Sample Category Title

• Rates: More clarity in FOMC Minutes?
  Investors will be looking for more clues about future Fed policy in Minutes of the January meeting. Consensus is building that the Fed will adjust the balance sheet run-off process in March or June. We hold a cautious positive intraday bias for core bonds.
• Currencies: Sterling rallies ahead of key meeting between EU’s Juncker an UK PM May
  Yesterday, EUR/USD rebounded further even as the news flow on Europe remained soft. The dollar showed tentative signs of weakness, too. Today, EC consumer confidence, the Minutes of the January Fed meeting and headlines on trade and Brexit will dominate FX trading. The EUR/GBP 0.8620 support is coming on the radar as Brexit talks enter key phase.

The Sunrise Headlines

• US equity markets re-opened yesterday after a long weekend with modest gains (0.15%). Asian equity markets are trading in green this morning with China and Australia marginally underperforming.
• The US pushes China to keep the yuan stable in an attempt to neutralize efforts from China to devalue its currency to counter US tariffs. US President Trump repeated an extension of the March 1 deadline is possible. The yuan gains.
• NY Fed’s Williams doesn’t see the need to raise interest rates any further, unless growth or inflation shifts unexpectedly higher. He also estimated that the Fed would continue the balance sheet run-off well into next year.
• UK PM May will meet with EU Commission president Juncker today. May will try to save her Brexit deal by searching for legally binding changes to the Irish backstop. Juncker already played down prospects of any breakthroughs.
• Japanese exports fell 8.4% (Y/Y) in January for a second straight month and well below expectations (-5.7%). A large decline in shipments to China (-17%) is the main driver. Imports declined -0.6% (Y/Y), beating expectations(-3.5%).
• German Chancellor Merkel and French President Macron are intensifying their campaign to review EU antitrust rules. They want EU companies to be able to compete on a global level, which is currently blocked by tough EU merger rules.
• Today’s eco calendar contains the Minutes of the January Fed meeting and February EMU Consumer Confidence. ECB chief economist Praet speaks in Frankfurt. Germany taps the market.

Currencies: Sterling Rallies Ahead Of Key Meeting Between EU’s Juncker An UK PM May

Sterling rallies ahead of key May-Juncker meeting

Yesterday, EUR/USD rebounded further. If anything, headlines were euro negative rather than positive. Italian production and order data were again weak. ZEW German confidence was mixed and ECB members did speak soft. EUR/USD fell briefly below 1.13, but rebounded later. A better risk sentiment dented appetite for the dollar. A rebound of cable maybe also supported EUR/USD. The US NABH housing index rose more than expected but failed to inspire USD bulls. EUR/USD closed at 1.1341 (from 1.1311). Soft BOJ comments initially weighed on the yen, but USD softness finally caused USD/JPY to close little changed at 110.63.

Most Asian equity indices are trading in positive territory with China underperforming. The yuan rallied (USD/CNY 6.7250) on headlines that the US asked China to keep its currency stable as part of the trade talks. The yen (USD/JPY 110.85 area) weakened further on poor Japan foreign trade data. BOJKuroda again suggested that BOJ policy isn’t weakening the yen. Still, recent BOJ-talk on the currency is striking. AUD/USD stabilizes in the upper half of the 0.71 big figure despite (slightly) softer than expected Q4 wage data. Today, the EC consumer confidence is expected to ease further to -7.7 from -7.9. In the US, markets will look out for the minutes of the Jan 30 Fed meeting. The turn in the Fed’s bias is already well documented. Still, the (FX) market might be slightly more sensitive to dovish accents rather than ‘hawkish’ ones. Headlines on trade and on Brexit remain wildcards.

Last week, disappointing US data capped the USD rebound. EUR/USD rebounded off recent lows, but the picture remains fragile. Progress on global trade issues and better EMU data are needed for a more protracted EUR/USD comeback. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement (2016 low/2018 top). The EUR/USD downside looks a bit more solid versus last week.

