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• Rates: Spanish budget vote trigger for snap elections?
  Risk sentiment remains positive overnight as US President Trump shows wiliness to extend the Chinese trade deal deadline (March 1). Core bonds trade a tad weaker. Peripheral spreads might see some widening today given Italian/Portuguese supply and the Spanish parliament's budget vote. The latter might be voted down, prompting a case for snap election.
• Currencies: EUR/USD rebound, but picture remains fragile
  Yesterday, the overall risk rebound also triggered a short squeeze on the recent EUR/USD decline. EUR/USD rebounded off the 1.1270 support. For now, a better risk sentiment might give the euro downside protection. However, a sustained rebound probably needs a solution for on pending global/EMU event risks or better EMU eco data.

The Sunrise Headlines

• US equities spurred higher with gains over 1% yesterday on the tentative border deal and trade hopes. Asian markets are trading in green as well. Chinese indices outperforming with gains up to 2%.
• US President Trump signalled he's open to extending the China tariff deadline (March 1) if an agreement is near while Xi Jinping is scheduled to meet the US trade delegation, with US Treasury Secretary Mnuchin, in Beijing on Friday.
• US President Trump will likely sign the preliminary border security deal this week into legislation that will avoid a new government shutdown. However, he is said to use his executive authority to fund additional border measures.
• Olly Robbins, UK's chief Brexit negotiator, was overheard saying the UK is seeking a long extension to the Brexit deadline if Parliament refuses to pass PM May's deal. However, May repeated that extending Article 50 makes no sense.
• New Zealand's central bank left the official cash rate at 1.75%, as expected. The RBNZ pushed out its forecast for a rate hike to early 2021, disappointing investors that were looking for signs of policy easing. The kiwi edged higher.
• Japan's producer prices declined more than expected in January (-0.6% M/M vs. -0.2%.). Australian Westpac consumer confidence rebounded sharply in February, from 99.6 to 103.8.
• Today's eco calendar contains US and UK CPI inflation. The Swedish Riksbank meets. An avalanche of Fed governors speak, as does ECB governor Lane. Spanish parliament votes on the budget. PT, IT and GE tap the bond market

Currencies: EUR/USD Rebound, But Picture Remains Fragile

EUR/USD rebound off 1.1270 support area

The recent euro decline/USD rally fell prey to profit taking yesterday. EUR/USD rebounded as global sentiment improved on a tentative US budget deal and investor hopes that the US-China trade talks are heading in the right direction. ECB speakers including Weidmann, Lane, Nowotny and Knot didn't sound overly dovish. EUR/USD briefly filled bids below the 1.1270 support, but the test was rejected and EUR/USD staged a protracted intraday rebound to close at 1.1326. USD/JPY confirmed its 110+ break, but given the rise in US yields and the positive sentiment, gains were modest (close at 110.48).

Overnight, Asian equities also rally on the positive headlines on the US-China trade talks. The yuan strengthens (USD/CNY 6.7550 area). USD/JPY (111.65) continues drifting higher. EUR/USD (1.1335 area) is gaining a few ticks. The kiwi dollar rebounded sharply as the RBNZ failed to meet dovish market expectations (rates are expected stable through 2019 & 2020, a tentative rise is pencilled from 2021). The kiwi dollar gained more than a full big figure (NZD/USD 0.6845 area). The Aussie dollar (AUD/USD 0.7130 area) also regained modest ground on decent confidence data and constructive RBA talk.

US CPI inflation is expected to ease to 1.5% (headline) and 2.1% (core) today. If anything, the report might justify the Fed's wait-and-see stance. This might be neutral to tentatively soft for the USD. Headlines on the Spanish budget are a wildcard. Yesterday, the euro profited from a better risk sentiment. However, EMU political event risk is still in play and the fragile eco picture questions the room for the ECB policy normalisation. EUR/USD tested the 1.1270 area, but the test is rejected. However a sustained euro rebound probably needs some of the global (trade) and EMU political event risks to be solved and more comforting EMU eco data. This condition isn't met yet. We look out for more convincing signs of a bottoming process. EUR/USD 1.1216 (Nov low) low remains next high profile support.

