgang Schaeuble has publicly suggested that the Lisbon Treaty blocks any form of debt forgiveness and that any moves in this direction would have to bring about a Greek exit from the common currency.

However, it remains to be seen just how far Germany is prepared to push Greece given that Britain will soon also exit the European Union. There is a definite split in the air between EU nations on how to deal with the errant Greek's but it appears relatively clear that the nation will indeed fail to meet either their current budget or the debt repayment target. It also begs the question as to the morality of asking the Greek people to continue accepting stark austerity measures when the money simply goes to Germany as part of the interest payments on borrowings and does little to reduce the current debt burden. Obviously, that is a highly untenable situation to have a European partner nation in effective debt servitude.

Given the fact that prior bailouts have not worked, and some of the other external pressures, we are rapidly reaching a critical juncture where both Europe and the Greek people will need to decide upon the way forward. Clearly there needs to either be debt forgiveness or an exit from the Eurozone. Subsequently, the choices have now exited the realm of economics and we are now faced with a range of political questions. Politics is likely to decide the course of action in the coming months but one thing is for sure, continued German intransigence could be presiding over the first few dominoes to fall in the greater question of the EU's survival.

Key Points:

• Turning point of the ABCD wave appears to have been reached.
• Most technical readings are indicative of a near-term decline.
• Brief ranging phase could come into effect this week.

The Euro's corrective wave seems to have finally given us a turning point which could signal we are destined to see some of the near-term downside risk realised. What's more, there are a number of other technical readings similarly suggestive of a spate of losses for the recently resurgent pair.

First and foremost, it's worth establishing if we have, in fact, reached the forecasted turning point in the ABCD corrective wave. Well, as shown below, the combination of both the 100 day EMA and the long-term trend line seem to suggest that we have reached a near-term peak for the EUR. Indeed, the rather voracious selling pressure seen over the past number of sessions could reflect a wider consensus that the pair actually briefly overshot the appropriate point of inflection.

Aside from the EMA and the trend line, the current Parabolic SAR and MACD oscillator readings provide further reasons to be bearish regarding the EURUSD. Specifically, there has been a clear signal line crossover on the MACD and a subsequent inversion of the Parabolic SAR bias. When combined with the aforementioned technical factors, upside potential seems notably limited as we move ahead.

However, downside risks are not nearly as significant as we would typically like to see when forecasting this particular wave. As is demonstrated below, we could also be dealing with a bullish channel formation which, when reinforced by the 38.2% Fibonacci level, could prevent the requisite downward momentum. As a result, we may have a brief ranging phase on our hands prior to any real declines taking hold of the pair.

Once the 38.2% level has been breached, we expect to see the pair retreat to around the 1.0543 price before having another go at moving beyond the long-term trend line. This point coincides with not only the 23.6% Fibonacci level, but it would also be the appropriate retracement for the overall ABCD pattern.

Ultimately, headline risks and the impacts of fundamentals will still be forces to contend with moving ahead but the corrective wave has proven largely resilient to market upsets. Consequently, follow the news feed fairly closely as it could help to explain any overshoots or ‘fake-outs' even if something short of an absolute calamity is unlikely to materially affect the medium-term forecast.

Daily Pivots: (S1) 1.0628; (P) 1.0643; (R1) 1.0655; More...

Breach of 1.0635 in EUR/CHF indicates decline resumption. Intraday bias is back on the downside for 1.0620 key support level next. Decisive break of 1.0620 will confirm resumption of whole fall from 1.1198. In that case, next downside target will be 1.0485 fibonacci level. On the upside, break of 1.0706 minor resistance will raise the chance of medium term reversal and turn focus back to 1.0749 and then 1.0897 key resistance.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. Such correction is still in progress. Sustained trading below 38.2% retracement of 0.9771 to 1.1198 at 1.0653 will target 50% retracement at 1.0485. On the upside, break of 1.0897 resistance is needed to confirm completion of such fall. Otherwise, outlook will stay bearish.

