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Daily Pivots: (S1) 142.17; (P) 142.74; (R1) 143.17; More...

At this point, GBP/JPY is still staying above 140.62 support and intraday bias remains neutral first. Break of 140.62 will suggest completion of the rebound and turn bias to the downside. In that case, deeper fall would be seen back to retest 131.51 low. On the upside, in case of another rise, we'd expect strong resistance from trend line (now at 146.85) to limit upside, at least on first attempt.

In the bigger picture, the strong rebound from 131.51 suggests that medium term fall from 156.59 (2018 high) has completed already. The corrective structure of such decline is turn argues that it's the second leg of the corrective pattern from 122.36 (2016 low). And this pattern is starting the third leg. On the upside, decisive break of 149.38 will pave the way to 156.59 resistance and above.

Daily Pivots: (S1) 124.56; (P) 125.00; (R1) 125.26; More....

EUR/JPY is still bounded in range of 124.17/125.96 and intraday bias stays neutral. Outlook is unchanged that we're favoring the case that rebound from 118.62 has completed at 125.95 already, just ahead of 55 day EMA. On the downside, break of 123.78 will add more credence to this case and target a test on 118.62 low. On the upside, however, decisive break of 125.95 will dampen out bearish view and target 129.25 resistance next.

In the bigger picture, medium term rebound from 109.03 (2016 low) has completed at 137.49 already, with corrective structure. Fall from 137.49 is likely still in progress. Decisive break of 118.62 will target 161.8% projection of 137.49 to 124.61 from 133.12 at 112.28, which is inside 109.03/114.84 support zone.

Daily Pivots: (S1) 0.8773; (P) 0.8808; (R1) 0.8859; More...

EUR/GBP retreats notably after hitting 0.8840. But intraday bias stays on the upside as rebound from 0.8617 is seen as in progress. Further rise should be seen to 61.8% retracement of 0.9101 to 0.8617 at 0.8916. Break will pave the way back to 0.9101 key resistance. On the downside, break of 0.8743 support is needed to indicate completion of the rebound. Otherwise, near term outlook will stay cautiously bullish in case of retreat.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). The medium term range is set between 0.8620 and 0.9101. Downside breakout of 0.8620 will pave the way back to 0.8312 support . Break of 0.9101 will bring retest of 0.9304/5 resistance.

Daily Pivots: (S1) 1.5829; (P) 1.5887; (R1) 1.5954; More....

Intraday bias in EUR/AUD remains neutral at this point. We're holding on to the view that decline from 1.6765 has completed at 1.5721 already, on bullish convergence condition in 4 hour MACD. On the upside, break of 1.6060 should confirm this bullish view and target a test on 1.6765 high. On the downside, however, break of 1.5721 will extend the decline to 1.5346 support instead..

In the bigger picture, as long as 1.5346 support holds, outlook will remain bullish. Uptrend from 1.1602 (2012 low) is expected to resume sooner or later. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

Daily Pivots: (S1) 1.1341; (P) 1.1361; (R1) 1.1374; More...

Intraday bias in EUR/CHF remains neutral at this point. Further rise is still expected as long as 1.1310 holds. On the upside, break of 1.1444 will whole rally from 1.1181 for 1.1501 key resistance next. However, break of 1.1310 will turn bias to the downside for 1.1181 low again.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by 1.1154/98 support zone to complete it and bring rebound. Decisive break of 1.1501 (38.2% retracement of 1.2004 to 1.1173 at 1.1490) will confirm completion of the correction, on bullish convergence condition in daily MACD. Further rise should be seen to 61.8% retracement at 1.1687 and above next.

Yen is making a strong come back today and surges broadly. Investors are clearly unhappy with the lack of concrete progress with US-China trade negotiations. Sterling follows as the second strongest but it's just recovering some of this week's losses. Never-ending Brexit uncertainty is weighing on the Pound. Dollar regains much strong and is the third strongest for today. Australian Dollar and New Zealand Dollar are the weakest ones.

