EUR/USD

Currencies and stocks struggled for direction this Wednesday, with major pairs confined to tight, familiar ranges, and the dollar firmer during the first half of the day, and pressured in US trading hours, as usual lately. The greenback fell alongside with US yields, with the 10-year note benchmark falling down to 2.34%, a fresh three-week low, as political risks coming from Europe and the absence of news about US new administration stimulus agenda fueled demand for safe-haven assets.

The EUR/USD pair's recovery, however, was limited by the key resistance in the 1.0700/10 region, mainly because of a light macroeconomic calendar that shifted the focus to upcoming French presidential election, which is becoming more a matter of leaving the EU than a question of domestic policies. Also, comments from ECB's Draghi, stating that the Central Bank's monetary policy will remain accommodative until at least October 2019, when his mandate ends, dented EUR's demand.

The EUR/USD pair trimmed half of its Tuesday's losses, still trading in the red for the week and with the upward potential looking limited, given that in the 4 hours chart, the 20 SMA is crossing below the 100 SMA, both around 1.0720, whilst technical indicators have bounced from oversold readings, but lost upward strength within negative territory, indicating limited buying interest around the common currency. The pair posted a daily low of 1.0640, yet failure to sustain gains around the current level, will probably lead to a downward extension towards the 1.0590 region during the upcoming sessions.

Support levels: 1.0650 1.0620 1.0590

Resistance levels: 1.0750 1.0800 1.0840

USD/JPY

The USD/JPY pair continues pressuring its recent multi-week lows on persistent risk aversion. The pair attempted to recover some ground during London trading hours, but resumed its decline after Wall Street's opening, helped by falling US Treasury yields. The 10-year note benchmark fell to a fresh 3-week low of 2.34% as international investors run away from US assets. Japan released its Trade Balance and Current Account figures for December earlier on the day, showing the biggest surplus since 2007. Also, the BOJ released the Summary of Opinions of its latest monetary policy, showing that most board members believe that Japan's economy is recovering, but also that inflation will continue lagging for a while more. Additionally, policymakers expressed their concerns about Trump´s policies, saying that “although overseas economies have turned to a moderate recovery, uncertainties are likely to persist, such as about the economic policies of the new U.S. administration and their impact on emerging economies.” Technically, the risk remains towards the downside as the pair is pressuring its 100 DMA for a third consecutive day, currently around 111.60. In the shorter term, and according to the 4 hours chart, the bias is also bearish, given that the pair has been developing well below a bearish 100 SMA, currently around 113.40, whilst technical indicators have posted modest recoveries within bearish territory, unable to confirm an upcoming recovery. The main bearish target on a bearish breakout is the 109.90 level, the 50% retracement of the latest bullish run.

Support levels: 111.60 111.25 110.80

Resistance levels: 112.10 112.60 113.00

GBP/USD

The GBP/USD pair held on to gains, ending the day not far from Tuesday's high of 1.2545, with buying interest defending the downside at 1.2470 ever since the day started. The UK Parliament is set to give the final vote on the Brexit bill by the end of the day. The House of Commons is discussing a set of amendments particularly aimed to define the key principles for the negotiation process. The bill still needs to pass through the House of Lords, later this month, before PM May is finally able to pull the trigger on the Art. 50 of the Lisbon treaty. From a technical point of view, the pair is unable to clearly confirm the break of the 23.6% retracement of the 1.1986/1.2705 rally at the current level, maintaining a neutral-to-bullish stance intraday, given that in the 4 hours chart, the mentioned daily bottom matches a flat 20 SMA, whilst technical indicators are standing directionless within positive territory.

Support levels: 1.2470 1.2425 1.2390

Resistance levels: 1.2545 1.2590 1.2640

GOLD

Spot gold surged to $1,244.67 a troy ounce, its highest in almost three months, as risk aversion dominated the scene, amid political woes in Europe and uncertainty surrounding the new US administration. Base metal also gathered support from news coming from Chile, as workers at the biggest cooper mine in the country that belongs to BHP Billiton, vowed to strike. Dollar's weakness added to gold's bullish case, moreover as chances of a US rate hike continue to diminish. From a technical point of view, the daily chart shows that technical indicators are gathering upward momentum, the RSI around 71, but the Momentum still within bearish territory. In the same chart, the 20 SMA maintains a bullish slope, advancing modestly above a bearish 100 SMA, both in the 1,210/12 region, all of which favors a new leg higher, now looking to test the 61.8% retracement of the post-US election' slide at 1,255.15. In the 4 hours chart, technical indicators eased from near overbought readings but remain well above their mid-lines, whilst the 20 SMA maintains a sharp bullish slope, now converging with the 50% retracement of the same decline around 1,230.00, in line with the longer term outlook.

