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Overall, it has been a relatively quiet week in the FX market, especially under the circumstances. Indeed, the lack of fresh news from the ongoing trade negotiations between the US and China has compelled investors to focus their attention on Brexit developments. Therefore, unlike most G10 currencies the pound sterling had very bumpy week as it was left at the mercy of the vagaries of UK lawmakers.

One could have easily anticipated that the lack of clear driver would have led to increase nervousness among market participants, which should have inevitably affected the option market. With the exception of the pound sterling that has not happened. Indeed, implied volatilities of option on G10 currencies - across maturities - have consistently moved downward, suggesting that investors do not know where to stand following the dovish shifts from both the Federal Reserve and ECB. As usual, investors were more inclined to buy protection against a bullish dollar move, especially against the pound. The divergence between short-term and medium-term in risk reversal measures suggests that market participants have ruled out the eventuality of a Brexit resolution within the next few weeks. The short-term 25-delta risk reversal measures (1-week and 1-month) have recovered lately as they inched up to -0.35 % and -1.14%, while longer-term ones (3-month and 6-month) have stabilised around -1.91% and -2.09%.

The publication of lacklustre economic data on both side of the Atlantic has left investors in catatonia. How to respond to a global slow down? Buy USD? Take shelter into safe haven assets such as the Japanese yen or Gold? Next week’s FOMC meeting could bring some light into the darkness. However, do not expect too much from the Fed, they are already struggling to shrink their balance sheet without triggering a financial crisis.

Japan declines again

The Japanese economy continues to suffer from China’s economic slowdown and Sino-American trade tensions. So the Bank of Japan voted 7-2 to maintain its policy balance rate unchanged at -0.10% while maintaining its target for 10-year bond yields along zero and annual bond purchases at JPY 80 trillion ($716.32 billion). We do not see any improvement coming. The US-China Trump-Xi meeting initially planned for mid-March has been postponed for 2-4 weeks. Until then, news will be foggy, and Chinese stimulus policies will not kick in until Q3. Currently trading at 111.65, USD/JPY is heading along 111.45 short-term.

Economic headwinds forced the BoJ to revise exports and production downward. January exports dropped -9% (prior: -5.80%), their lowest in three years and the third consecutive drop while imports have rebounded 0.50% (prior: -2.20%) in the same period. There was an unexpected pick up in the January current account balance of JPY 600.4 billion (prior: JPY 452.8 billion) amid a sharp rise in investment income due to an expansion phase in financial markets, yet the drop in January machine orders by 5.40% suggests further slowdown in Q1. BoJ’s change of language from “increasing as a trend” to “recently showed some weakness” shows the situation is not expected to improve until Q3. Assumptions of 2% inflation have now become wishful thinking.

Despite the reversal seen near $1312 on Wednesday, prices head back up. Chinese data supported the bearish move as the economy continues to print problematic figures. Positive trade war narratives, however, supported the rejection at $1300. President Trump reported that he expects a trade deal with China within the next four weeks.

Will Gold Move Higher?

Since we are still completing a bearish cycle, there’s a good chance that corrective wave (c) sees an end a tad higher. A magnet zone is set near $1320/1325, as a confluence between the bearish golden ratio and bullish golden extension is seen around those levels. Meanwhile, bulls could be attracted by the ascending trendline of the open triangle pattern that may end near the critical magnet zone too. That could help the impulse wave (v) in completing the bullish move and start correcting.

With parliament supporting an extension of the Brexit date, market participants expected to see prices reacting positively to the critical news. Instead, the pair fell from a 9-month high of $1.3380, plummeting over a hundred pips against the dollar. Perhaps investors don’t think PM May’s suggestion of a June deadline will be enough.

Should we Expect a Rise?

GBPUSD ($1.3250): Pound was rejected near $1.3224 on Thursday. As a previous high, this level is likely to maintain the bullish bias intact. However, the bearish divergence seen on the MACD could push prices lower for a deeper correction. From a bullish perspective, there is room to move higher towards the $1.34 and $1.3540 extensions. This would complete wave (v) of the impulse upside wave.

Following a 3-day streak, eurodollar finally saw a rejection at $1.1340. German inflation CPI data added a negative sentiment to the pair, which provided investors with sell opportunities. Despite an array of poor US data releases which were expected to shift appetite, the pair remained neacpir $1.13 for the rest of yesterday's session.

