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The US Dollar traded with low volatility against the Canadian Dollar on Monday. The currency pair movement was about 20 base points.

The exchange rate breached the weekly pivot point at 1.3261 during the European trading session on Tuesday. If the currency exchange rate passes the weekly PP as mentioned above, the next target will be at the 1.3300 region.

On the other hand, if the weekly pivot point resistance level holds, a breakout through the lower boundary of an ascending channel pattern could be expected within this session.

The New Zealand Dollar depreciated about 52 base points against the US Dollar on Monday. The currency pair breached the 50-hour simple moving average during yesterday's trading session.

The exchange rate breached the lower boundary of an ascending channel pattern during the middle of Tuesday's session.

Given that a breakout had occurred, it is likely that the currency exchange rate continues its decline today.

Although, a support cluster formed by the combination of the weekly and the monthly PPs near the 0.6821 area could hinder such decline.

Cable is holding above within narrow range of the previous day, limited by 10SMA (1.2894) and 30SMA (1.2948) ahead of today’s key event, release of UK jobs data.

Two-day recovery from 1.2772 low was capped by pivotal Fibo barrier at 1.2942 (38.2% of 1.3217/1.2772), reinforced by 30SMA, as fresh bulls lost momentum.

Daily studies are in mixed mode and lack direction, with focus on data that could provide fresh signals.

UK unemployment is expected to remain unchanged at 4%, jobless claims are expected to significantly drop in Jan 12.3K f/c vs 20.8K prev), while employment is expected to rise further (151K f/c vs previous nearly doubled figure at 141K that hit the highest on record)

The most significant release – average earnings – is forecasted at 3.5% in Dec vs 3.4% prev (the highest pay growth in nine years).

Strong jobs numbers contrast other economic indicators which point to economic slowdown ahead of Brexit and could boost sterling on better than expected releases.

Bullish scenario on better than expected earnings would boost pound towards converged 20/200SMA’s (1.2988/1.3006).

Sideways-moving 10SMA offers immediate support at 1.2893, while stronger bearish acceleration through 100SMA (1.2874) would weaken near-term structure and risk further weakness.

Res: 1.2942, 1.2988, 1.3006, 1.3047
Sup: 1.2893, 1.2874, 1.2818, 1.2772

The RBA released the minutes of its last meeting, at which it showed a dovish stance. The minutes showed that RBA’s board saw significant uncertainties on the economic outlook and also examined scenarios at which the interest rate could rise as well as fall. Hence, we see the possibility of the next rate move going either way increasing. On the bright side the bank sees the labour market stronger than other economic data, yet that should be put to the test in the next days. Analysts point out the dovish elements in the meeting minutes, as RBA joins the dovish chorus of other central banks. Also they note that developments in the labour and property market, as well as household consumption remain key factors for interest rates. We could see the bank’s outlook weigh on the Aussie, yet financial releases about the labour market in the next few days could confirm or alter the AUD’s course. AUD/USD unsuccessfully tested the 0.7150 (R1) resistance line yesterday and subsequently dropped yesterday and during today’s Asian session. Technically the confirmation of the 0.7150 (R1) resistance line and the pair’s failure to break, could currently underscore the bearish momentum for the pair. Should the pair remain under the selling interest of the market, we could see it breaking the 0.7065 (S1) and aim for lower grounds. Should the pair’s long positions be favoured by the market though, we could see it having another test at the 0.7150 (R1) resistance line and should it break it, we could see it aiming for the 0.7240 (R2) resistance level.

EUR weakens as focus shifts to economy and the ECB.