Support levels: 1,230.00 1,219.40 1,210.10

Resistance levels: 1,244.70 1,255.15 1,263.90

WTI CRUDE

Crude oil prices fell to their lowest in four weeks, with West Texas Intermediate crude futures trading as low as $51.25 a barrel, undermined by the API stockpiles report released late Tuesday, reporting a build of 14.2M barrels. The EIA report released this Wednesday, also showed a large build, but a surprise decline in gasoline inventories offset the crude number. According to official data, US crude stocks rose 13.8 million barrels in the last week as refineries cut output, while gasoline stocks decreased by 900,000 after adding 3.9 million barrels in the previous week. Gasoline futures soared 2.7%, helping oil to recover some ground. WTI daily chart shows that the price remains below a horizontal 20 SMA that stands around 53.00, whilst technical indicators have turned higher within negative territory, unable to confirm further recoveries ahead. In the 4 hours chart, the 20 SMA has crossed below the 100 and 200 SMAs, whilst technical indicators have bounced from oversold readings, but the upward momentum faded will below their mid-lines, limiting chances of further recoveries, at least, as long as the price remains below the 53.00 level.

Support levels: 51.80 51.10 50.40

Resistance levels: 53.00 53.65 54.20

DJIA

Wall Street closed once again mixed and with the major indexes settling no far from their opening levels, as investors wait for a clear catalyst before taking stronger positions. The Dow Jones Industrial Average fell roughly 36 points or 0.18%, to end the day at 20,054.34. The Nasdaq Composite set another record close, up by 8 points or 0.15%, to 5,682.45, while the S&P also closed in the green, up 0.07% to 2,294.67. Nike was the best performer within the DJIA, up 2.03%, followed by Wal-Mart that added 1.32%. The banking sector was the worst performer, with JPMorgan chase leading losers' list, down by 0.97%. Technically, the Dow set a lower low and a daily basis, but holds within its weekly range, and the daily chart shows that it's still above a modestly bullish 20 SMA, this last around 19,940, whilst technical indicators have turned flat within positive territory, reflecting the lack of directional strength seen ever since the week started. In the shorter term, and according to the 4 hours chart, the index has settled right below a now flat 20 SMA, acting as immediate resistance at 20,067, while technical indicators stand pat around their mid-lines. Despite setting a fresh record high this week, the upward potential is moderated amid the ongoing risk-averse environment, although a break below 20,008, the weekly low, is required to confirm a bearish extension during the upcoming sessions.

Support levels: 20,008 19,940 19,869

Resistance levels: 20,067 20,104 20,160

FTSE 100

Wall Street closed once again mixed and with the major indexes settling no far from their opening levels, as investors wait for a clear catalyst before taking stronger positions. The Dow Jones Industrial Average fell roughly 36 points or 0.18%, to end the day at 20,054.34. The Nasdaq Composite set another record close, up by 8 points or 0.15%, to 5,682.45, while the S&P also closed in the green, up 0.07% to 2,294.67. Nike was the best performer within the DJIA, up 2.03%, followed by Wal-Mart that added 1.32%. The banking sector was the worst performer, with JPMorgan chase leading losers' list, down by 0.97%. Technically, the Dow set a lower low and a daily basis, but holds within its weekly range, and the daily chart shows that it's still above a modestly bullish 20 SMA, this last around 19,940, whilst technical indicators have turned flat within positive territory, reflecting the lack of directional strength seen ever since the week started. In the shorter term, and according to the 4 hours chart, the index has settled right below a now flat 20 SMA, acting as immediate resistance at 20,067, while technical indicators stand pat around their mid-lines. Despite setting a fresh record high this week, the upward potential is moderated amid the ongoing risk-averse environment, although a break below 20,008, the weekly low, is required to confirm a bearish extension during the upcoming sessions.

