'Businesses will likely become more cautious over investment and employment as the economy shows increasing signs of slowing and uncertainties over the outlook are magnified by 'Brexit' negotiations coming to the forefront after the government triggers Article 50.' - Howard Archer, IHS Markit

The British economy showed first signs of Brexit vote influence, as the overall growth slowed, seeing the annual GDP growth rate holding steady at 2%, behind expectations for a 2.2% increase. Nevertheless, according to the second GDP estimate released by the Office for National Statistics on Wednesday, the UK economy expanded 0.7% in the Q4, the strongest performance since the last quarter of 2015, compared with a 0.6% growth pace observed in the previous quarter. In the report, the ONS highlighted that economic growth was mainly boosted by upwardly revised manufacturing output, which expanded 1.2% from 0.7% registered previously. As to the expenditure side, net trade and household consumption supported the economy, while capital spending levels set negative impact on the overall economic performance in the United Kingdom. In the meantime, the weak Pound is expected to support exports in the foreseeable future, though risks brought by the Brexit are still in place.

Global markets were relatively unmoved during late trading on Wednesday after the slightly hawkish minutes from the Federal Reserve failed to convince participants of a March interest rate hike. Although many Fed members have repeatedly voiced that it may be appropriate to raise interest rates again 'fairly soon', it is the lack of commitment to a hiking timeline and overall ambiguity that continues to leave investors empty handed. With the Trump uncertainty still a major theme and concerns continue to heighten over how his policies may impact the US economic outlook, the central bank may be encouraged to maintain a cautious stance till the second quarter of 2017. While there continues to be discussions of the growing chorus of hawkish Fed officials opening the doors for a March hike, it seems unlikely that rates will be hiked in March with June looking more possible. A scenario where US economic data repeatedly exceeds expectations with the labour force displaying stability could prompt the central bank to surprise markets by taking action in May.

Commodity spotlight – WTI

WTI Crude displayed sharp levels of volatility on Wednesday as markets re-evaluated the intricate supply and demand dynamics that have driven the global oil markets. The ongoing developments with OPEC and U.S shale simply placed oil prices on a rollercoaster ride with the oversupply fears still lingering in the background. Although OPEC members have respected their pledge to cutting production and stabilising oil markets, the threat that U.S shale has benefited from the OPEC cut deal continues to spark concerns of the overall production deal falling apart. WTI Crude remains pressured below $55 on the daily charts with recent comments from Qatar’s oil minister on how some major oil producers are not in compliance with production cuts, exposing prices to downside shocks. WTI Crude remains buoyed around $54, but weakness below this level could open a path lower towards $52.

Currency spotlight – EURUSD

The political uncertainty enshrouding the Eurozone has left the Euro vulnerable to heavy losses this week. From a technical standpoint, the EUR/USD has come under renewed selling pressure on the daily timeframe with sellers exploiting the downside momentum to take prices lower towards 1.0500. With there being consistently lower lows and lower highs coupled with lagging indicators pointing to the downside, the prerequisites of a bearish trend have been fulfilled. A decisive breakdown below 1.0500 could encourage a further decline lower towards the next relevant support at 1.0350.

Sunrise Market Commentary

• Rates: French election fever temporary out of the way?
  Bayrou's shout out to Macron might ease French election fever short term and trigger some spread narrowing. On core bond markets, the Bund could return some of yesterday's impressive gains, also as the Bund rally ran into 165.48 resistance, the 62% retracement level of the Oct-Dec decline. Today's eco calendar isn't really inspiring for trading.
• Currencies: Euro decline slows as French political tensions ease
  Yesterday, the euro reversed initial steep losses as French centrist candidates join forces, avoiding further fragmentation. Today, the eco calendar is thin. Some consolidation on the recent wild (euro) swings might be on the cards. However, we don't see a change of trend, yet. EUR/GBP again failed to break the 0.8450 support in a sustainable way