Will EURUSD Correct Lower?

EURUSD ($1.1320): It seems that the 3-session long impulse wave saw an end on Thursday. We can now expect prices to correct a little lower, provided the ascending trendline weakens. The slide down to the first corrective wave (a), indicates that there is room to move lower near wave (c) zone. This must follow the wave (b) completion to the upside, which seems nearly done.

Notes/Observations

• PM May likely to bring a 3rd version of the Withdrawal Agreement to Parliament in attempt to avoid a long Brexit extension
• No surprises from BOJ on its rate decision; tweaks some of its assessments regarding exports and output due to global growth slowdown

Equities

Asia:

• Bank of Japan (BOJ) kept its policy steady (as expected). Left its Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintained its policy framework of "QQE with Yield Control" around 0.00% and asset purchases at annual pace of ¥80T. Maintained its overall economic assessment that domestic economy was expanding moderately but exports and output were affected by overseas economies
• Japan Aso: If we insist too much on achieving 2% inflation target, things could go wrong
• China Premier Li stated that China economy faced new downward pressure; won't let growth slide out of reasonable range. Could use tools like RRR cut to cope with uncertainties. Formalized tax and fee cuts to offset downward pressures. Announcement came as China’s national legislature was closing its annual session
• China National People's Congress (NPC) approved foreign investment law; to take effect Jan 1st, 2020
• China Industry Min: Set its first batch of 2019 rare earth mining output quota at 60K tons
• North Korea stated that Leader Kim was rethinking launching and test moratorium. US 'threw away' golden opportunity at Hanoi (Vietnam) summit.

Europe:

• UK Parliament passed the Govt motion to extend Article 50 delaying the Brexit date from March 29th. The outcome bought PM May some time to try and persuade doubters in her own Conservative Party to back her proposal or risk a lengthy postponement to Brexit
• Parliament rejected 'Amendment I' (Benn) by 314-312 vote; amendment would have taken control of parliamentary debate over Brexit away from the govt and also defeated 'Amendment H' which called for a 2nd Referendum on Brexit (as expected) the vote was 85-334

Americas:

• Senate voted 59-41 to block President Trump's emergency declaration on the Mexico border (as expected). Trump affirmed that he would veto bill (Note: Senate would need 67 votes to override veto)
• Treasury Sec Mnuchin: working with China on an 'extensive' document; confirmed that President Trump and President Xi would not be meeting this month
• Treasury Sec Mnuchin reiterated that he supported clean debt ceiling increase; urged Congress to raise debt limit soon

Macro

• (JP) Japan: As expected the BoJ left policy unchanged with BoJ Governor Kuroda acknowledging the impact of trade tensions on the Japanese economy, but commented that China's stimulus is pretty big and will have an impact. He also sound out a defense of ultra-accommodative monetary policy settings, saying negative rates helped create a desirable yield curve and spoke about the importance of sticking to the 2% inflation target.
• (UK) United Kingdom: With just two weeks to go before the UK is slated to leave the EU the situation remains uncertain. A no-deal scenario has been ruled out, and not just at the end of March, as May had wanted, but under any circumstances. It doesn't actually take the risk of a no-deal off the table though. As it stands the UK is still set to leave the EU by the end of March, with or without deal. We are left then with the UK likely to ask the EU for a short term technical extension until the end of June which will have to be unanimously agreed by all 27 member states.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.2% at 379.1, FTSE +0.4% at 7216, DAX +0.2% at 11609, CAC-40 +0.4% at 5371.2, IBEX-35 +0.4% at 9247, FTSE MIB +0.2% at 20911, SMI -0.1% at 9470, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes:

• European Indices trade mostly higher across the board tracking a positive session in Asia and higher US Index futures. Cable remains mixed after UK MPs approved a motion setting out the option to ask the EU for a short delay to Brexit if an agreement on a Brexit deal can be made by March 20th.
• On the corporate front shares of UBS decline after publishing their annual report and disclosing provisions for litigation, regulatory and similar matters reducing Net profit by $382M. Restaurant Group gains sharply on earnings and guidance, with Max Automation, JD Weatherspoons, Korian, Berkeley Group and U-blox among other risers after earnings.
• H&M declines over 4% despite a Q1 Revenue beat, as profitability concerns weigh; MQ Holdings declines almost 30% on earnings and announcement of a rights issue. In other news Wessanen rises on a potential offer from PAI Partners for €11.50/shr; Wirecard falls on reports its Indian Subsidiary is being looked into, while Nyrstar also declines following the deferring of an bond interest coupon.
• Looking ahead notable earners include Kirkland, Terraform Power and Buckle among others.