Support levels: 20,008 19,940 19,869

Resistance levels: 20,067 20,104 20,160

DAX

European indexes closed flat, with the German DAX down 6 points, to 11,543.38. Banking related equities remain under pressure across the region as investors continued unwinding the Trump-trade, but an advance in utilities stocks offset the sector's decline. Within the DAX, Commerzbank was the worst performer, closing the day down 1.73%, followed by Deutsche Bank that shed 1.59%. Vonovia led winners' list, up 3.03%, followed by RWE which added 2.85%. Additionally, persistent political concerns in the EU pushed investors to the sidelines ahead of some clarity. From a technical point of view, the German benchmark presents a neutral-to-bearish stance, given that in the daily chart, it remains below a horizontal 20 SMA, while the Momentum indicator holds around its 100 level and the RSI indicator turned south around 49. In the 4 hours chart, the 20 SMA heads south above the current level and below the 100 SMA, whilst technical indicators remain directionless, but within negative territory, leaning the scale towards the downside for the upcoming session.

Support levels: 11,520 11,463 11,408

Resistance levels: 11,605 11,660 11,711

STOCKS

Dow (20054.34, -0.18%) is unable to gather momentum for a sharp rise from current levels. However, we keep open, chances of rising towards 20200 and higher in the medium term. For now, there could be some consolidation in the 20200-20000 region.

The 11928 resistance is holding well on the Dax (11543.88, -0.05%) and while the index trades below the resistance, we may see a test of 11400 support levels in the next few sessions. A bounce from 11400 is expected in the near term.

Nikkei (18976.16,-0.17%) continues to remain stable. While immediate support near 111.36 holds on Dollar-Yen and the currency pair remains within 111.36-112.60 levels, Nikkei could find it difficult to make a sharp break on either side of the 19258-18651 region. Near term could possibly remain consolidative.

Shanghai (3180.57, +0.41%) has clearly broken above the daily candle resistance near 3160. Now the next resistance is coming up at 3200 which is crucial to decide on the medium term direction for the index. Looking at the weekly charts, it is like a conflict between the resistance at 3200 and the a possible rise towards 3400. A small dip from 3200 is possible before finally breaking on the upside in the longer run.

Nifty (8769.05, +0.01%) rose back to levels above 8750 in the 2nd half of the session yesterday after the RBI kept rates unchanged. We could possibly expect some strength in the index towards 8800-88500 in the near term. Overall trend is up.

COMMODITIES

Gold (1240.80) has been in a nonstop rally so far, indifferent to the highly overbought state. With the momentum not faltering yet, we have to consider higher levels of 1275-80 if it manages a break above 1250, as discussed yesterday.

Silver (17.75) remains in an uptrend but the gradual loss of momentum may encourage the bulls. It may ride on the back of Gold to higher levels but any weakness in Gold may push it below the support of 17.60 towards 17.20 fast. Cautious.

Both Brent (55.36) and WTI (52.56) have bounced back from their respective supports in line with expectations and keep the chances of our preferred upside breakout from their respective 6-week ranges of 53-58 and 50-55 open so far.

Copper (2.672) is trading sideways in the range of 2.61-2.70 as expected and that may continue for a few days more.

FOREX

Dollar is trying to make a base and its bullish reversal is yet to be fully confirmed. RBI has signaled an end to the accommodative stance which has strengthened Rupee.

Dollar Index (100.31) is stuck in the range of 100.00-101.00 for the last couple of sessions and requires a break above 100.75-101.00 to confirm a fresh uptrend. The immediate trend is neutral with bidirectional possibilities open.

Euro (1.0685) has bounced from 1.0650, brightening the chances of sideways consolidation in 1.0650-1.0800 for the next few sessions.

Dollar-Yen (112.12) is making a base in the narrow range of 111.50-112.70. Despite the dominant downtrend, the chances of rising to the major resistance of 113.50-60 remain open till the immediate support of 111.30 holds.

Pound (1.2506) is trading sideways in the range of 1.2350-1.2700 as expected which may continue for a few more sessions before any directional bias emerges.

Aussie (0.7614) is trading quiet but it needs to stay above the near term support 0.7570 to keep the chances of another rise to 0.7725-50 open where the bears may return again and push the price down.

Dollar Rupee (67.19) bulls have been disappointed by the RBI policy of maintaining the status quo and may test the major support zone of 67.00-66.90 by tomorrow.

INTEREST RATES

The RBI kept rates unchanged disappointing the market sentiments. Although not much movement was seen in the stock market, the yields shot up yesterday to rise from 6.5683% to 6.8920% levels, all in a single session. While it continues to move up, we may see a rise towards 6.9-7.0% soon.

The US yields are falling. The US 10-5Yr spread (0.52%) has come down as expected and could move lower towards 0.50-0.48% in the near term before bouncing back from there. The 10YR (2.34%) is down 4bps and is falling faster than the 5Yr (1.82%) which is down 2bps. The 10YR may continue to fall faster in line with our expectations.