The Sunrise Headlines

• US stock markets extended their record race, gaining more than 0.5% after Monday's public holiday. Overnight, Asian equity sentiment is less bullish, with most indices recording small gains.
• Shares in Fannie Mae and Freddie Max tumbled by more than a third on after a court struck a blow to a group of investors in their quest to overturn the government's decision to take all of the US mortgage giants' profits
• China home prices increased last month in the fewest cities in a year, signalling property curbs to deflate a potential housing bubble are taking effect. New home prices, excl. subsidized housing, gained last month in 45 of the 70 cities
• BoJ Governor Kuroda said the chance the central bank will deepen negative interest rates is low for now, backing market expectations that no additional monetary easing is forthcoming in the near future.
• The head of Australia's central bank, Lowe, gave the clearest signal yet that further cuts in interest rates would not be in the national interest as the danger of a debt-fuelled boom and bust was just too severe.
• Political uncertainty is slowing trade growth, a World Bank report has concluded, indicating that the rise of Donald Trump may already be casting a shadow over the global economy.
• Cleveland Fed Mester said policy makers don't want to surprise the market on interest rates and they have to be “nimble” to adjust their outlook amid global and domestic risks.
• Today's eco calendar contains German IFO, the second reading of UK Q2 GDP, finale EMU CPI data, US existing home sales and FOMC Minutes. Fed Powell speaks on the economic outlook and Germany and the US tap the market

Currencies: Euro Decline Slows As French Political Tensions Ease

Euro sell-off slows, at least temporary.

Yesterday, euro weakness due to political uncertainty dominated FX trading. The euro sold off even as regional data (IFO) were strong. EUR/USD dropped temporary below 1.05. The decline of EUR/JPY also weighed on USD/JPY. Later, uncertainty on France eased as centrist Bayrou supported independent candidate Macron, avoiding further fragmentation and diminishing the risk of a Le Pen victory. The euro rebounded. Later, the Fed minutes didn't provide concrete evidence on a March rate hike and weighed slightly on the dollar. EUR/USD rose further to close the session at 1.0558. USD/JPY finished at 113.31.

Overnight, most Asian equity indices show modest losses. Yen cross rates made quite some big swings yesterday and the yen trades still rather strong. This is a slightly negative for regional markets. Even so, Japanese/regional equities reversed part of the earlier losses. USD/JPY is trading in the 113.25 area. EUR/USD is little changed in the 1.0560 area.

Today, EMU eco data are second tier (final Q4 German GDP, French INSEE business confidence and Italian retail sales). US data have also limited potential to move USD. The January Chicago National Activity Index is expected flat (versus 0.14 previously). Initial claims have been very low in past weeks and no change is expected. We listen closely to the speeches of ECB Praet, especially as tensions in EMU markets flared up. Atlanta Fed Lockhart speaks but retires at the end of the month. Dallas Fed Kaplan is a moderate hawk. Over the previous days, French election worries fuelled uncertainty on European markets and weighed on the euro. The political uncertainty in France eased a bit after centrist Bayrou support centrist candidate Macron. Uncertainty might easily return later on, but in a dayto- day perspective, it might ease pressure on the euro. Even so, we don't expect the EUR/USD rebound go far. Markets await Trump's fiscal plan and its impact on Fed thinking. A decent fiscal easing (tax cuts/spending) should be USD supportive. However, we don't see much pro-USD prepositioning yet. If there is no high profile news on France or on US fiscal policy, some consolidation in EUR/USD and USD/JPY is likely, with equities guiding the intraday moves

Global context. The dollar corrected lower since the start of January as the Trump reflation trade slowed down. Two weeks ago, the dollar bottomed out, supported by Trump's tax promise. Underlying euro weakness due to political uncertainty in the area is a factor too. We see 1.0874 as solid resistance and favour a sell EUR/USD on upticks approach. The downside test of USD/JPY was rejected. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) remains a key support. The comments of Yellen before Congress (and of other Fed members) were USD supportive, but had little lasting impact on yields. We keep a USD positive bias, but remain more cautious on the upside potential of USD/JPY compared to USD/EUR.

