'The near-term momentum in GDP likely will not compel the Monetary Policy Committee to abandon its view that the economy will slow this year as a result of the Brexit vote'. - Samuel Tombs, Pantheon Macroeconomics

The British economy ignored the widely expected post-Brexit vote slowdown once again in the three month period to December, maintaining the third quarter's growth pace. According to a preliminary GDP estimate released by the Office for National Statistics on Thursday, the UK economy expanded at a quarterly pace of 0.6% in the Q4, unchanged from the Q3. Meanwhile, market analysts anticipated a 0.5% growth rate. In a report, the ONS said economic growth was mainly boosted by services that offset weaknesses in the construction and industrial sectors. The majority of economists expected the British economy to face a severe slowdown after the June 23 referendum. However, the ONS reported the annual growth rate of GDP fell 2.0% in 2016 from 2.2% in the previous year. Moreover, this decrease was mainly due to weak growth registered in the Q1 of 2016. Nevertheless, the economic outlook for 2017 looks darker, as the post-Brexit impacts are likely to become more significant.

Furthermore, the weak Pound is expected to weigh on wages and consumer spending, which is the dominant source of economic growth in the UK. According to the latest forecasts released by the Bank of England, the economy is set to grow 1.4% in 2017. However, this forecast, like all economic forecasts, is subject to change.

S&P500 broke to a new all-time highs which has been expected to happen this week based on substructures of an Elliott Wave triangle. We have seen a nice push above 2272 wave D) swing high that confirmed end of a pattern, so ideally market is now underway up to 2320 after 2300 target has already been reached, but impulse up from 2251 still not finished.

EUR/USD

Current level - 1.0662

The recent break through 1.0710 confirms the reversal below 1.0780 and my outlook remains negative, for a slide towards 1.0580. Initial intraday resistance lies at 1.0710.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 115.24

My outlook here remains bullish, for a break through 115.65 hurdle, towards 116.70 area. Initial intraday support lies at 114.80, followed by 114.10.

GBP/USD

Current level - 1.2546

Yesterday's slide has confirmed a reversal at 1.2672 and my outlook is negative, for a sell-off towards 1.2415 area. Initial intraday resistance lies at 1.2608.

The pair continues to move lower after rally showed signals of stall but is still holding above key supports at 0.7493/89 (100 / 200 SMA’s).

Near-term studies turned bearish and keep the downside under pressure, as break below initial trigger at 0.7535 (daily Tenkan-sen) generated negative signal.

Daily indicators turned south and support negative scenario.

Firm break below 100/200SMA’s is needed for stronger bearish signal and extension towards next strong support at 0.7467 (top of thickening daily cloud).

The pair is on track for the first bearish weekly close after one month that would add on growing bearish pressure.

Res: 0.7542, 0.7550, 0.7583, 0.7607
Sup: 0.7489, 0.7467, 0.7437, 0.7397

The pair extends bounce from strong supports at 112.50 zone, where near-term base is forming.

Fresh bullish acceleration cracked first upper pivot at 115.13 (daily cloud top) and eyes next trigger at 115.55 (daily Kijun-sen line).

Immediate downside risk has been sidelined and near-term focus is turning higher.

Sustained break above the top of thickening daily cloud and Kijun-sen line (that also marks 50% of 118.59/112.50 pullback) is needed to confirm reversal and higher base at 112.50, for further retracement of 118.59/112.50 correction.

Failure to emerge above the cloud would signal recovery stall, however, risk is expected to remain shifted up while daily Tenkan-sen (114.05) holds.

Res: 115.13, 115.55, 116.30, 116.85
Sup: 113.37, 114.05, 113.60, 113.03

Yesterday's long red candle weighs on market, as fresh weakness after rejections at 1.0770 zone broke below daily Tenkan-sen support at1.0680 (now reverted to resistance).

Thursday's low at 1.0656 (also Fibo 61.8% of 1.0587/1.0773 upleg) is under pressure, as today's consolidation was capped at 1.0700 zone.

Scope is seen for extension towards next strong support at 1.0607 (Fibo 38.2% of 1.0339/1.0773) reinforced by 20SMA, with break here to accelerate towards 1.0560 (daily cloud base / Kijun-sen).

Initial resistances lay at 1.0680/1.0700, with extended upticks expected to stay under 1.0725.

