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Cable eases from new 2019 high at 1.3349 (the highest since 9 July) on Thursday, signaling adjustment, as traders take profit after strong rally in past two days.

Daily 14-d momentum crests and RSI / Stochastic start to turn lower, signaling consolidative / corrective action.

Solid supports lay at 1.3265 (weekly cloud base), 1.3226 (55WMA) and 1.3203 (100WMA) where dips should ideally find support.

Significantly lower risk of no-deal Brexit and signals of extension of the deadline, fueled gains and continue to underpin.

Opposition Labor Party announced it will support a new referendum on Brexit, if PM May’s plan fails on 12 Mar vote.

Dip-buying ahead of fresh advance remains favored, as the pair is on track to end the second consecutive month in green, but close within weekly cloud is required to confirm scenario.

Fresh extension higher would look for test of targets at 1.3386 (50% retracement of 1.4376/1.2397), violation of which would expose barriers at 1.3397 and 1.3448 (Fibo 123.6% and 138.2% expansion of wave C from 1.2772 trough).

Res: 1.3319; 1.3349; 1.3386; 1.3397
Sup: 1.3265; 1.3226; 1.3203; 1.3153

U.S want China to revaluate yuan a claim that can hardly be met by the Chinese if they do not want repeat Japanese 2 lost decades.

Trade optimism fading

The optimism around the US-China talks is fading away. US representatives noted the difficulty of concluding a long-term deal with China. However, since November, when China and the United States began to take real steps to closer their positions in trade disputes, the yuan strengthened by 4.4%, reversing back more than 40% of the initial losses since the outbreak of trade wars.

The incoming news on the course of trade negotiations includes, among other things, the demand of the American side to see the yuan revaluation, a claim that can hardly be met by the Chinese.

Japan's painful experience of deals with U.S.

If the Chinese authorities are familiar with history, they are unlikely to take such a step. In the 1985, the so-called Plaza Accord envisioned similar moves by Japan. It turned into two decades of economic stagnation, housing prices collapse, and deflation.

The comparison is enhanced by the fact that in the 1980s, Japan was almost like China now: an export-oriented country with high economic growth rates, and GDP, according to forecasts, could exceed the American one in the foreseeable future. Back at the time, economic assessments of GDP per capita were in vogue, and by this indicator, Japan overtook the States.

Is China a new Japan?

In current times comparison at purchasing power parity is in fashion, and this metric gives first place to China. If we also add here growth rates of two to three times higher than those in the United States, an impressive surplus of foreign trade, a growing influence on the countries of the region, it is easy to see a lot of reasons for jealousy and political pressure.

Comparing China and Japan reinforces demographic trends. The population decline itself undermines economic growth. And the currency revaluation will only exacerbate this process, which even under the conditions of a relatively freely floating exchange rate is experiencing a slowdown to the lowest growth rates.

• Risk aversion prevails as top US trade official reins in optimism, Chinese PMIs disappoint
• Sterling cruises even higher as no-deal Brexit risks fades
• Oil rebounds on supply news, but pulls back on demand concerns
• Today, German inflation and US GDP data will be in focus

Risk-off mood prevails amid geopolitical and trade risks, soft Chinese data

US equity markets closed with modest losses on Wednesday and futures suggest they may be headed for even more pain today, amid several risks emanating from both the economic and political arenas. Traders started to turn more defensive after Chinese press reports suggested there are still “big gaps” on structural issues like technology transfer, reigniting trade concerns. This sentiment was later echoed by top US trade official Robert Lighthizer, who testifying before US lawmakers sounded a note of caution, indicating that ‘much still needs to be done’ before a deal is reached, reining in some optimism.

Geopolitically, renewed tensions between India and Pakistan aren’t helping either, with recent hostilities between the two neighboring, nuclear-armed states keeping a lid on risk appetite.

On the data front, some disappointing PMIs out of China coupled with weak data from Japan overnight likely enhanced the ‘slowing global growth’ narrative, delivering the final blow to riskier assets. Asian stock indices were a sea of red, while in the FX spectrum, the best performing currencies today are the defensive Japanese yen and Swiss franc.

Pound soars as no-deal Brexit risk recedes, shorts cover

The British pound continued to bask in relief yesterday, with investors interpreting the potential Brexit delay as diminishing the risk of a no-deal exit, thereby sending sterling/dollar briefly above $1.33. While the outlook for the pound has started to brighten from a long-term perspective, it’s probably still much too early to say this is the beginning of a healthy uptrend for the UK currency.

In short, nothing dramatic has changed in the Brexit landscape. PM May is no closer to securing legally-binding changes to the Irish backstop that will convince UK lawmakers to vote for her deal, so assuming a 2- or 3-month extension, we could be facing down the barrel of the same Brexit deadlock come summer. Hence, it probably won’t be all smooth sailing higher for the pound from here – instead, the currency is more likely to trade like a rollercoaster until it gets the Brexit clarity it needs to regain its former glamour.