EUR/USD: rebounds off recent lows on Bayrou comments

EUR/GBP

EUR/GBP: again no sustained break of 0.8450 support

Euro weakness pushed EUR/GBP further below the 0.8450 support. The pair touched an intraday low just north of 0.84. Some ST consolidation kicked in. The details of the UK Q4/2016 GDP painted a mixed picture and weighed on sterling. EUR/GBP initially rebounded to the 0.8440/50 area. Later in the session, the pair was further supported by the post-Bayrou rebound of EUR/USD. EUR/GBP closed the session at 0.8481. Cable finished the day at 1.2450. Sterling trading was dominated by the gyrations in the euro cross rates. Even so, yesterday's price action should have disappointed sterling bulls.

Today, UK CBI Retail/Distributive trades reports will be published. Usually, the FX market doesn't react much to the data and so the report won' be a game-changer. However, the CBI data are interesting after recent very poor ONS retail sales data. We especially look for the market reaction in case of a poor report. EUR/GBP recently hovered in a tight range north of the 0.8450 support. Sterling sentiment softened slightly as a BoE rate hike is still very far away. Yesterday, a (temporary) acceleration of the euro sell-off pushed EUR/GBP temporary to the 0.84 area, but a sustained break of the 0.8450 level again didn't occur. Longer term, we have a sterling negative view as the Brexit will negatively impact the UK economy. However, this is no issue at this stage. Euro weakness prevails. A sustained break below 0.8450 would open de way for a return to the EUR/GBP 0.8304 correction low, the next key support. We maintain a neutral bias on sterling short-term. Both EUR/GBP and cable show no clear trend.

EUR/GBP: no sustained break of 0.8450 support

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Daily Pivots: (S1) 140.35; (P) 141.18; (R1) 141.90; More...

GBP/JPY is trading in range of 138.53/142.79 and intraday bias stays neutral for the moment. Overall, price actions from 148.42 are seen as a corrective pattern. Below 138.53 will bring deeper fall, possibly through 136.44 support. But strong support could be seen at 50% retracement of 122.36 to 148.42 at 135.39 to bring rebound. Above 142.79 will turn bias back to the upside for 144.77 and above.

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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Daily Pivots: (S1) 118.85; (P) 119.36; (R1) 120.13; More...

EUR/JPY's correction fall from 124.08 resumed and dived to as low as 118.59. At this point, we'd still expect strong support from 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) to contain downside and bring rebound. Break of 121.32 resistance will confirm that the correction has completed and turn bias back to the upside for 123.30/124.08 resistance zone. However, sustained trading below 118.45 will invalidate our view and bring deeper fall to 114.88 fibonacci level.

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) 0.8423; (P) 0.8457; (R1) 0.8512; More...

EUR/GBP recovered after hitting 0.8402 and intraday bias is turned neutral again. But near term outlook stays cautiously bearish with 0.8590 resistance holds. Fall from 0.8851 is seen as the third leg of the corrective pattern from 0.9304. Below 0.8402 will target 0.8303 support first. Break will confirm our view and target 0.8116 key cluster support level.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

Daily Pivots: (S1) 1.3637; (P) 1.3693; (R1) 1.3761; More...

EUR/AUD breached 1.3671 key support level but recovered quickly. Intraday bias is turned neutral first. We'd still viewing fall from 1.6587 as a corrective move. And strong support is expected from 1.3671 to contain downside and break rebound. Break of 1.3900 resistance will indicate near term reversal and turn bias back to the upside for 1.4025 resistance and above. However, sustained break of 1.3671 will invalidate our view.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. We'd expect strong support from 1.3671 key level to contain downside and bring rebound. Up trend from 1.1602 should not be finished and will resume later. Break of 1.4721 resistance will indicate completion of such correction and turn outlook bullish for retesting 1.6587 high. However, sustained break of 1.3671 will invalidate our bullish view and would turn focus back to 1.1602 long term bottom.