The common currency weakened yesterday mainly against the USD, as investors’ attention shifted towards the zone’s economy and central bank. The common currency weakened yesterday mainly against the USD, as investors’ attention shifted towards the zone’s economy and central bank. Analysts also predict that ECB staff could slash growth and inflation forecasts, yet at the same time there is still some time before such potential negatives are priced into the common currency. It should be noted that the yield of the German Bund has declined recently reflecting the uncertainty of the European economy. We expect the EUR to remain shaky in the next two days and financial releases to come this week could heavily influence the EUR’s direction. EUR/USD dropped yesterday, breaking just below the 1.1300 (S1) support line (now turned to resistance). We maintain our view for a sideways movement of the pair for the time being, as volatility remains low and the RSI reading, in the 4 hour chart, remains near the reading of 50 implying a rather indecisive market. Should the bears take over, we could see the pair aiming if not breaking the 1.1260 (S1) support line while if the bulls dictate the pair’s direction, we could see it breaking above the 1.1300 (R1) resistance line, aiming for the 1.1345 (R2) resistance level.

Today’s other economic highlights

During the European session today, we get Sweden’s CPI rate for January, UK’s employment data for December and Germany’s ZEW economic sentiment indicator for February. As for speakers, please note that ECB;s chief strategist Peter Praet will be speaking today.

AUD/USD H4

Support: 0.7065 (S1), 0.6985 (S2), 0.6900 (S3)
Resistance: 0.7150 (R1), 0.7240 (R2), 0.7330 (R3)

EUR/USD H4

Support: 1.1260 (S1), 1.1215 (S2), 1.1165 (S3)
Resistance: 1.1300 (R1), 1.1345 (R2), 1.1385 (R3)

German Economy Minister Peter Altmaier told Deutschlandfunk radio today that "for some weeks and months now, we're observing with concern that the U.S. is tightening its trade policies, that tensions are increasing." And, "the impact can already be seen in the world economy, global growth has slowed."

Regarding the trade talks between EU and US, Altmaier said "We are not yet where we want to be. We might have made one-third of the way and the most difficult part will be now". Though he added he was in favor of lowering auto tariffs, "ideally to zero percent".

But Altmaier also reiterated EU's position that agriculture will not be included in any trade talks. He said "agriculture is a very sensitive topic, so we don't want to talk about this in the current situation."

GBPUSD passed through the 1.29 level on Monday but early on Tuesday the bears blocked the way, sending the pair lower. In momentum indicators, the red Tenkan-sen line seems to be flattening, while the RSI is struggling to surpass its 50 neutral mark, both suggesting a sideways market for the short term.

The 1.2830-1.2780 area could provide immediate support in case bearish action picks up steam. Falling lower and below the 1.2700 round level, support could run towards the 1.2660 barrier before the 1.2600 psychological mark comes into focus. If the latter fails to hold, all eyes will shift to the 1.2475 bottom, where any close under that barrier would activate fresh selling pressure.

Alternatively, a break above yesterday’s peak of 1.2938 would shift attention towards the 20-day moving average (MA) which currently stands at 1.2988 and slightly below the 200-day MA. Should the pair jump above those lines and higher to the 1.3000 level, resistance could next be found between 1.3080 and 1.3150.

In the medium-term picture, GBPUSD remains neutral within the 1.3300-1.2393 boundaries. The decreasing distance between the 50- and the 200-day MAs is a positive sign that GBPUSD could turn bullish once the lines clearly cross each other.

• Markets quiet as new round of trade talks kicks off
• Sterling unfazed as Labour MPs split, looks to UK jobs data today
• Yen ticks down after BoJ chief teases further easing

Subdued market moves ahead of fresh negotiating round

Stocks in Asia are mostly in the green on Tuesday, albeit only modestly so, while US markets remained closed on Monday for a public holiday. Moves in the FX market were equally subdued to kick off the week, with price action in the major pairs remaining confined in relatively tight ranges. The euro outperformed despite the ECB’s chief economist, Peter Praet, being the latest to join what seems like a coordinated effort to prepare markets for a dovish shift, indicating the Bank could “adapt” its forward guidance if the economy slows further.

Today may be more exciting though, as the US-China trade negotiations will resume in Washington. This round will also commence with deputy-level talks, before senior officials take over on Thursday. Recent price action implies that traders believe a deal is inching closer, as both sides are clearly thirsty for one. Yet, the fact that the latest round of talks wrapped up without either side providing any details on what progress was made is a red flag, and suggests some cause for vigilance, as much optimism is baked into stock prices already without any concrete evidence of progress.