Equities

• Consumer discretionary: H&M [HMB.SE] -5.5% (Q1 sales), Parrot [PARRO.FR] +0.5% (earnings), J.D. Wetherspoon [JDW.UK] +1.5% (earnings), Wessanen [WES.NL] +17.5% (potentially to be acquired), PageGroup [PAGE.UK] +1% (CEO accident), Restaurant Group [RTN.UK] +8.5% (earnings)
• Financials: UBS [UBSG.CH] -1% (annual report; financial adjustments; outlook), Swedbank [SWEDA.SE] -1.5% (comments on media reports regarding suspicious flows), Berkeley Group [BKG.UK] +1.5% (trading update), Investec [INVP.UK] +1% (briefing statement)
• Industrials: Volkswagen [VOW3.DE] -0.5% (disclosed could be the subject of SEC action), Ferrovial [FER.ES] +0.5% (Heathrow traffic)
• Technology: Wirecard [WDI.DE] -7% (press speculation on probe; denies it)

Speakers

• ECB’s Rehn (Finland) called for strategy review to ensure credible policy. Analysis would not question primary goal of price stability. Latest decisions helped preserve ECB’s accommodative stance. Reiterated that region wasnot heading to recession, just experiencing a slowdown. Also reiterated that core inflation remains subdued
• Ireland Fin Min Donohoe urged the UK to lay out how to avoid no-deal. Reiterated that EU had no wish to trap UK in backstop; Brexit backstop would be temporary
• BOJ Gov Kuroda post rate decision press conference reiterated that price momentum was in place but would take time to achieve the price target. Reiterated that was appropriate to continue with current policy. Global slowdown was impacting domestic exports and production. China economy was unlikely to slow down further given the recent stimulus steps
• IEA Monthly Oil Report maintained its 2019 global oil demand growth forecast at1.4M bpd and 2019 Non-Opec supply at 1.8M bpd. It noted that OPEC Feb oil production was at 30.68M, lower by 240K bpd m/m. OPEC compliance at 94%; Non-Opec 51% (prior 86% and 25% respectively)

Currencies/ Fixed Income

• FX markets were quite subdues in trading thus far in the session with the USD showing just a slight uptick.
• GBP/USD remained below 9-month highs registered earlier in the week after a heard Brexit option was formally taken off the table by the UK parliament. On Thursday the House of Commons granted itself a few week Brexit extension. However, the unity of PM May Cabinet remained in question after 8 of her most senior ministers refused to back her plan to delay Brexit. PM May likely to bring the 3rd version of the Withdrawal Agreement to Parliament on Tuesday (Mar 19th) ahead of the European summit next Thursday (Mar 21st). If PM again fails in her quest to get her deal approved then EU would likely insist on a long extension

