AUD/USD: Stay Long For 0.7300

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EUR/USD: Eurozone Inflation Revised Downwards

• Federal Reserve Bank of St. Louis President James Bullard said that recent inflation report did not change his view that falling inflation expectations are a concern. But Bullard said that if higher inflation carries on he would eventually be convinced. Bullard, long a hawkish member of the Fed who has pushed for higher rates, reversed course in a separate speech last week when he raise a red flag about inflation.

• Dallas Federal Reserve President Robert Kaplan said that his more downbeat assessment of the US central bank's path of rate hikes will be reflected at the next policy meeting in March. Kaplan is among a growing number of Fed officials who have said the US central bank may have to halt further interest rate hikes amid tightening financial conditions and slow progress toward the Fed reaching its 2% inflation target.

• The Fed is likely to downgrade its December median prediction of four hikes this year at its next meeting on March 15-16.

• Eurozone consumer prices grew 0.3% yoy in January. The Eurostat revised downwards its earlier estimate of a 0.4% rise. Energy prices were confirmed as the main drag on euro zone inflation. They dropped 5.4% in January on a yearly basis. Excluding the volatile prices of unprocessed food and fuel, or what the European Central Bank calls core inflation, prices increased in January by 1.0%, in line with forecasts and more than the 0.9% rise recorded in December. The new figures add to the ECB's policy headaches. The European Central Bank wants to keep headline inflation below, but close to, 2% and has been buying billions of euros of euro zone government bonds to inject more cash into the economy and accelerate price growth.

• We went EUR/USD short at 1.1040. The EUR/USD is capped by 1.1044 (50% retrace of the 1.0711-1.1377 rise) and 1.1051 (38.2% retrace of the 1.0523-1.1377 rise). This keeps the overall bias on the downside. We have got also a resistance at 1.1048 (200-dma) and kijun line at 1.1077. But we find our short strategy risky. We are close to an important psychological support of 1.1000. A close below this level will open the way to our target at 1.0880.

GBP/USD: British GDP Unchanged From Initial Estimate

• Bank of England Deputy Governor Jon Cunliffe said that he still believed Britain's economy was in a slow recovery from the financial crisis, but the central bank was ready to provide more stimulus if needed.

• On Tuesday, BoE Governor Mark Carney said the central bank could cut interest rates or expand its bond-buying programme, if needed. One of the Bank's nine rate-setters, Gertjan Vlieghe, suggested he might vote for a rate cut soon if there was further bad news on the economy.

• Financial markets have pushed back their expectations of a first increase to around the end of the decade. In the opinion of our economists the Bank of England is likely to raise interest rates around the end of this year. A shift in market expectations may trigger GBP appreciation in the second half of the year. But now the market is focused on the Brexit referendum, which weighs on the sterling.

• The Office for National Statistics said British GDP rose by 0.5% in the fourth quarter, unchanged from an initial estimate and in line with market expectations. Business investment fell at the sharpest pace in nearly two years, hit by disposals in the transport equipment sector. Household spending growth slowed only slightly to 0.7% in the fourth quarter, its slowest increase of 2015, but in annual terms was still 3.1% higher - matching the third quarter's eight-year high. The Bank of England has said it has seen scant evidence so far that businesses are holding back on their investment plans because of the referendum, due to be held on June 23. Net trade also dragged on growth, subtracting 0.4 percentage points from economic growth on the quarter.

• The GBP is near a seven-year low against the USD after three tumultuous days since Prime Minister David Cameron called a referendum on Britain's EU membership.A slowdown in the pace of the GBP/USD decline does not yet signal a correction, but we have cancelled our sell order as this strategy seems too risky.

AUD/USD Hit By Investment Outlook, Eyes On Commodities Now

• Australian business investment rose the first time in a year last quarter as spending picked up outside the battered mining sector, but downgrades to plans for 2016/17 disappointed the market. Australian business investment planned for 2016/17 was estimated at AUD 83 billion, versus expectations of around AUD 93 billion.

• The data are better than expected in terms of the GDP numbers next week, but we do not change our expectations for fourth-quarter GDP growth (0.5% qoq). The data were weaker than we expected in terms of the forward looking component.

• The Reserve Bank of Australia holds its monthly policy meeting next week and is widely expected to keep rates at 2% where they have been since May last year. Interbank futures were little changed after the data, giving a 66% chance of a cut to 1.75% by mid-year. In our opinion the RBA will not ease its policy again, which should help the AUD in the medium-term.

• The AUD/USD dipped after the data, but support was found around 0.7160. Commodity currencies are also under pressure of oil prices volatility.

• Oil prices jumped at the beginning of the week as the International Energy Agency projected a sharp decline in oil production growth rates over the next half decade. The IEA said a rapid decline in investments in exploration and production activities will lead to an average of 4.1 million barrels per day in new production from 2015 through 2021. That compares to the boom-time rate of 11 million barrels per day in new production from 2009 to 2015. The IEA said prices would "start to rise gradually" as production falls but cautioned abundant sources of potential new output "will limit the scope of rallies - at least in the near term."

• The Saudi-led OPEC has stepped up diplomatic activity with other oil producers after crude prices hit 12-year lows last month. Venezuela's oil minister said a mid-March meeting was being planned to get more OPEC and non-OPEC producers to join the production freeze plan. Iran, which opposes any move to limit its oil output until its crude exports reach pre-sanction levels, has called the freeze plan "laughable."

• We expect that recovery in oil prices should support our long AUD/USD position. But today the basic overriding position in the oil market is that the global production exceeds global demand by quite a wide margin.

• We went AUD/NZD long at 1.0760