Yesterday, sterling showed remarkable strength. EUR/GBP drifted lower throughout the day and close below 0.87. Solid UK labour data helped sterling. At the same time, markets apparently hope that upcoming EU-UK talks might at least avoid a chaotic no-deal Brexit. Today, CBI order data are interesting but probably of second tier significance for GBP-trading. The focus will be on a new ‘crucial’ meeting between EU’s Juncker and UK PM May. It is unsure whether any real progress will be made. At least for now, sterling trading are inclined to see the glass half full rather than half empty. EUR/GBP 0.8621/17 is key MT support.

EUR/USD rebounds off recent lows, but picture remains fragile.

Daily Pivots: (S1) 0.7120; (P) 0.7148; (R1) 0.7192; More...

AUD/USD's corrective rise from 0.7054 resumed by breaking 0.7160. Intraday bias is turned back to the upside for further rise. But upside upside should be limited below 0.7295 resistance. We're favoring the case that rebound from 0.6722 has completed at 0.7295 already. On the downside break of 0.7054 support will affirm this case and target 61.8% retracement of 0.6722 to 0.7295 at 0.6941 next.

In the bigger picture, as long as 0.7393 resistance holds, we'd treat fall from 0.8135 as resuming long term down trend from 1.1079 (2011 high). Decisive break of 0.6826 (2016 low) will confirm this bearish view and resume the down trend to 0.6008 (2008 low). However, firm break of 0.7393 will argue that fall from 0.8135 has completed. And corrective pattern from 0.6826 has started the third leg, targeting 0.8135 again.

Daily Pivots: (S1) 1.3185; (P) 1.3233; (R1) 1.3262; More...

USD/CAD's breach of 1.3196 minor support dampened the bullish view. Rebound from 1.3068 might have completed already. Intraday bias is turned back to the downside for this support. Decisive break there will carry larger bearish implications. On the upside, break of 1.3340 will resume the rebound from 1.3068 towards 1.3664 high.

In the bigger picture, structure of the medium term rise from 1.2061 (2017 low) to 1.3664 is not clearly impulsive. Hence, we'd stay cautious on strong resistance from 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685 and 1.3793 resistance to limit upside, and bring medium term topping. But in any case, medium term outlook will stay bullish as long as channel support (now at 1.3109) holds. Sustained break of 1.3793 will pave the way to retest 1.4689 (2015 high). Firm break of the channel support should confirm reversal target 1.2061 low again.

Daily Pivots: (S1) 110.43; (P) 110.63; (R1) 110.81; More...

USD/JPY is staying in range below 111.13 temporary top and intraday bias remains neutral. On the downside, break of 110.00 resistance turned support will suggest rejection by 61.8% retracement of 114.54 to 104.69 at 110.77 and the rebound from 104.69 has likely completed. Intraday bias will be turned back to the downside for 108.49 support for confirmation. Nevertheless, break of 111.13 should confirm resumption of rise from 104.69 for 114.54 resistance.

In the bigger picture, while the rebound from 104.69 was stronger than expected, it couldn't sustain above 55 day EMA yet. Outlook is turned mixed first. On the downside, break of 108.49 support will revive that case that such rebound was a correction. And, larger down trend is still in progress for another low below 104.62. But sustained trading above 55 day EMA will turn focus to 114.54. Decisive break there will confirmation completion of the decline from 118.65 (2016 high).

Daily Pivots: (S1) 0.9989; (P) 1.0025; (R1) 1.0049; More....

USD/CHF's pull back from 1.0098 extends lower but it's staying above 0.9988 minor support. Intraday bias remains neutral and another rise is still mildly in favor. On the upside, above 1.0098 will target 1.0128 first. Break will confirm resumption of up trend from 0.9186. Next target will be 100% projection of 0.9541 to 1.0128 from 0.9716 at 1.0303. However, break of 0.9988 will indicate rejection by 1.0128 and turn intraday bias to the downside for 0.9716 support again.

In the bigger picture, USD/CHF drew strong support from medium term trend line and rebounded. That suggests rise from 0.9186 is still in progress. Further break of 1.0128 will confirm up trend resumption and target 1.0342 key resistance. Nevertheless, break of 0.9716 will dampen this bullish view and at least bring deeper fall to 0.9541 key support.

Daily Pivots: (S1) 1.1292; (P) 1.1324; (R1) 1.1374; More.....