For the week, New Zealand Dollar is so far still the strongest one, rather resilient, as supported by RBNZ. Dollar takes up the second place from Aussie and the latter's strengthen is fading quickly. Sterling remains the weakest one for the week, followed by Swiss Franc and then Yen. The is prospect for Franc and Yen to end higher should risk sentiments deteriorate further before weekly close.

Technically, Yen crosses are worth a watch today. USD/JPY is heading back to 110.00 resistance turned support. Break will be a strong indication on near term bearish reversal. Meanwhile, EUR/JPY will eye 24.17 support. GBP/JPY is also heading back to 140.62 support. Break of these two levels could prompt more broad based buying in Yen.

In other markets, Nikkei closed down -1.13%. Hong Kong HSI dropped -2.03%. China Shanghai SSE dropped -1.37%. Singapore Strait Times is currently down -0.68%. Japan 10-year JGB yield is down -0.009 at -0.02, staying negative.

US-China trade talks set to conclude without substantial progress

US-China trade talks look set to conclude without substantial progress. US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer didn't comment on the discussions as the final day of close-door session starts today. But it's reported that both sides are still far apart on the core issues, which would need a meeting between Trump and Xi to make the agreement.

Subsidies on State-Owned Enterprises that create unfair competition is one of the deadlocks as it's considered fundamental policy of the Chinese government that couldn't be touched. Reuters reported that China has pledged to adjust the industrial subsidy program to comply with WTO rules. But without any details, the US side, rightfully, is skeptical on enforcement of Chinese government's promises.

White House economic adviser Larry Kudlow fold fox news that "the vibe in Beijing is good." And, "negotiators in Beijing "are soldiering on". Kudlow also said meeting with Chinese President Xi on Friday is "a very good sign" and the US delegation is "getting the job done". Kudlow was "cautiously optimistic" on the outcome. Meanwhile, there is no decision on the trade truce by 60-days yet. But as we argued before, extending the period while keeping the current tariffs is just prolonging the damage to the economies.

Trump to declare national emergency and sign the shutdown averting bill

White House spokesperson Sarah Sanders confirmed that Trump will sign the bill that avert another government shut down. However, as the bill doesn't include the full sum of the funding that Trump demands for the border wall, he's going to declare national emergency.

Sanders said "President Trump will sign the government funding bill, and as he has stated before, he will also take other executive action - including a national emergency."

Top Democrat in the Congress, House of Representatives Speaker Nancy Pelosi said she might file a legal challenge to Trump's action and "that's an option". Senate Democrat leader Chuck Schumer also criticized Trump of a "gross abuse of the power of the presidency."

Fed Brainard: Downside risks have definitely increased and gathering

Fed Governor Lael Brainard warned yesterday that "downside risks have definitely increased relative to that modal outlook for continued solid growth." She added that back in December, she "had already noted that crosscurrents were increasing and that tailwinds were dying down, and I think that is even more true today because of those downside risks that are gathering."

Brainard pointed to external risks including China's economy, US-China trade conflicts and Brexit. And, "We are a very international economy… Our financial system in particular has shown itself to be very responsive to earnings abroad, to financial conditions and volatility abroad. So, yeah, I'm very attentive to the international outlook."

Domestically, she believed that momentum has been "pretty solid". But today's retail sales numbers "caught my eye". Though she "didn't want to make too much" of one month's numbers.

On monetary policy, she's "comfortable waiting and learning" and the current policy is "in a good place". And, she would weigh "what move, if any, later in the year". Meanwhile, she added that the "balance sheet normalization process should probably come to an end later this year".

RBA Kent: Markets expect next RBA move to be down than up

RBA Assistance Governor Christopher Kent delivered a speech on "Financial Conditions and the Australian Dollar – Recent Developments" today. There he acknowledged that developments in Australian financial markets have been similar to those offshore, with falling equity prices, rising credit spreads and increased volatility. Such development is "a story of risk premia increasing from low levels and were associated with rising concerns about downside risks, both internationally and domestically."

The outlook for domestic economy has "also shifted" with downward revision in both growth and inflation forecasts. And market expectations for the next move in cash rate have "switched signs too". Kent noted that "markets have assessed that the next move is more likely to be down than up.". And that's reflected in lower bond yields.

