Following on from Monday's chat around diversifying your commodities trading, we today head back to the mainstream with another look at Oil.

While the commodity isn't as left field as XAU/AUD, the higher time frame resistance level in Oil that we identified back at the start of the month is back in play and worth another look.

First up as always, we take a look at the higher time frame chart. Here we highlight the major resistance level that we spoke about in that last post I've linked to above.

Oil Weekly:

As we said back then, the weekly shows a trend line break and price capped by a horizontal resistance level that price has rejected off in the past. With the level still holding, it may give an opportunity for us to start to look for a short entry.

Once again as always, we then step down to an intraday chart and look for a short term level that offers us tight risk:reward.

Oil Hourly:

Zooming into the hourly chart, we have seen the first sign of a short term pullback. Price broke the immediately last swing lows, showing that the sellers are gaining a stranglehold on the market.

Oh and look at that. The pullback has magically seen price spike into the previous level of support now turned resistance!

Remember that price still has a bit of room to move higher and still see the higher time frame level hold, so I don't know if this is the type of setup to be aggressively shorting, but the levels are definitely in play.

• Housing starts inched up to 207k annualized units in December from 206k in December.

The monthly increase was led by a 4.2% increase in the often-volatile multiple-unit structures component that built on an outsized 14.0% jump in December. Single-unit starts declined 4.6% to partially retrace an 8.1% December gain.

Regionally, the increase in urban starts was concentrated in Ontario where a 25% increase built onto a 38% surge in December. Starts also rose 14% in Atlantic Canada but declined 6% in Quebec, 11% in the Prairies, and plunged 33% in British Columbia.

Our Take:

Strong new home building activity early in 2017 and late 2016, with the 200k+ readings over the last two months above our estimate of the underlying pace of household formation, is less surprising following a year in 2016 in which home resales set a new national sales record. The recent strength in housing starts has been largely concentrated in Ontario, where resale markets have also been the hottest in recent months although warmer-than-usual temperatures may also have played a role boosting starts in the region in January. Nonetheless, new building activity typically follows the resale market with a lag and home resales nationally slowed through the end of last year reflecting a combination of new provincial regulations in B.C. and federal macro-prudential regulations implemented in the fall while a modest drift higher in borrowing rates and stretched affordability conditions in some markets should further moderate housing demand. Although near-term permit issuance continues to point to near-term upside risk in starts (permit issuance was over 230k per month in November and December of last year, the most recent months available), we expect housing starts will, on balance, slow as the year progresses and continue look for overall residential investment to be a modest drag on overall GDP growth in 2017 for the first time in four years.

USD/CAD has reversed directions, posting slight gains in the Wednesday session. Currently, the pair is trading at 1.3150. On the release front, Canada will release Housing Starts, which is expected to remain above the 200K level, with the estimate standing at 202 thousand. There are no major US events on the schedule. On Thursday, the US releases the weekly unemployment claims report, which is expected to rise to 249 thousand. As well, the weekly crude oil inventories report will be released. Another strong surplus is expected, with an estimate of 202 thousand.

America First! Trump's protectionist stance just a few weeks into his term is setting off alarm bells with close trading partners of the US, including Canada, Mexico and Japan. Trump has declared that he intends to revisit the NAFTA trade agreement, which has been an anchor of the US-Canada trade relationship for over 20 years. Trump didn't mince words last week when describing NAFTA, saying that "NAFTA has been a catastrophe for our country. It's been a catastrophe for our workers and our jobs and our companies." Although Trump is unlikely to unravel the agreement and his verbal salvos may be aimed more at Mexico than Canada, uncertainty over NAFTA's future can't be good news for Canada. Trump's protectionist stance has increased nervousness in the markets and could spell bad news for the Canadian currency if investors lose their appetite for risk.

President Donald Trump continues to create controversies on an almost daily basis, and his brash and undiplomatic style has not endeared him to the markets. Moreover, the lack of an economic policy from the new administration is a major source of concern and the the post-election euphoria which sent the markets higher has dissipated. The Federal Reserve, which had trumpeted that it was planning a series of hikes in 2017, was more cautious in its recent rate statement and is expected to adopt a wait-and-see attitude in the coming months. If the economy continues to grow, there is a strong likelihood of another rate hike in the first half of 2017, which is bullish for the dollar.

Daily Pivots: (S1) 1.0641; (P) 1.0695 (R1) 1.0734; 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) 1.2386; (P) 1.2466; (R1) 1.2585; 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.....

USD/CHF is staying in the consolidation from 0.9860 and intraday bias remains neutral. 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) 111.78; (P) 112.18; (R1) 112.77; More...