EUR/USD's break of 1.1341 minor resistance suggests short term bottoming at 1.1234. The consolidation pattern from 1.1215 is extending rise from 1.1234 as another leg. Intraday bias is back on the upside for 1.1514 resistance first. On the downside, though, break of 1.1275 minor support will turn bias back to the downside for 1.1215 low instead.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Daily Pivots: (S1) 1.2948; (P) 1.3011; (R1) 1.3126; More....

GBP/USD's break of 1.2957 minor resistance suggests that pull back from 1.3217 has completed at 1.2773 already. Intraday bias is turned back to the upside for retesting 1.3174/3217 key resistance zone. Decisive break there will complete a head and shoulder bottom pattern (ls: 1.2661, h: 1.2391, rs: 1.2773). That would indicate bullish reversal for 61.8% retracement of 1.4376 to 1.2391 at 1.3618 next. On the downside, break of 1.2895 minor support will turn bias back to the downside for 1.2773 instead.

In the bigger picture, focus is back on 1.3174 resistance with current rebound. Break will indicate completion of decline from 1.4376. Rise from 1.2391 would then be seen as the third leg of the corrective pattern from 1.1946 (2016 low). In that case, further rise could be seen through 1.4376 resistance. Nevertheless, rejection by 1.3174 again will extend the decline from 1.4376 through 1.2391 to 1.1946 low.

Dollar was sold off broadly overnight, as dragged down by falling treasury yields. Also, recent comments from Fed officials continued to affirm the "patient" monetary policy stance. While the greenback is trying to recover in Asian session today, there is no clear follow through buying. The greenback will look into FOMC minutes to be released later in US session. But the minutes are unlikely to provide any inspiration for a turnaround. Meanwhile, Yen is also under pressure today as Asian stocks extend recent rebound.

Technically, GBP/USD's strong break of 1.2958 resistance suggests that pull back from 1.3217 has completed at 1.2773 already. Focus is back on 1.3174 key resistance. Decisive break there will be a strong sign of larger bullish reversal. EUR/USD's break of 1.1341 minor resistance also suggests more rebound towards 1.1514. USD/CAD also breached 1.3196 support which opens deeper decline aback to 1.3068 low. Overall, near term outlook in Dollar is turning bearish.

In Asia, Nikkei closed up 0.60%. Hong Kong HSI is up 0.88%. China Shanghai SSE is up 0.16%. Singapore Strait Times is up 0.46%. Japan 10-year JGB yield is down -0.0037 at -0.033. Overnight, DOW rose 0.03%. S&P 500 rose 0.15%. NASDAQ rose 0.19%. 10-year yield dropped -0.019 to 2.647. 30-year yield dropped -0.006 to 2.991. One thing to note is that 5-year yield at 2.458, is below 6-month yield at 2.501. Yield curve is getting more inverted again.

Fed Williams: Monetary policy is where it should be

New York Fed President John Williams said in a Reuters interview that he's comfortable with the current interest rate level. He described the current federal funds rate, at 2.25-2.50%, as being "around my view of what neutral interest rates are". And "monetary policy is where it should be".

He noted that a shift in economic outlook is needed for Fed to resume the rate hike cycle. Nevertheless, he added "I don't think that it would take a big change, but it would be a different outlook either for growth or inflation".

Regarding balance sheet reduction, Williams noted it could end when bank reserves hit "maybe $1 trillion of reserves or somewhat more than that". That's only around USD 600B below current levels. He added, the figure is "a guess today of the amount of reserves that will be held in the system in the future - but again we are learning and will get a finer touch on that."

Fed Mester: Interest rate may need to rise a bit if most likely case realizes

Cleveland Fed President Loretta Mester said in a speech yesterday that the most likely case this year is that "the economy will transition toward a more sustainable pace of growth, with continued strength in labor markets and inflation near 2 percent." And if this case realizes, "fed funds rate may need to move a bit higher than current levels.

Though, she also emphasized that Fed must "remain attentive to several risks to the outlook, including the slowdown in global growth, uncertainty over trade policy, tighter financial conditions, and the changes in business and consumer sentiment". If some of the risks manifest themselves, and, economy turns out to be weaker than expected, she will need to adjust her outlook and policy views.