Fall in Australian bond yields is "likely to have contributed somewhat to the modest depreciation of the Australian Dollar of late". On the other hand, "higher commodity prices appear to have worked to limit the extent of Australian dollar depreciation".

On the data front

New Zealand BusinessNZ manufacturing PMI dropped to 53.1 in January, down from 54.8. China CPI slowed to 1.7% yoy in January, PPI slowed to just 0.1% yoy. Japan industrial production was finalized at -0.1% mom in December.

Looking ahead, UK retail sales will be the major focus in European session. Eurozone will release trade balance. Later in the day, Canada will release international securities transactions. US will release Empire State manufacturing, import price index, industrial production and U of Michigan consumer sentiment.

USD/JPY Daily Outlook

Daily Pivots: (S1) 110.26; (P) 110.69; (R1) 110.92; More...

USD/JPY's decline from 111.13 extends today but stays above 110.00 resistance turned support. Intraday bias remains neutral first. At this point, focus remains on whether USD/JPY could sustain above 61.8% retracement of 114.54 to 104.69 at 110.77. If yes, further rise could be seen back to 114.54 resistance. However, break of 110.00 will suggest that it's actually rejected after the rebound from 104.69 was skewed slightly upwards. In that case, the original bearish view will be revived and further fall should be seen through 108.49 support.

In the bigger picture, the stronger than expected rebound from 104.69 mixed up outlook. We'd turn neutral for now first. On the upside, firm break of 110.77 resistance will suggest that fall from 114.54 has completed at 104.69 already. Such decline is seen as a leg in the corrective pattern from 118.65, which might be finished too. Decisive break of 114.54 will confirm this case and target 118.65 and above. On the downside, break of 108.49 support will turn focus back to 104.62/9 support zone instead.

Economic Indicators Update

• Rates: Can core bonds profit from increased uncertainty?
  Dreadful US retail sales pushed core bonds higher yesterday. A new government shutdown will be avoided but US President Trump plans to declare a national emergency to obtain more funds. Trade optimism fades as both parties report few signs of progress. Today’s US sentiment gauges can pile on investor worries/uncertainties. Safe haven flows might be in play.
• Currencies: USD declines on poor US retail sales, but EUR/USD rebound unconvincing
  The dollar was hammered on awful US December retail sales. EUR/USD rebounded, but the technical picture remains fragile. EUR/USD gains will probably remain difficult as long as issues of global/EMU event risk aren’t solved or unless EMU eco data improve. A risk-off context probably doesn’t help the euro.

The Sunrise Headlines

• Awful December retail sales weighed on US equities. Nasdaq barely managed to eke out gains but the S&P and DJI finished in red. A trade talk reality check pours cold water on the recent Asian equity rally. China underperforms.
• US president Trump plans to declare a national emergency to secure more funds for the border wall, after signing a spending bill that avoids a new government shutdown. Democrat House Speaker Pelosi considers a lawsuit.
• Chinese consumer inflation in January slowed for a third straight month to 1.7% YoY (vs. 1.9% expected), the weakest in more than a year. Producer prices increased at the slowest pace since 2016 (0.1% YoY vs. 0.3% anticipated).
• The US and China said that both parties remain far apart on structural reform demands. The report suggests little progress has been made during this week’s trade talks in Beijing despite recent overall constructive tone.
• British Parliament rejected May’s plea for more time to renegotiate the Irish backstop in Brussels. The vote, however, is non-binding. May will continue EU talks and provide Parliament with an update on February 27.
• Spain’s Socialist Prime Minister Pedro Sanchez might call snap elections this morning as he called an extraordinary cabinet meeting. His budget proposal was blocked by Parliament earlier this week.
• On today’s eco calendar, the US prints the Empire Manufacturing Index and U. of Michigan consumer sentiment gauge. The UK publishes retail sales (Jan). China’s president Xi Jinping joins discussions with Lighthizer and Mnuchin.