Res: 1.0680, 1.0700, 1.0725, 1.0742
Sup: 1.0656, 1.0607, 1.0586, 1.0560

Sunrise Market Commentary

• Rates: Short covering or US GDP-inflicted losses?
  Today’s main item on the agenda is the US Q4 GDP reading. A stronger reading will sour core bond sentiment further while a disappointment could trigger some short covering going into the weekend following this week’s losses.
• Currencies: Dollar rebound gains traction
  Yesterday, the dollar found a better bid across the board even as the rise of equities and core yields slowed. This morning, the dollar rebound continues. USD/JPY takes the lead as BOJ bond buying suggest that the bank tries to block a tentative rise in bond yields. Sterling traders will keep a close eye on the Trump/May meeting

The Sunrise Headlines

• US equities ended close to unchanged yesterday. The S&P 500 traded temporary above the 2300-mark for the first time ever, but couldn’t close above. Overnight, Asian stock markets trade mixed with China closed.
• Signals from Japan's CPI figures were broadly positive. The pace of decline in the core price gauge slowed in December and was above expectations. Headline inflation eased, but this reflected cooling fresh food prices .
• UK PM May cautioned the U.S. against withdrawing from world affairs saying that the relationship between the US and the UK is one of the “greatest forces for progress this world has ever known.”
• Jens Weidmann, the Bundesbank president, has echoed the remarks his fellow German Sabine Lautenschläger, a member of the ECB’s executive board, made Tuesday and indicated the debate on trimming QE should begin soon.
• The White House floated the idea of imposing a 20% tax on goods from Mexico to pay for a wall at the southern U.S. border, sending the peso tumbling and deepening a crisis between the two neighbours.
• Alphabet, the owner of Google, missed earnings expectations in the fourth quarter, as higher taxes and investments in data centres, buying content for YouTube and hardware weighed on margins, despite a big jump in revenue.
• Turkish President Erdogan said he favoured the use of a single central bank policy rate and wanted to do away with the interest rate corridor which the bank uses to set policy, newspapers reported.
• Today’s eco calendar contains EMU M3 money supply data, US Q4 GDP, durable goods orders and the final reading of Michigan consumer confidence. Chinese markets are closed for Lunar New Year and reopen on Friday, February 3.

Currencies: Dollar Rebound Gains Traction

Dollar shows tentative signs of bottoming out

Yesterday, there was no unequivocal driver for USD trading. The data had no impact. Earlier this week, the dollar’s performance was a bit disappointing given the global reflation trade. Yesterday, the uptrend in equities slowed and so did the rise in core bond yields. Even as the reflation trade slowed, the dollar bottomed out. EUR/USD dropped below 1.07 (currently 1.0685). USD/JPY regained the 114 mark.

This morning, several Asian markets ex-Japan are closed for regional holidays. The yen remains under pressure. The rise in USD/JPY is partially due to the overall USD rebound. At the same time, markets source indicate that the BOJ stepped up bond buying in the 5-to-10 year sector. The operate underscores the Bank’s intention to keep the 10-year benchmark yield below 0.1% and illustrates that it wants to keep monetary conditions ultra-easy. USD/JPY extends this week’s rebound north of 115. The rise of the dollar against the yen remains more modest. EUR/USD hovers in the 1.0665 area.

Today, the market expects US growth of 2.2% in Q4, following a 3.5% growth pace in Q3. The growth contribution of personal consumption is expected solid, but smaller than in Q3. We expect positive contributions from construction, business investment and inventories. Net export will be a main drag on growth. We side with consensus but are aware of some downside risks. December durables should rebound from November’s 4.5% M/M decline, but the more important measure excluding transportation will be quite similar as in November at 0.5% M/M. Michigan consumer sentiment (final) should confirm the preliminary reading of 98.1. So, the US data might be fairly neutral for the dollar. Aside from the data, the looming trade war between the US and Mexico and meeting of Trump and UK PM May might produce plenty of headlines. We look out whether/to what extent the tensions with Mexico will become an issue for global sentiment on risk. If so, it might slow the incumbent rebound of the dollar. That said, yesterday’s and this morning’s USD price action suggests some bottoming out on the recent USD correction. The recent low (USD/JPY 112.5)/ top (EUR/USD 1.0775) have become a more solid bottom for the dollar. A cautious buy USD on dips approach can be reconsidered