With 113.44 minor resistance intact, deeper fall could still be seen in USD/JPY. But again, choppy decline 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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Euro weakens broadly today as is trading in red against all other major currencies for the week. The common currency was weighed down by comments from ECB president Mario Draghi that the central bank won't react to recent spike in inflation. Meanwhile, markets are starting to get cautious on political uncertainties. Recent news from France are reminding traders there are two rounds of French presidential election on April 23 and May 7, as well as elections in the Netherlands and Germany. In addition, UK is set to trigger Article 50 for Brexit by the end of March. And there are uncertainties over US president Donald Trump's protectionist policies. Mild risk aversion is lifting the Japanese yen across the board.

BoJ Cautious on Global Developments

BoJ released the summary of opinions from the January 30-31 meeting today. The board generally saw improvements in exports, consumer spending and capital expenditure. One policy maker noted that Japan's economic recovery has "strengthened" since the second half of 2016. And, "positive synergy effects are being produced by improvement in overseas economies, economic stimulus measures by the government, and enhanced monetary easing." However, there was a tone a caution in general over political developments globally, including US president Donald Trump's policies and Brexit.

RBNZ Expected to Stand Pat

RBNZ rate decision is the focus in the upcoming Asian session. The central bank is widely expected to keep the OCR unchanged at 1.75% and maintain a neutral stance. As inflation is now back inside the target range, there is much less pressure for RBNZ to cut interest rate again. However, there is no clear sign of pick up in growth nor sustainability of inflation. Hence, the announcement could be a non-event. Meanwhile, RBNZ governor Grame Wheeler will step down when his term ends in September. The role is expected to be passed to a deputy before a permanent successor is appointed, in 2018. Markets are expecting RBNZ to stand pat throughout 2017.

NZD/JPY attempted to take out 83.36 resistance for the second time back in late January but failed again. The pair is trading back in range of 80.43/83.36. At this point, we're still favoring the case that medium term corrective fall from 94.01 has completed at 68.88 already. And another rise is in favor. Sustained trading above 83.36 will pave the way to retest 94.01 high. However, break of 80.43 near support will dampen our bullish view and would turn outlook bearish. In that case, NZD/JPY should target 55 week EMA (now at 78.02) and lower.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.78; (P) 112.18; (R1) 112.77; More...

With 113.44 minor resistance intact, deeper fall could still be seen in USD/JPY. But again, choppy decline 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.

Economic Indicators Update

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Wednesday February 8: Five things we are talking about

With global data continuing to paint a mixed picture on the pace of inflation in the developed world has investors proceeding with caution, and for now, somewhat in a directionless manner.

Currently, capital markets lack conviction as they seek more details from the Trump administration on promised spending increases and tax cuts. While in Europe, the market is assigning a greater risk premium to European countries (Netherlands, France) where the rise of populism is gaining traction ahead of national elections.

Expect the market to focus on today's EIA oil inventory report (10:30 EST) and the RBNZ monetary policy decision (03:00pm EST).

1. Equities see the green light

In Japan, indices edged up overnight as the yen's (¥112.30) recent rise outright stalled, while upbeat earnings is helping shore up market sentiment. The Nikkei closed up +0.5%.

Note: Investors remain cautious ahead of this week's Abe-Trump summit starting Friday. Both trade and currency policy is expected to be high on the agenda.

In Hong Kong, stocks closed at their three-month highs, boosted by shares of China property developers and brokers. The Hang Seng index ended up +0.7%, while the Hong Kong China Enterprises Index gained +1.1%.

In Shanghai, stocks have rallied to a one-month, on the back of financials. The Shanghai Composite Index closed up +0.4%, it's highest since Jan. 11.

In Europe, equity indices are trading mixed. On the Eurostoxx 600, banking stocks once again are trading notably lower across the board, while energy stocks are also lower as oil trades near contract lows. On The FTSE 100, commodity and mining stocks are trading notably higher.

U.S equities are set to open in the black (+0.1%).

Index: Stoxx50 +0.5% at 3,251, FTSE flat at 7,184, DAX +0.3% at 11,586, CAC-40 +0.7% at 4,789, IBEX-35 +0.3% at 9,356, FTSE MIB +0.5% at 18,748, SMI +0.3% at 8,396, S&P 500 Futures +0.1%

2. Oil prices remain under pressure from bloated inventories

Ahead of the U.S open, global crude prices remain under pressure, extending yesterday's fall, as a massive increase in U.S. fuel inventories and a slump in Chinese demand would suggest that global crude markets remain oversupplied despite OPEC-led efforts to cut output.

Brent crude futures are trading at +$54.70 per barrel, down -35c, or -0.64%, from yesterday's close. U.S. West Texas Intermediate (WTI) crude is at +$51.68 a barrel, down -49c, or -0.94%.

Note: Yesterday's American Petroleum Institute (API) reported a massive inventory number - crude inventories rose by +14.2m barrels in the week to +503.6m, compared with market expectations for a +2.5m increase. While gas stocks rose by +2.9m barrels, compared with expectations for a +1.1m barrel gain.