Currencies: USD Declines On Poor US Retail Sales, But EUR/USD Rebound Unconvincing

Dollar rally blocked by poor US retail sales

The focus for FX/USD trading turned to the US on Wednesday. At first, euro weakness/USD strength still reigned. German/EMU growth data were again week and EUR/USD (re)tested the 1.1250 area. However, fortunes for the dollar changed as December US retail sales printed at an awful -1.2% M/M. US yields and the dollar fell off a cliff. In a market looking for clear direction, EUR/USD finally finished at 1.1295 (from 1.1261). USD/JPY closed at 110.48 (from 111.0). Overnight, Asian markets are pondering the meaning of the poor US retail sales. The headlines on the US-China trade talks are now seen as indicating that the glass is half empty rather than half full (parties say they are still quite far apart). At the same time, Chinese price data remain soft and the US budget solution isn’t that comforting. Asian equities show broad-based losses up to 2.0% (Hong Kong). The (trade-weighted) dollar is trading off yesterday’s top, but the loss remains modest (97.05 area). USD/JPY (110.35 area) extends yesterday’s postretail sales decline. EUR/USD hovers slightly below the 1.13 handle.

Today, the US Empire manufacturing survey, US production data and consumer confidence of the U. of Michigan will be released. The Empire manufacturing and Michigan confidence are expected to improve after a substantial decline last month. In a broader perspective, markets will become more alert for US data after yesterday’s shocking retail sales. Unconvincing data will probably affect risk sentiment first. The impact on the dollar is less obvious. USD/JPY is vulnerable in case of more negative news. We doubt that EUR/USD will be able to start a sustained rebound if global risk sentiment remains ‘instable’, even if it is (partially) due to US data. The advice of the Commerce department on auto import tariffs (expected this weekend) is an additional source of uncertainty for Europe and the euro. This week, the dollar rally showed signs of hesitation, but the picture especially for EUR/USD hasn’t materially improved yet. Even with softer US data, a real euro rebound probably needs some of the global/EMU event risks to be solved and better EMU data. This condition isn’t met. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1287 is 61% retracement 2016 low/2018 top).

Sterling (EUR/GBP above 0.88) traded in the defensive from most of the day as investors looked out of a new Brexit vote in the UK Parliament yesterday. May lost the (non-binding) vote, undermining her mandate to renegotiate the Brexit deal. So, more political muddling through will probably continue. We stay cautious on sterling as long as there are no indications on an delay/rising chance for an orderly Brexit

EUR/USD: dollar declines on poor US retail sales but euro rebound remains unconvincing

The British pound has slumped to a fresh monthly trading low against the US dollar, with the pair falling below the important 1.2790 support level. If sellers can sustain bearish momentum below the 1.2790 level, a further decline towards the 1.2740 support level remains possible. Traders now await the release of Retail Sales data from the UK economy, with expectations tilted to the downside.

The GBPUSD pair is heavily bearish while trading below the 1.2790 level, key technical support is found at the 1.2740 and 1.2710 levels

If the GBPUSD pair moves above the 1.2840 level, buyers may test towards the 1.2900 and 1.2930 levels.

Litecoin is under increasing selling pressure on Friday, with the popular cryptocurrency now testing the $41.00 support level. The $41.00 level was formerly the LTCUSD pairs yearly trading high and now becomes formed key resistance turned key support. A sustained break of this level may encourage selling towards the $36.00 level, while a strong bounce may provoke another test of the $46.00 level.

The LTCUSD pair is bullish while trading above the $41.00 level, key technical resistance is found at the $46.00 and $50.00 levels.

If the LTCUSD pair trades below the $41.00 level, key support is found at the $36.00 and $33.00 levels.

The US dollar has reversed sharply lower against the Japanese yen currency after recent news reports from Sino-US trade talks revealed that both sides are still far from reaching a deal. The USDJPY pair is now testing the pivotal 110.40 level with bearish momentum likely to increase below this area. Any strong bounce from this area will likely target the 111.10 level, while sellers will continue to aim towards the 110.00 support level.

The USDJPY pair is only bullish while trading above the 110.40 level, key technical resistance is found at the 110.80 and 111.10 levels.

If the USDJPY pair moves below the 110.40 level, sellers may test towards the 110.00 and 109.80 support levels.