For now, federal funds rate are now at the lower end of the longer-run neutral level. Monetary policy is "neither ahead of nor behind the curve". She said "we can take the time to make that assessment. "

Trump on China trade talks: March 1 is not a magical date

Trump indicated once again in the oval office yesterday that he's flexible to change the March 1 trade truce with China. He said the negotiations are "very complex talks" but they're "going very well". He added that "I can't tell you exactly about timing, but the date (March 1) is not a magical date. A lot of things can happen."

Regarding the possibility of raising tariffs on Chinese imports further, Trump said "I know that China would like not for that to happen, so I think they're trying to move fast so that doesn't happen."

China Foreign Ministry emphasized in a statement that "The U.S. side should recognize that China's development is in the world's interest, as well as the United States'. Only by seeing China's development as an opportunity for the United States can this help resolve certain problems, including trade and economic ones."

And, "As long as China and the United States proactively meet each other halfway, then trade and economic cooperation can still play a role as a ballast stone in Sino-U.S. ties."

UK PM May to visit Brussels again, but breakthrough unlikely

UK Prime Minister Theresa May is going to Brussels today to seek legal binding changes to Irish border backstop arrangement. But there is little chance for EU to change their stance. European Commission President Jean-Claude Juncker was quoted by an aide saying "I have great respect for Theresa May for her courage and her assertiveness. We will have friendly talk tomorrow but I don't expect a breakthrough."

UK Chancellor of Exchequer Philip Hammond was also quoted telling a manufacturing association that "the so-called 'Malthouse' initiative to explore possible alternative arrangements to the backstop is a valuable effort..". However, he added, "it is clear that the EU will not consider replacing the backstop with such an alternative arrangement now in order to address our immediate challenge."

On the data front

Australia wage price index rose 0.5% qoq in Q4, below expectation of 0.6% qoq. Westpac leading index was unchanged mom in January. New Zealand PPI output slowed to 0.8% qoq in Q4 versus expectation of 1.1% qoq. PPI input rose to 1.6% qoq, above expectation of 1.0% qoq.

Germany will release PPI today while Eurozone consumer confidence will also be featured. But main focus will be on FOMC minutes.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2948; (P) 1.3011; (R1) 1.3126; More....

GBP/USD's break of 1.2957 minor resistance suggests that pull back from 1.3217 has completed at 1.2773 already. Intraday bias is turned back to the upside for retesting 1.3174/3217 key resistance zone. Decisive break there will complete a head and shoulder bottom pattern (ls: 1.2661, h: 1.2391, rs: 1.2773). That would indicate bullish reversal for 61.8% retracement of 1.4376 to 1.2391 at 1.3618 next. On the downside, break of 1.2895 minor support will turn bias back to the downside for 1.2773 instead.

In the bigger picture, focus is back on 1.3174 resistance with current rebound. Break will indicate completion of decline from 1.4376. Rise from 1.2391 would then be seen as the third leg of the corrective pattern from 1.1946 (2016 low). In that case, further rise could be seen through 1.4376 resistance. Nevertheless, rejection by 1.3174 again will extend the decline from 1.4376 through 1.2391 to 1.1946 low.

Economic Indicators Update

Litecoin is trading close to the best levels of the year so far on Wednesday after the cryptocurrency reached the first bullish objective of the inverted head and shoulders pattern. The LTCUSD pair may advance towards the $55.00 region if buyers can break above the $49.50 resistance area. Alternatively, technically failure from current levels may prompt a deeper retracement back towards the $36.00 support level.

The LTCUSD pair is bullish while trading above the $39.50 level, key technical resistance is found at the $47.00 and $49.50 levels.

If the LTCUSD pair trades below the $39.50 level, key support is found at the $36.00 and $33.00 levels.

The euro is building bullish momentum against the US dollar, after breaking above the 1.1337 resistance level during Tuesday’s US trading session. If EURUSD bulls can sustain the pressure and force price above the 1.1370 level, the pair could easily rally towards the 1.1410 level. Technical indicators across the four-hour time frame are bullish and signaling further gains in the euro.

The EURUSD pair is bullish while trading above the 1.1337 level, key technical resistance is found at the 1.1370 and 1.1410 levels.

If the EURUSD pair moves below the 1.1337 level, sellers may test towards the 1.1300 and 1.1285 support levels.