Expect dealers to take direction from today's EIA report at 10:30am EST.

Gold continues to hold firm near its three-month highs hit yesterday (+$1,235.78) on dollar strength amid political and economic uncertainty on both sides of the Atlantic - U.S and Europe.

The precious metal has gained nearly +5% over the last month, and nearly +7% since the year began.

3. Treasury, Bunds yields fall, Euro periphery spreads widen

Lower global oil prices is attracting buying interest in the U.S Treasury bond market, sending yields lower. While Euro political risks, especially the French election uncertainty, is also support demand for this week's Treasury auctions.

Note: U.S bonds continue to offer more attractive yields compared to bunds, JGBs and gilts. The U.S. Treasury Department is this week selling a total of +$62B of three-, 10- and 30-year securities in its quarterly refunding.

U.S 10's currently yield +2.4%, down from a yesterday's session high of +2.439%.

In Europe, the yield spread between 10-year French and equivalent German government bonds remains on a widening course, currently trading slightly over +78 bps on investors' mounting concern about who might win France's upcoming presidential election.

In Italy, the yield differential between 10-year Italian BTPs and 10-year German Bunds has topped +200 bps, amid the potential of an election in Italy and on concerns about the banking sectors (10-year BTP/Bund yield spread stood at around +162 bps in December).

4. Dollar finds support on rate differentials

Comments this week from Fed officials stating that next months FOMC meeting could be 'live' is providing the USD with support. The market believes that there is a potential for Yellen to surprise with some 'hawkish' comments at her semi-annual testimony to Congress.

Europe's single unit is softer by -0.3% overnight, trading atop of the €1.0650 level. Weighing on the EUR are concerns about the outcome of European elections (Netherlands and France) this year.

Note: Dealers are looking for a more technical breakdown, citing €1.0605 as key support for the time being.

Sterling (£1.2488) seems to be consolidating yesterday's gains after the BoE's Forbes suggested that U.K economy might soon need a rate "hike."

Note: The U.K's House of Commons is expected to vote on Article 50 Bill later day (expected in evening local time).

Elsewhere, the PBoC has weakened the Yuan slightly more aggressively overnight (¥6.8849 vs. ¥6.8604) to the lowest CNY setting in a fortnight.

Note: the PBoC also skipped its 'reverse repo' operations for the fourth straight session, though reiterated that banking system liquidity is at high level and that last week's +10bp increase in offer rates should not be interpreted as tightening.

5. Reserve Bank of India (RBI) surprises markets

In a surprise move overnight, the RBI kept its policy rate on hold (+6.25%, unanimous 6-0) for a second consecutive meeting, opting to wait for more clarity on the trend for inflation and on how a radical crackdown on "black money" or high value cash would impact the country's economic growth.

India policy makers also changed their stance to "neutral" from "accommodative", saying it would monitor inflation, despite calls for the central bank to support the economy that was dealt a blow when PM Modi abolished high-value notes in a bid to target unaccounted cash.

The decision has disappointed investors - India's benchmark 10-year bond yields have aggressively backed up +13 bps after the RBI signaled the end of the easing cycle.

The Japanese yen is showing little movement in the Wednesday session. Currently, USD/JPY is trading at 112.20. On the release front, it's a very light day. Japanese Economy Watchers Sentiment slipped to 49.8, pointing to pessimism among workers about economic conditions. There are no major US events on the schedule. On Thursday, the US releases the weekly unemployment claims report, which is expected to rise to 249 thousand.

Japanese Prime Minister Shinzo Abe will meet with President Trump in Washington on Friday, and the Japanese are hoping to sooth some ruffled furthers on the American side. Trump recently accused Japan of unfair trade practices in its ultra-loose monetary policy, which has kept the yen at low levels and helped boost Japanese exports. The Japanese have argued that they are not targeting the yen's value, but have their work cut out for them in trying to assuage Trump, who hasn't hesitated to fire verbal salvos at the United States' closest trading partners. Japan is heavily reliant on its export sector, and Abe will be hoping that Trump's protectionist rhetoric does not translate into actual moves against Japan, which can ill afford a trade war with the US.

Just a few weeks on the job, President Donald Trump continues to create controversy and his protectionist rhetoric is not endearing him to the markets. Moreover, the lack of an economic policy from the new administration is a major source of concern and the the post-election euphoria which sent the markets higher has dissipated. The Federal Reserve, which had trumpeted that it was planning a series of hikes in 2017 (the same sound track we heard at the start of 2016), was more cautious in its recent rate statement and is expected to adopt a wait-and-see attitude in the coming months. If the economy continues to grow at a brisk clip, there is a strong likelihood of another rate hike in the first half of 2017, which is bullish for the dollar. On the other hand, if Trump makes good on his promises to "make America first" and implement protectionist policies, the greenback could lose ground against major currencies such as the yen.