Global context: EUR/USD touched a multi-year low (1.0341) early this month. After the Trump rally, plenty of good USD news was discounted while US/EMU rate differentials narrowed (correction), causing a dollar correction. Longerterm, the absolute interest rate support should provide a USD floor, if US data remain good and as long as there are no profound doubts on Trump’s progrowth policy. The day-to-day USD momentum is improving. Still, a return above 1.0874 would question the USD positive outlook. On the downside, EUR/USD 1.0341 is the first key support. USD/JPY is trading well off the post- Trump highs (118.60/66). The rebound off the 112.57/53 reaction low is gathering pace. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) is a tough support

EUR/USD: dollar rebounds

EUR/GBP

Focus on the May - Trump talks

Yesterday, UK Q4 GDP growth was higher than expected at 0.6% Q/Q and 2.1% Y/Y (0.5% Q/Q expected). Sterling set an intraday top around the publication of the data. EUR/GBP touched the 0.8470 area, but there were no follow-through gains. EUR/GBP even returned to the 0.85 area. So, the recent sterling rebound looked like losing momentum. The UK Parliament will debate the legislation to trigger Article 50 of the Lisbon treaty on Jan 31/Feb1. In the afternoon, the moves in the USD changed the picture in the sterling cross rates. The decline of EUR/USD pushed EUR/GBP below 0.85. The pair closed the session at 0.8480 (from 0.8507). Cable set an intraday top around 1.2675 at the time of the GDP release. Sterling softness and a better USD momentum later in the session sent the pair south to close the session at 1.2597 (from 1.2624).

Today, the focus of UK trading will be on the meeting between the UK PM May and US president Donald Trump. Trade relations between the two countries will be high on the agenda. Yesterday, there were ‘nervous’ comments from EU officials stressing that EU members can only discuss trade deals as part of the bloc, illustrating the tensions between the UK and the EU on the issue as they prepare for the Brexit-negotiations. The US and UK laying the groundwork for some kind of a trade agreement could put pressure on the EU-Brexit talks. The immediate consequences for sterling are not that easy to see. If markets conclude that the UK might get more leverage in its negotiations with the EU, it might be slightly/temporary supportive for sterling. Longer term, we still look to sell sterling as long as there is no clear indication that the BoE prepares to tighten policy to fight rising inflation. The Brexit divorce remains a complicated process. Given the strong day-to-day momentum of sterling, there is no reason to row against the tide right now. EUR/GBP 0.8579 50% retracement and 62% retracement (0.8515) of the 0.8304/0.8854 rebound is broken. The correction low comes in at 0.8451 and should provide a strong support. A break would be significant from a technical point of view.

EUR/GBP nears 0.8450 support

Download entire Sunrise Market Commentary

Market movers today

The main event today is the meeting between UK PM Theresa May and US President Donald Trump. In our view, it is likely the two will say that the UK and US will ‘renew their special relationship' and ‘lead together again'.

On the data front, we get the first estimate of US GDP growth for Q4 16. We estimate GDP growth was 2.3% q/q AR driven mainly by private consumption. Business investments seem to have bottomed out when looking at core capex orders and we expect a positive contribution to growth in Q4. Capex orders for December are also released today and should have increased. Looking ahead, we expect capex orders to move higher on the back of higher oil prices, which supports oil investments and the rebound in manufacturing.

US PCE core inflation in Q4 will give us the December inflation rate implicitly. Based on the CPI data released last week, we estimate PCE core prices rose 0.2% m/m in December, corresponding to a quarterly print of 1.4 q/q AR in Q4, down from 1.7% in Q3.

In the euro area, money supply and loan growth figures for December are due for release. Loan growth to the private sector has improved to just below 2.0% y/y and the ECB's latest bank lending survey showed that demand for loans should continue to support growth in lending to both households and enterprises but credit standards for loans to enterprises tightened somewhat, driven by lower willingness to tolerate risk mainly in the Netherlands.

In Scandinavia, Swedish business, consumer confidence and retail sales figures are due for release. For more info, see Scandi markets on page 2.