Daily Pivots: (S1) 1.0641; (P) 1.0659; (R1) 1.0684; More...

EUR/CHF recovered but stays in range below 1.0706. Intraday bias remains neutral first. With 1.0706 resistance intact,deeper decline is expected. Firm break of 1.0620 key support level will extend the larger decline from 1.1198 to 1.0485 fibonacci level. However, break of 1.0706 resistance will indicate short term bottoming and turn bias back to the upside. Further break of 1.0749 resistance will raise the chance of medium reversal.

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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Currency pair EUR/USD

The EUR/USD indeed made a bullish bounce yesterday at the support Fibonacci levels of wave X (blue). Price could now be building a complex WXY correction within a larger wave 2 (purple) unless price breaks below the 138.2% Fib level (invalidation). The Fibonacci levels of wave 2 (purple) could also act as reversal spot and remains valid unless price breaks above the 100% level of wave 2 vs 1 (purple).

The EUR/USD could be building a bullish ABC (green) within wave Y (blue) but a break below the 100% Fibonacci level of wave B vs A invalidates the structure.

Currency pair GBP/USD

The GBP/USD retraced back the support level (blue line) of the contracting triangle chart pattern after breaking above it (orange dotted). A bullish bounce could see price potentially retest the larger resistance trend line (brown) as part of wave C (blue).

The GBP/USD indeed made a bearish retracement yesterday which bounced at the 78.6% Fibonacci level of wave 2 (purple). A bullish continuation above resistance (red) could see price pick up more momentum towards the Fibonacci targets of wave C (orange). A break below the 100% level of wave 2 vs 1 invalidates the wave structure.

Currency pair USD/JPY

The USD/JPY is probably in a wave 1-2 (blue) unless there is a break below the 100% level of wave 2 vs 1. A larger ABC (brown) seems to be taking place within wave 2 (blue). A wave 2 (blue) correction typically last between 100% and 161.8% of wave 1 (see bottom scale).

The USD/JPY could be completing a bearish ABC (brown) zigzag within wave 2 (blue). There could be another ABC zigzag (orange) within wave that wave B (brown) but the wave B could also have already been completed and a break above the red line invalidates wave B (brown). A break below support (green) could price test but probably not break the next support (blue) which would probably complete the ABC (brown) within wave 2 (blue).

EURUSD

The EURUSD attempted to push lower yesterday bottomed at 1.0493 but closed higher at 1.0557. The bias is neutral in nearest term probably with a little bullish bias testing 1.0600/20 area. Immediate support is seen around 1.0520/00 which remains a good place to buy with a tight stop loss as a clear break and daily close below that area would expose 1.0400 – 1.0350 region. On the upside, a clear break and daily close above 1.0600 would expose 1.0680 – 1.0700 area. Overall I remain neutral.

GBPUSD

The GBPUSD had another indecisive movement yesterday. The bias remains neutral in nearest term. As you can see on my H1 chart below price has been moving sideways without clear direction suggests a consolidation phase. Immediate support is seen around 1.2400. A clear break below that area could trigger further bearish pressure testing 1.2340 area. Immediate resistance is seen around 1.2500. A clear break and daily close above that area could trigger further bullish pressure testing 1.2580 area. Overall I remain neutral.

USDJPY

The USDJPY was indecisive yesterday. The bias is neutral in nearest term but overall as long as stay below 115.60 I still prefer a bearish scenario. Immediate resistance is seen around 113.50. A clear break above that area could trigger further bullish pressure testing 114.00 or higher. Immediate support is seen around 112.90. A clear break below that area could trigger further bearish pressure testing 112.50 or lower.

USDCHF

The USDCHF attempted to push higher yesterday topped at 1.0140 but closed lower at 1.0104. The bias is neutral in nearest term probably with a little bearish bias testing 1.0050 area. Immediate resistance is seen around 1.0140 (yesterday’s high). A clear break and daily close above that area could trigger further bullish pressure testing 1.0200 region. Overall I remain neutral.