Oil rebounds after inventory drawdown, but demand outlook weighs

Crude prices firmed yesterday, following a much bigger-than-expected drawdown in the weekly EIA inventory figures, recovering some of the losses recorded earlier in the week after the US President criticized OPEC for pushing prices too high. Oil prices were further boosted by some remarks from Saudi Arabia’s energy minister, who played up hopes for an extension of the cartel’s current production cuts beyond their current end-date in June. Yet, crude was unable to hold onto all these gains, retreating today in lockstep with risk assets, as the disappointing PMI data out of China overnight painted a darker picture for global growth, and by extent for future oil demand.

German CPIs, delayed US GDP data, and Fed speakers on the docket

As for today, the economic calendar is relatively light, with the only tier-one releases being Germany’s preliminary inflation data for February, and the first estimate of GDP for Q4 out of the US, which was delayed due to the government shutdown.

Note that Germany’s regional CPI data will be released ahead of the nationwide print, so any market reaction in the euro could begin with those.

In terms of speakers, Fed Vice Chairman Richard Clarida will speak at 13:00 GMT. Regional Fed presidents Bostic (13:50 GMT), Harker (17:15 GMT) and Kaplan (18:00 GMT) will all deliver remarks as well.

After 48 very eventful hours, it is appropriate to take stock on Brexit. PM Theresa May has promised three important votes in mid-March, which now, after the passing of the Cooper amendment, sets down in writing May's pledge. On Tuesday 12 March, the House of Commons is set to vote on a full Brexit deal. In case it is voted down (or if there is no deal by then), the House of Commons is set to vote on Wednesday 13 March on whether it can support leaving the EU without a deal. If that is not the case either, the House of Commons is set to vote one last time on Thursday 14 March on whether to ask the EU27 for an extension (two to three months) of the Article 50 deadline. It seems like the game plan is to finalise the deal with the EU27 as late as on Monday 11 March. With the new development, we have updated our game tree accordingly, see next page. We think the probability of May's deal passing on 12 March is low (15%) although we have seen some softening in the Brexiteers' position on the backstop, probably because they know the alternative to something like May's deal is only softer and not cleaner/harder (also because of Labour's big policy shift). A big game changer is still if May can persuade the DUP to come on board (many Brexiteers will likely follow suit then). Pressure is clearly rising. If we are wrong and the UK accepts the deal, the EU27 can sign it off at the EU summit on 21-22 March but the UK would probably need a short extension in order to pass the necessary secondary legislation.

We think the probability of the House of Commons voting in favour of a 'no deal' on Wednesday 13 March is very slim, likely to be below 5%.

On Thursday 14 March, we expect the House of Commons to vote in favour of extending Article 50 by two to three months. That said, it is still up to the EU27 leaders to unanimously accept the proposal and the leaders are divided on whether to accept an extension and if so, how long it should be. While Tusk is in favour of a very long extension, France's President Macron is not sounding as one supporting an extension unconditionally. If the House of Commons, against our expectations, votes down asking for an extension as well, some say that we will be in uncharted territory but, in reality, we are just back to the default option, which is the UK leaving the EU without a deal.

In case of an extension, the fights are just postponed by two-three months and it is not a given that things would change dramatically from here, at least not in the very near term. Some still need to give in and change views eventually – who blinks first? We stick to our long-held view that the two most likely scenarios are either May's deal (or something very similar) passing eventually or a second EU referendum. We have lowered our expectation of a no deal Brexit slightly.

Trump in a press conference that he walked away from the summit with North Korean leader Kim Jong-un. But he emphasized that "it was a friendly walk". The meeting in Vietnam was cut short and ended without an agreement and not even a joint statement.

Trump said "it was all about the sanctions". He added "basically they wanted the sanctions lifted in their entirety, and we couldn't do that". On the other hand, Trump said Kim offered to dismantle North Korea's main nuclear facility at Yongbyon, but "it wasn't enough" to the US.

Trump also added that he could've signed an agreement today but it wasn't the right time. He emphasized he'd "rather do it right".

Pivot (invalidation): 56.30

Our preference Long positions above 56.30 with targets at 57.40 & 57.80 in extension.

Alternative scenario Below 56.30 look for further downside with 56.05 & 55.70 as targets.

Comment The RSI advocates for further upside.

Pivot (invalidation): 15.8200

Our preference Short positions below 15.8200 with targets at 15.6700 & 15.5700 in extension.

Alternative scenario Above 15.8200 look for further upside with 15.8900 & 15.9400 as targets.

Comment The RSI is mixed to bearish.

Pivot (invalidation): 1322.50

Our preference Short positions below 1322.50 with targets at 1316.00 & 1314.00 in extension.

Alternative scenario Above 1322.50 look for further upside with 1325.50 & 1329.00 as targets.

Comment The RSI advocates for further downside.

Pivot (invalidation): 2775.00

Our preference Long positions above 2775.00 with targets at 2814.00 & 2831.00 in extension.

Alternative scenario Below 2775.00 look for further downside with 2758.00 & 2730.00 as targets.

Comment The RSI calls for a new upleg.

Pivot (invalidation): 11557.00

Our preference Short positions below 11557.00 with targets at 11440.00 & 11380.00 in extension.

Alternative scenario Above 11557.00 look for further upside with 11591.00 & 11640.00 as targets.

Comment As Long as 11557.00 is resistance, likely decline to 11440.00.