The German-US 2YR (-1.94%) is trading at resistance levels and if it holds, we could see some fall in the Euro in the near term.

The UK yields are down too. The 5Yr (0.42%), 10YR (1.32%) and the 20Yr (1.79%) are trading lower than previous levels of 0.44%, 1.3750% and 1.8530% respectively.

Daily Pivots: (S1) 1.0654; (P) 1.0684 (R1) 1.0728; More.....

Intraday bias in EUR/USD remains neutral as it's staying in range of 1.0619/0828. As noted before, choppy rise from 1.0339 is seen as a correction. Hence, in case of another rise, upside should be limited by 1.0872 resistance and bring fall resumption eventually. Break of 1.0619 will argue that the corrective rise is completed and turn bias to the downside for retesting 1.0339 low.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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Daily Pivots: (S1) 1.2493; (P) 1.2521; (R1) 1.2568; More...

Intraday bias in GBP/USD remains neutral for the moment. Price actions from 1.1946 are viewed as a consolidation, no change in this view. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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Daily Pivots: (S1) 0.9916; (P) 0.9961; (R1) 1.0021; More.....

Intraday bias in USD/CHF remains neutral as the consolidation from 0.9860 continues. With 1.0043 minor resistance intact, deeper decline is expected. Current fall from 1.0342 is seen as the third leg of the pattern from 1.0327. Below 0.9860 will target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. On the upside, break of 1.0043 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expecting the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359, after the consolidation completes.

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Daily Pivots: (S1) 111.53; (P) 112.03; (R1) 112.45; More...

No change in USD/JPY's outlook. Deeper decline cannot be ruled out yet. But again, choppy fall from 118.65 is seen as a correction. Hence, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. Above 113.44 minor resistance will turn bias neutral first. Break of 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65 high.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

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Daily Pivots: (S1) 1.3118; (P) 1.3159; (R1) 1.3183; More...

Intraday bias in USD/CAD remains neutral for the moment. On the upside, break of 1.3387 resistance will confirm that fall from 1.3598 has completed at 1.2968. And more importantly, rise from 1.2460 is still in progress. In that case, intraday bias will be turned back to the upside for 1.3598 and above. On the downside, below 1.2968 will revive the case that rise from 1.2460 is completed and turn outlook bearish for this low. Overall, choppy rise from 1.2460 is still seen as a corrective move.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg could be completed at 1.3598 and fall from there is tentatively seen as the third leg. Break of 1.2460 will target 50% retracement of 0.9460 to 1.4689 at 1.2075 before completing the correction. In case of another rise, we'd look for reversal signal above 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

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Daily Pivots: (S1) 0.7614; (P) 0.7640; (R1) 0.7668; More...

AUD/USD is staying in tight range below 0.7695 and intraday bias stays neutral. Lost up momentum is seen in bearish divergence condition in 4 hours MACD. While another rise cannot be ruled out, we'd expect strong resistance from 0.7777/7833 resistance zone to limit upside and bring near term reversal. On the downside, break of 0.7510 minor support will indicate that rise from 0.7158 has completed already and turn bias back to the downside for this key near term support level.

In the bigger picture, we're still treading price actions from 0.6826 low as a correction. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seek to 55 month EMA (now at 0.8205) and above.

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New Zealand Dollar weakens after RBNZ left the Official Cash Rate (OCR) unchanged at 1.75%. More importantly, the central bank adopted a more dovish outlook for the OCR. RBNZ now forecast interest rate to stay at around 1.8% through June 2019 and move up to 2.0% in 2020. The markets were nearly pricing in full chance of a rate hike by November this year. But after the release, such pricing dropped to around 50%. Meanwhile, RBNZ trimmed inflation forecast too. Inflation is projected to be at 1.5% this year, soften to 1.3% at the start of 2018 and then climb back to 2% by mid-2019. Technically, NZD/USD dips through 0.7240 support which now indicates near term reversal. Near term outlook in NZD/USD is now turned bearish for 55 day EMA (now at 0.7150).

Australia Business Confidence Firm

From Australia, NAB business confidence dropped slightly to 5 in Q4, down from 6. Current condition index dropped 2 points to 5. Capital expenditure plans dropped to 22, down from 24. NAB noted that "relative stability of business confidence gives us some comfort". However, "some of the trends could suggest a loss of momentum in the longer term, should they continue." Also, there is "little to no sign that inflation or wage pressures are picking up materially."