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Global Markets:

• Asian stock markets: Nikkei up 0.35 %, Shanghai Composite and Hang Seng both gained 0.30 %, ASX 200 rose 0.10 %
• Commodities: Gold at $1242 (+0.25 %), Silver at $17.79 (+0.50 %), WTI Oil at $52.60 (+0.50 %), Brent Oil at $55.40 (+0.55 %)
• Rates: US 10 year yield at 2.34, UK 10 year yield at 1.21, German 10 year yield at 0.30

News & Data:

• RBNZ Keep Rates On Hold At 1.75%; NZD too high to be sustainable; Policy will continue to be accommodative
• RBNZ say longer term inflation outlook well anchored at 2%; numerous uncertainties exist, may need to adjust policy accordingly
• RBNZ push back the target date for reaching 2% inflation target by two quarters, now sees Q2 2019 (prev. Q4 2018)
• Australia HIA New Home Sales (MoM) Dec: 0.2% (prev 6.1%)
• Australia NAB Business Confidence (Q4): 5 (rev prev 6)
• Japan Machinery Orders (MoM) Dec: 6.7% (est 3.0% prev -5.1%)
• Japan Machinery Orders (YoY) Dec: 6.7% (est 4.5% prev 10.4%)
• Japan Housing Loans (YoY) Q4: 3.1% (prev 2.7%)
• UK RICS House Price Balance (Jan): 25% (est 22% rev prev 23%)
• New Zealand Building Permits (MoM) Dec: -7.2% (rev prev -9.6%)
• PBoC Fixes USDCNY Reference Rate At 6.8710 (prev fix 6.8849 prev close 6.8715)

Markets Update:

The New Zealand Dollar came under pressure overnight following the RBNZ rate decision. While the central bank left rates unchanged, the statement was more dovish than the market anticipated. The RBNZ said that the NZD is too high to be sustainable and that policy will continue to be accommodative. Further, the RBNZ pushed back the target date for reaching 2 % by two quarters, something that was not expected by the market.

NZD/USD fell from 0.73 to 0.7240 after the statement and extended losses to 0.7190 later in the session. Meanwhile, AUD/NZD rallied from 1.0445 to 1.0510 and later reached 1.06.

AUD/USD didn't really benefit from the AUD/NZD flows though. The pair fell from 0.7645 in the early Asian session to a low of 0.7610.

The US Dollar strengthened against most other major currencies as well. The Euro is back below 1.07, while GBP/USD is consolidating around 1.25. USD/JPY rose from 111.70 to 112.30 amid a rally in Asian equity markets.

Upcoming Events:

• 06:45 GMT – Swiss Unemployment Rate
• 07:00 GMT – German Trade Balance
• 13:30 GMT – US Initial Jobless Claims
• 14:10 GMT – FOMC Member Bullard speaks
• 18:30 GMT – Bank of England Governor Carney speaks

As expected, RBNZ left the OCR unchanged at 1.75%, following three rate cuts in 2016. The policy statement has changed to a more neutral tone from an accommodative one previously. Yet, the central bank's rate hike forecasts stay at a slower pace than what the market has priced in. Policymakers acknowledged that economic growth has 'increased as expected and is steadily drawing on spare resources'. The outlook remain s positive. It also acknowledged the return of headline CPI to the target band, and judged it would gradually move to the midpoint of the band. We expect the OCR would stay unchanged for the rest of the year.

As noted in the monetary statement, policymakers agreed that the pickup in domestic growth has come in line with expectation. The outlook remains positive as supported by 'ongoing accommodative monetary policy, strong population growth, increased household spending and rising construction activity'. Inflation has improved recently. Headline CPI has returned to 'the target band as past declines in oil prices dropped out of the annual calculation'. RBNZ expects inflation to 'return to the midpoint of the target band gradually, reflecting the strength of the domestic economy and despite persistent negative tradables inflation'.

On the housing market, RBNZ acknowledged that recent housing prices have slowed down, attributing it to the 'loan-to-value ratio restrictions and higher mortgage rates'. However, it stayed cautious and indicated that 'It is uncertain whether this moderation will be sustained given the continued imbalance between supply and demand'.

On the monetary policy outlook, RBNZ reiterated that it would 'remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly'. The central bank now forecasts one rate hike in 2019. While the forecast comes in more hawkish than previously, it remains more dovish than market expectations.

Earlier this week, Governor Wheeler announced that he will not be seeking another term at the RBNZ, once his current term comes to an end in September 2017. Deputy governor Grant Spencer would take over as acting governor for a period of 6 months upon the conclusion of Governor Wheeler's term, before a new full time governor is appointed in March 2018. Yet, we believe this would not do much change to the monetary stance of RBNZ