EUR/GBP gained a few more ticks yesterday. The move was mainly caused by the overall EUR/USD rebound. UK PM May as expected tried to convince Parliament to give her more time to reach a better deal/agreement on the Irish backstop arrangement. Today UK inflation data will be published a modest easing is expected. However, markets will mainly look forward to the developing Brexit story, starting with tomorrow's vote in the UK Parliament. As we don't see signs of a break-through yet, more technical driven EUR/GBP trade might be expected.

EUR/USD rebounds off 1.1290/67 support, but picture remains fragile

Daily Pivots: (S1) 1.1342; (P) 1.1374; (R1) 1.1431; More...

EUR/CHF's break of 1.1376 minor resistance suggest that pull back from 1.444 has completed at 1.1310 already. Intraday bias is turned back to the upside for retesting 1.1444 first. Break will resume the rally from 1.1181 for 1.1501 key resistance next.

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.

AUDUSD has been paring some of the previous days’ losses since yesterday, following the rebound on the 0.7050 support level. Currently, the price is challenging the 40-simple moving average (SMA) in the daily timeframe, successfully surpassing the 23.6% Fibonacci retracement level of the downleg from the 32-month high of 0.8135 to the 10-year low of 0.6746, around 0.7070.

From the technical point of view, the Bollinger Bands have confined prices between the 38.2% Fibonacci of 0.7275 and the 0.7050 support barrier over the last few sessions. The RSI indicator is pointing upwards, approaching the bullish area, while the MACD oscillator is trying to strengthen its positive momentum in the negative zone.

Should prices edge higher, the mid-level of the Bollinger Band (20-SMA) could provide immediate resistance currently at 0.7157. Moving higher, the focus would shift to the 38.2% Fibonacci 0.7275 and the 0.7295 high, while more bullish actions could drive aussie/dollar towards the 0.7340 mark, identified by the peak on November 16.

In the alternative scenario, traders would be eagerly looking for a break below the 0.7050 support to increase selling orders. If that’s the case, the sell-off could last until the 0.6825 barrier, registered on January 2016. If bearish forces appear even stronger, the decade low should be another support to keep in mind.

In the long-term view, AUDUSD has been retaining its descending movement over the last year. Chances for a strong bullish tendency would only come if the pair breaks the 61.8% Fibonacci of 0.7600.

Daily Pivots: (S1) 142.01; (P) 142.33; (R1) 142.77; More...

No change in GBP/JPY's outlook as it's staying in range below 144.84. Intraday bias remains neutral for the moment. Rebound from 131.51 might still extend. But we'd expect strong resistance from trend line (now at 146.89) to limit upside, at least on first attempt. On the downside, firm break of 140.62 will suggest completion of the rebound and turn bias to the downside.

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.

The British pound has recovered back towards the 1.2900 level against the greenback due to the US dollar index coming under heavy selling pressure. The GBPUSD pair bullish bias above the 1.2930 level, with the 1.2900 level another key intraday area to watch for bullish signs. Traders are likely to remain cautious, as the United Kingdom economy is releasing a raft of key inflation data later this morning.

The GBPUSD pair only bearish while trading below the 1.2930 level, key technical support is found the 1.2850 and 1.2830 levels

If the GBPUSD pair moves above the 1.2930 level, buyers may test towards the 1.2970 and 1.3000 levels.

Daily Pivots: (S1) 124.61; (P) 124.95; (R1) 125.47; More....

EUR/JPY rebounds further today but stays in range of 124.17/125.95. Intraday bias remains neutral first. At this point, 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.

The euro currency has recovered above the 1.1300 level against the US dollar, with the pair correcting from extremely oversold trading conditions. If the EURUSD moves above the 1.1360 level, strong technical buying may force the pair back towards the 1.1410 area. Technical indicators are turning bullish on the four-hour time frame with the RSI and MACD indicators both showing potential for further upside.