Sterling unfazed as seven lawmakers quit Labour Party

UK politics were once again in focus, following news that seven Members of Parliament (MPs) representing Labour will break away from the Party over disagreements around the handling of Brexit, among other issues. Yet, the pound was unfazed by the news, as market participants judged that this is not a meaningful change in the Brexit landscape.

Today, UK employment data will hit the markets. Expectations are for a strong report overall, which may support the pound a little. That said, Brexit remains in limbo, with PM May still trying to squeeze some last-minute concessions from the EU, which probably won’t be legally-binding and hence not game changing. As such, uncertainty is set to remain elevated, implying that any data-induced rallies in sterling may remain limited until the political fog clears a little. In this respect, the next date to watch is February 27, when Parliament will vote on amendments that could force the government to take certain actions, like extending Article 50.

Yen barely retreats after BoJ’s Kuroda teases further easing

Overnight, some dovish remarks from BoJ Governor Kuroda made headlines. Firing a warning shot at yen bulls, the BoJ chief said his central bank will considering further easing of policy in case FX moves start to hurt the economy or threaten inflation. The reminder was enough to push the yen lower, though the move was admittedly small.

Day ahead: Germany’s ZEW survey, ECB speakers, and Australian wage data

The schedule is relatively light today as well. On the data front, besides the UK employment figures, Germany’s ZEW survey for February could also attract attention, as it will provide the first indication of whether sentiment in Europe’s largest economy continues to weaken, or not.

The bi-weekly milk auction will also take place, and the outcome may impact the kiwi.

On the earnings front, Walmart is among the key names releasing their results today.

In terms of speakers, ECB Vice President Luis de Guindos (10:15 GMT) and chief economist Praet (15:00 GMT) will both deliver remarks.

The pair holds in green and trading near session high at 110.71, in early European session on Tuesday as yen came under pressure on comments from BoJ governor about possible further policy easing. Near-term tone is positive and favors further advance after pullback from 111 zone was contained by rising 10SMA / broken Fibo 61.8% of 113.70/104.59. Fresh advance also broke above falling 55SMA (110.44), opening way for renewed attack at 111 zone and possible extension towards 200SMA (111.29), as bullishly aligned daily MA's and strong momentum support scenario. Supports lay at 110.44/34 (55/10SMA's) with break below the latter to weaken near-term structure and extension below rising 20SMA (109.90) to generate initial reversal signal.

Res: 110.71, 111.05, 111.12, 111.29
Sup: 110.44, 110.34, 110.22, 109.90

The Australian dollar holds in red in early European trading on Tuesday and pressures 0.71 support, hit by RBA minutes, released in Asia.

The central bank pointed in significant uncertainties on the economic outlook, mainly due to strong fall in housing market that would sideline expectations for change in interest rates in the near-future.

Strong upside rejection on Monday resulted in daily Doji with long upper shadow which could be initial signal of recovery stall.

Corrective advance from 0.7054 base lost traction at strong resistance zone (0.7148/57), provided by a cluster of converged daily MA's and subsequent dip so far retraced 50% of 0.7054/0.7160 recovery leg, increasing risk of further weakness.

Rising bearish momentum on daily chart supports scenario, with extension and close below falling 10SMA (0.7101) to risk return to 0.7054 base. Daily cloud twists on Thursday and could also attract bears.

Res: 0.7119, 0.7143, 0.7160, 0.7174
Sup: 0.7101, 0.7094, 0.7079, 0.7054

Pivot (invalidation): 55.40

Our preference Long positions above 55.40 with targets at 56.35 & 56.90 in extension.

Alternative scenarioBelow 55.40 look for further downside with 55.05 & 54.65 as targets.

Comment Even though a continuation of the consolidation cannot be ruled out, its extent should be limited.