Selected market news

With less than a week as US President, Trump is now in his first major foreign policy conflict after Mexico's President Nieto cancelled a meeting with him planned for next week. The cancellation followed President Trump's tweet that if Mexico was unwilling to pay for the ‘badly needed wall', then it would be better to cancel the upcoming meeting. The conflict threatens one of the largest bilateral trading relationships but Trump's spokesman Sean Spicer said ‘we will continue to co-ordinate', while Mexico's President Nieto said the door was not closed for a meeting. Later yesterday, the White House said Trump wanted to pay for the wall with a 20% tax on imports from Mexico as part of a tax reform package.

The positive risk sentiment continued with rising equity prices and fixed income sellingoff. Yesterday, USD followed suit and recovered following the resistance of the past few days. In fixed income markets, Italy and Portugal were under pressure and in the 10Y space spreads widened 12bp and 11bp to Germany, respectively, while Spain widened only slightly. In Italy, the headwind continued after the Constitutional Court rejected part of the ‘Italicum', creating market fears that a snap-election has moved closer, while Portugal was under pressure after Bloomberg reported that an EU official had said that ‘the Portugal situation is not good'.

Bundesbank President Jens Weidmann said yesterday that euro area inflation is heading towards the ECB's mandate indicating his view is that the ECB can soon start tapering. However, Weidmann also said ‘expansionary monetary policy path is currently appropriate' and that the ECB will exit the loose monetary policy only when inflation is sustained which is much less hawkish and in line with the stance of other ECB members.

After appreciating earlier this month following a period of investors unwinding on USD positions, both the GBPUSD and EURUSD have attracted sellers as the month draws to a conclusion. Traders began to take profit on GBPUSD positions during trading yesterday where the Pound also reached a fresh 6-week high marginally below 1.27. However it has since slipped all the way back through 1.26 and looks to be at risk to falling back below 1.25 before the week draws to a conclusion. While the majority of the momentum behind this move is led by technicals, investors are obviously reluctant to consider longer-term buying positions on the Pound bearing in mind the continuous uncertainty with the United Kingdom leaving the European Union.

The longer-term risk for the Pound still rests with the eventual invoking of Article 50 and although the previous concerns over a Hard-Brexit have softened significantly, this does not change the position that the UK will be exiting the European Union and there will naturally be a period of uncertainty ahead with months or even years of ongoing negotiations still to take place. The clock is very much ticking when it comes to the invoking of Article 50, and Theresa May now has barely a few days over two months before needing to meet the personal deadline she told the public at the end of March.

Keeping in mind that the United Kingdom will continue dominating headlines with the clock ticking down before Article 50 needs to be invoked many would naturally feel this will present risks for the British Pound and while this is likely to be the case, it is the Eurodollar that is going to face the largest downside risks in the near-term. The reason for the sudden rush of momentum in the EURUSD is once again largely led by technicals, but this does not change the outlook that the pair remains at risk to falling even lower before the end of the week after already dropping from 1.0764 to 1.0656 over the last trading day.

The EURUSD has currently also began the final day of the trading week under selling pressure, ambitious traders will be wondering whether the pair could be at risk to reversing its gains from 1.05 earlier in the month.

Currency pair EUR/USD

The EUR/USD has made a bearish turn at the 78.6% Fibonacci level of wave 2 vs 1 (brown) and has broken below the support of the rising wedge chart pattern (dotted blue). This bearish break could be a wave 1 (blue) of wave 3 (brown). The alternative scenario could be an ABC rather than a 1 (blue) which would indicate a larger correction.

The EUR/USD could be in a wave 4 correction (orange) within wave 1 (blue). After wave 1 (blue) there could be a deep pullback for wave 2 without breaking the top (this would otherwise invalidate the count).

Currency pair GBP/USD

The GBP/USD seems to have completed an ABC zigzag (blue) at the main 100% Fibonacci target of wave C vs A. The bearish reaction could be either impulsive or corrective. At the moment a complex correction (wave W blue) is the favourite.

The GBP/USD could be building an ABC zigzag (orange) or a impulsive 5 wave. This depends on whether price breaks the support level (blue) and falls below the 100% Fibonacci target of wave C vs A.

Currency pair USD/JPY

The USD/JPY broke above the resistance of the bearish triangle (dotted orange) and the downtrend channel (dotted red). This could signal the completion of wave 4 (purple) and the start of the wave 5 (purple).

The breakout could be part of a wave 3 (brown) within a larger wave 1 (blue).