Economic Data

• (PE) Peru Jan Economic Activity Index (Monthly GDP) Y/Y: 1.6% v 2.4%e
• (PE) Peru Feb Unemployment Rate: 7.6% v 6.8%e
• (NL) Netherlands Jan Trade Balance: €2.9B v €3.6B prior
• (NL) Netherlands Jan Retail Sales Y/Y: 2.7% v 0.9% prior
• (DE) Germany Feb Wholesale Price Index M/M: +0.3% v -0.7% prior; Y/Y: 1.6% v 1.1% prior
• (EU) EU27 Feb New Car Registrations Y/Y: -1.0% v -4.6% prior (6th straight decline)
• (FI) Finland Jan GDP Indicator WDA Y/Y: 1.5% v 2.3% prior
• (NO) Norway Feb Trade Balance (NOK): 15.8B v 28.8B prior
• (DK) Denmark Feb PPI M/M: -0.2% v +0.6% prior; Y/Y: 3.0% v 3.2% prior
• (TR) Turkey Dec Unemployment Rate: 13.5% v 12.8%e
• (FI) Finland Jan Current Account Balance: +€0.8B v -€0.2B prior
• (CN) Weekly Shanghai copper inventories (SHFE): 264.6K v 236.2K tons prior
• (CZ) Czech Jan Industrial Output Y/Y: -1.1% v +1.6%e; Construction Output Y/Y: -13.2% v +4.3% prior
• (AT) Austria Feb CPI M/M: 0.0% v -0.8% prior; Y/Y: 1.5% v 1.8% prior
• (RU) Russia Narrow Money Supply w/e Mar 8th (RUB): 10.30T v 10.17T prior
• (TR) Turkey Feb Central Gov't Budget Balance (TRY): -16.8B v 5.1B prior
• (IT) Italy Jan Industrial Sales M/M: +3.1% v -3.6% prior; Y/Y: +0.6% v -7.4% prior
• (IT) Italy Jan Industrial Orders M/M: +1.8 v -1.4% prior; Y/Y: -1.2% v -4.7% prior
• (PL) Poland Feb CPI M/M: 0.4% v 0.1%e; Y/Y: 1.2% v 1.2%e
• (IT) Italy Jan General Government Debt: €2.358T v €2.326T prior

Fixed Income Issuance

• (IN) India sold total INR180B vs. INR180B indicated in 2021, 2027, 2032, 2035 and 2044 bonds
• (ZA) South Africa sold total ZAR vs. ZAR650M indicated in I/ L 2025, 2038 and 2046 bonds

Looking Ahead

• 06:00 (EU) Euro Zone Feb Final CPI Y/Y: 1.5%e v 1.5% advance; CPI Core Y/Y: 1.0%e v 1.0% advance; CPI M/M: +0.3%e v -1.1% prior
• 06:00 (IT) Italy Feb Final CPI (includes tobacco) M/M: No est v 0.2% prelim; Y/Y: No est v 1.1% prelim; CPI Index (Ex Tobacco): No est v 102.2 prior
• 06:00 (IT) Italy Feb Final CPI EU Harmonized M/M: No est v -0.2% prelim; Y/Y: No est v 1.2% prelim
• 06:00 (CY) Cyprus Feb Harmonized CPI M/M: No est v -0.8% prior; Y/Y: No est v 2.1% prior
• 06:00 (EU) Daily Euribor Fixing
• 06:00 FR) France Debt Agency (AFT) announces upcoming issuance
• 07:00 (IE) Ireland Jan Trade Balance: No est v €4.6B prior
• 07:00 (BR) Brazil Mar FGV Inflation IGP-10 M/M: 1.2%e v 0.4% prior
• 07:00 (UK) DMO to sell €B in 1-month, 3-month and 6-month bills £2.0B, £2.0B and £2.0B respectively)
• 07:00 (TR) Turkey to sell Euro-denominated debt
• 07:30 (IN) India Weekly Forex Reserves w/e Mar 8th: No est v $401.8B prior
• 07:45 (US) Daily Libor Fixing
• 08:00 (IL) Israel Feb CPI M/M: -0.1%e v -0.1% prior; Y/Y: 1.0%e v 1.2% prior
• 08:00 (BR) Brazil Jan IBGE Services Sector Volume Y/Y: +1.7%e v -0.2% prior
• 08:30 (US) Mar Empire Manufacturing: 10.0e v 8.8 prior
• 08:30 (CA) Canada Jan Manufacturing Sales M/M: +0.4%e v -1.3% prior
• 09:00 (CA) Canada Feb Existing Home Sales M/M: -4.0%e v +3.6% prior
• 09:00 (UK) Baltic Dry Bulk Index
• 09:00 (IN) India announces upcoming bill issuance (held on Wed)
• 09:00 (ES) Spain Debt Agency (Tesoro) announces upcoming on upcoming bond issuance
• 09:15 (US) Feb Industrial Production M/M: +0.4%e v -0.6% prior; Capacity Utilization: 78.5%e v 78.2% prior; Manufacturing Production: +0.1%e v -0.9% prior
• 10:00 (US) Jan JOLTS Job Openings: 7.225Me v 7.335M prior
• 10:00 (BE) Belgium Jan Trade Balance: No est v -$2.4B prior
• 10:00 (US) Mar Preliminary University of Michigan Confidence: 95.7e v 93.8 prior
• 13:00 (US) Weekly Baker Hughes Rig Count data
• 16:00 (US) Jan Net Long-term TIC Flows: No est v -$48.3B prior; Total Net TIC Flows: No est v -$33.1B prior

Gold is trying to recover Thursday’s losses, which emerged after a failure to surpass the 20-day moving average (MA) but the technical indicators suggest that positive momentum may not pick up steam yet, at least as long as the RSI holds around its 50 neutral mark and the MACD keeps moving softly along its red signal line.