The EURUSD pair is only bearish while trading below the 1.1360 level, key technical support is found at the 1.1300 and 1.1255 levels.

If the EURUSD pair moves above the 1.1360 level, buyers may test towards the 1.1410 and 1.1470 resistance levels.

Ethereum is pressing against the $120.00 resistance level, with short-term bulls struggling to move price above the ETHUSD pairs 200-period moving average on the four-hour time frame. If buyers break this key moving average an advance towards the $140.00 level is possible, with the $160.00 level extended resistance. Continued failure around the $120.00 may provoke technical selling back towards the $108.00 technical support region.

The ETHUSD pair is bullish while trading above the $120.00 level, key resistance is found at the $140.00 and $160.00 levels.

If the ETHUSD pair fails around the $120.00 level, key support is found at the $115.00 and $108.00 levels.

The New Zealand dollar jumped today after the RBNZ released its interest rates decision. As expected, the bank left interest rates unchanged at 1.75% and pointed that the rates could remain unchanged until 2021. The bank also reiterated that the direction for that decision could be up or down. It also said that while the country is closer to full employment, this has not been translated to inflation, which is still below the target of 2%. The statement added:

Despite the weaker global impetus, we expect low interest rates and government spending to support a pick-up in New Zealand’s GDP growth over 2019. Low interest rates, and continued employment growth, should support household spending and business investment. Government spending on infrastructure and housing also supports domestic demand.

The price of crude oil rose in overnight trading after the American Petroleum Institute (API) released its inventory numbers for the past week. The data showed that inventories shrank by 998K barrels. This was much lower than the previous week’s increase of inventories by 2.5 million barrels. In addition, it was reported that the US could reach more than 13 million barrels a day by 2020. The country produces more than 11 million per day. This news came a day after an OPEC report showed that members had significantly reduced their output. Today, traders will watch out for inventory data from the EIA.

Focus will also remain on sterling and UK stocks. Today, the UK will release its inflation numbers. These numbers are expected to show that consumer prices rose by 1.2% in January. This will be lower than December’s rise of 2.1%. The core CPI is expected to have remained unchanged at 1.9%. The Retail Price Index (RPI) is expected to have remained unchanged at 2.7%. Investors will also continue to follow Brexit news.

EUR/USD

The EUR/USD pair continued the upward trend started yesterday and reached a high of 1.1340. This level is close to the 38.2% Fibonacci Retracement level of 1.1355. On the hourly chart, the price is also above the 14-day and 28-day EMAs, which have just made a crossover. The pair’s RSI has moved to almost the overbought level of 70. The pair will likely continue moving up.

XTI/USD

The price of WTI crude rose in overnight trading after lower-than-expected inventory numbers. The XTI/USD pair is now trading at 53.94, which is close to last week’s high of 55.80. On the four-hour chart, the pair is above the 61.8% Fibonacci Retracement level. It is also above the 21-day and the 42-day EMA. While the pair will likely continue moving up, this could change if EIA releases a larger inventory build-up.

NZD/USD

The NZD/USD pair rose sharply to a high of 0.6845. This level was slightly above the 61.8% Fibonacci Retracement level of 0.6830. The pair is now trading at 0.6845, which is above the 21-day and 42-day EMAs. As the pair climbed, the RSI moved sharply higher to above 70. While the pair could continue moving up, it will likely move slightly lower as bulls take profits. If this happens, it could test the 0.6780 level, which is also the 50% Fibonacci Retracement level.

Daily Pivots: (S1) 0.8763; (P) 0.8777; (R1) 0.8801; More...

Intraday bias in EUR/GBP remains neutral for consolidation below 0.8821 temporary top. Further rise is expected as long as 0.8711 minor support holds. On the upside, sustained break 38.2% retracement of 0.9101 to 0.8617 of 0.8802 will target 61.8% retracement at 0.8916. However, break of 0.8711 will suggest that rebound from 0.8617 has completed. Intraday bias will be turned back to the downside for 0.8617/20 support instead.

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.