UK Businesses to Offer Lower Wage Increase

In UK, a BoE survey showed that businesses are prepared to offer less pay rise this year. Companies expected to offer 2.2% increase in wages, slowed from 2.7% in 2016. That is a reaction to rising costs due to Sterling's depreciation since last year's Brexit referendum. BoE also noted that "consumer spending growth had remained resilient, but was expected to ease during the year as prices rose." Wage growth would be a key factor for BoE to determine when to lift interest rate while policies are still tolerant for a spike in headline inflation in near term.

On the data front, New Zealand building consents dropped -7.2% mom in December. Japan M2 rose 4.1% yoy in January while machine orders rose 6.7% mom. UK RICS house price balance rose to 25 in January. Looking ahead, Swiss unemployment rate, German trade balance will be release in European session. Canada will release new housing price index. US will release jobless claims.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7614; (P) 0.7640; (R1) 0.7668; More...

AUD/USD is staying in tight range below 0.7695 and intraday bias stays neutral. Lost up momentum is seen in bearish divergence condition in 4 hours MACD. While another rise cannot be ruled out, we'd expect strong resistance from 0.7777/7833 resistance zone to limit upside and bring near term reversal. On the downside, break of 0.7510 minor support will indicate that rise from 0.7158 has completed already and turn bias back to the downside for this key near term support level.

In the bigger picture, we're still treading price actions from 0.6826 low as a correction. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seek to 55 month EMA (now at 0.8205) and above.

Economic Indicators Update

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More active than it appears

The US equity market was very low spirited overnight, but the Dow closed above the psychological 20,000 barriers for the fourth successive day. The Trump trade is the primary focus for equity markets and without any further guidance on US tax policies, investors stay on the sidelines, annoyed and concerned about the unknown.

New Zealand Dollar

The Kiwi gapped lower on the RBNZ statement when the central bank stated that “Monetary policy would remain accommodative for a considerable period” [1]; indicating concerns for a slower return to their inflation target.

The comments were overtly dovish, and with an active element in the market that were long NZD for it to outperform on the crosses, in particular on the AUDNZD, as inflation trajectories were diverging; hence monetary policies also appeared to be heading in polar opposite directions, the bottom fell out. I suspect this morning’s drop was initially driven by position unwind which has now gathered steam as the Kiwi tracks towards .7200 level. So much for getting the parity party outfit dusted off, back to the closet it goes.

Australian Dollar

The Australian dollar is trading quietly ahead of Governor Lowe’s speech later today, as was the case with the broader market overnight. The Australian dollar had a rather uneventful session.

Japanese Yen

US fixed income continues to lead the way, and with a steady bid in the UST 10 years trading down to 2.35%, USDJPY dove below the critical 112 level and remains offered in early APAC trade.

With a possible event risk looming, the meeting between Japanese PM and President Trump this weekend, US bond yields will likely give the cleanest picture for the USDJPY trend into this week’s end. The event risk is clearly the downside if this meeting does not go as expected on trade negotiations.

Euro

With a sparse economic calendar, the focus remains on yield spreads in the EZ (Italy/France vs. Germany) and the assortment of scandal sheet politics coming out of France. European Bond Markets have been extremely busy overnight rallying sharply in concert with UST’s.

Despite the USD trading with a softer bias overnight, EURUSD remained capped at 1.07, as political uncertainty remains the primary driver in the Euro space. Perhaps in a move to ease investor’s nerves, Draghi reportedly said at a “not so ” at a private ECB dinner meeting yesterday, inferring that the ECB will continue to be accommodative throughout his mandate, which ends in October 2019.

Yuan

The PBOC held off from offering Reverse Repos in the market for the fourth consecutive day, draining liquidity in hopes of defending the CNH and halting capital outflow. However, interestingly enough, we are starting to see the more two-way flow in the CNH than we saw in some time. I would not go as far as calling it bullish CNH momentum, but rather with the US dollar energy all but sapped, we have gone from extreme pessimism to one of the mixed views, as investors are becoming less confident about a USD bull run.

Reserve Bank of India

Time to reload the INR carries trade after the RBI surprised the markets with another unexpected interest rate pause. This should bring to a close all the speculation about interest rates cuts for the medium term. The RBI shift to a neutral stance should all but cement that view.

Bank of Thailand

No surprises from the Bank of Thailand who kept rates unchanged as expected. If anything by the currency reaction dealers were expecting a more accommodative stance from the BOT