The 1,1295 level could provide nearby support to downside corrections, while lower a more descent barrier may arise around 1,276 as any break below this point may confirm the end of the August uptrend. Yet only a decisive close below the 200-day MA currently at 1,247 would shift the neutral medium-term picture into a bearish one.

If the price manages to crawl above the 20-day MA (1,310), traders could look for resistance within the 1,317-1,326 area. Should the bulls violate this region, bringing at the same time the upside trend back into focus, a more crucial battle could start around the 1,346 top.

In brief, gold could follow a sideways move in the short term, while in the medium term, the bullish outlook has somewhat faded after the drop back to the 1,300 round level.

The British pound has stabilized near 7-week highs. Financial market participants took a break amid the development of the situation regarding Brexit. Yesterday, vote on a Brexit delay was held in the UK Parliament. Parliamentarians voted for the decision to send a request to postpone the country's exit from the European Union. 412 officials voted for the delay, 202 voted against. British Prime Minister Theresa May will seek approval of the Brexit deal next week again.

However, 27 EU members should unanimously support this decision in order to delay Brexit. According to preliminary data, the summit of the leaders of the block will be held next Thursday. In case of a short delay, the Brexit date could be rescheduled for June 30th.

Yesterday, the US dollar strengthened against a basket of major currencies despite weak economic data. Thus, new home sales fell to 607K in January, while experts expected 622K. Over the past week, the number of initial jobless claims increased to a maximum of 4 weeks (229K). At the same time, growth in export and import indices exceeded market expectations. The dollar index (#DX) closed the trading session in the positive zone (+0.27%).

The Bank of Japan, as expected, kept the key marks of monetary policy at the same level.

The "black gold" prices have continued to rise. At the moment, futures for the WTI crude oil have approached $58.85 per barrel.

Market Indicators

• Yesterday, there was a variety of trends in the US stock market: #SPY (-0.06%), #DIA (+0.07%), #QQQ (-0.17%).
• The 10-year US government bonds yield fell slightly. Currently, the indicator is at the level of 2.61-2.62%.

The news feed on 15.03.2019:

• Consumer price index in the Eurozone at 12:00 (GMT+2:00);
• Industrial production in the US at 15:15 (GMT+2:00);
• JOLTS job openings in the US at 16:00 (GMT+2:00).

The single European currency appreciated about 60 base points against the Japanese Yen on Thursday. The currency pair tested the upper boundary of an ascending channel at 126.56 during yesterday's trading session.

Given that the 50-, 100– and 200-hour SMAs are below the price level, it is likely that the exchange rate will continue its upside momentum during the following trading session.

The potential upside target in the shorter term will be near the weekly R1 at 126.76.

If the resistance level as mentioned above holds, a decline towards the 50-hour simple moving average at 126.13 could follow.

The Australian Dollar depreciated about 44 base points against the US Dollar on Thursday. The exchange rate tested the bottom border of an uptrend channel at 0.7040 during Thursday's trading session.

The currency pair has since bounced off the lower boundary of the uptrend channel pattern and currently aiming for a psychological resistance level at 0.7100.

Most likely, the currency exchange rate might target the weekly pivot point at 0.7105 within this session.

However, technical indicators suggest we should expect a decline in price during the following trading hours.

The US Dollar appreciated about 56 base points against the Canadian Dollar on Thursday. However, the surge was stopped by a resistance level formed by the 50-hour simple moving average at 1.3337.

Everything being equal, it is likely that the exchange rate will aim at the lower boundary of a junior descending channel pattern at 1.3250 during the following trading session.

If the currency exchange rate breaks the junior pattern, the next target for bearish traders will be at a support cluster formed by the combination of the weekly and the monthly PPs at 1.3198.