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UK Prime Minister Theresa May is going to make a statement on Brexit in the parliament today. According to her office, May is expected to say "the talks are at a crucial stage." And she'll urge that "we now all need to hold our nerve to get the changes this House has required and deliver Brexit on time."

Also, May will say "By getting the changes we need to the backstop; by protecting and enhancing workers' rights and environmental protections; and by enhancing the role of Parliament in the next phase of negotiations I believe we can reach a deal that this House can support."

But just yesterday, EU chief Brexit negotiator Michel Barnier reiterated that "It's clear from our side that we are not going to reopen the withdrawal agreement but we will continue our discussion in the coming days."

Pivot (invalidation): 1.2895

Our preference Short positions below 1.2895 with targets at 1.2845 & 1.2820 in extension.

Alternative scenario Above 1.2895 look for further upside with 1.2920 & 1.2940 as targets.

Comment A break below 1.2845 would trigger a drop towards 1.2820.

Pivot (invalidation): 1.1305

Our preference Short positions below 1.1305 with targets at 1.1265 & 1.1240 in extension.

Alternative scenario Above 1.1305 look for further upside with 1.1325 & 1.1350 as targets.

Comment The RSI is below its neutrality area at 50%

• Rates: Uplift in sentiment caps core bond rally
  An amelioration of global risk sentiment pushed core bonds down yesterday. A preliminary agreement in US Congress on border security and positive signals from US-Sino trade talks are supporting optimism. Core bonds might correct further today. An empty economic calendar leaves investors awaiting for more progress on the Geopolitical topics.
• Currencies: EUR/USD is testing the 1.1267/70 support area
  Recent USD rally gained further momentum yesterday. USD/JPY and the trade-weighted dollar broke important technical resistance levels. EUR/USD tested the end November/early December lows. Today, a better global risk sentiment might slow the euro decline, but for now there is probably no trigger for a sustained EUR/USD U-turn

The Sunrise Headlines

• US equities opened higher yesterday but the move lacked momentum. The Dow Jones (-0.21% underperformed). Asian markets are mixed with Chinese and Japanese indices outperforming on trade optimism and a drop in the yen.
• Trump expressed optimism about China yesterday, saying he will “make great deals” and doesn’t want China “to have a hard time”. He also still wants to meet with president Xi “very soon”, according to White House advisor Conway.
• US lawmakers reached an agreement in principle to avoid a new partial government shutdown this weekend. The compromise, to be approved by Trump and Congress, includes only $1.4bn for border security while Democrats’ efforts to limit detention beds were blocked.
• The BoJ cut longer dated bond purchases after yields declined significantly amid a global bond rally. The BoJ aims at a 10y yield target of close to 0% but has slipped to -0.04% in recent days before bouncing 15 bps after the move.
• January NFIB small business optimism (101.2), scheduled for later today but published exceptionally overnight, slipped to the weakest since the end of 2016. Less than 1 in 5 plans to hire and a mere 6% expects the economy to improve.
• The ECB’s new chief economist to be Philip Lane said this morning that policy uncertainty is currently more elevated than normal. He called for a “measured approached to all of the data” and referred to the new March forecasts for the ECB to decide where next.
• Today’s economic calendar is in no state to guide trading. We only watch for the US JOLT job openings as NFIB small business optimism was already printed. ECB’s Weidmann and Nowotny, Fed’s Powell and BoE’s Carney speak today

Currencies: EUR/USD Is Testing The 1.1267/70 Support Area

EUR/USD testing the 1.1267/70 support area

The recent USD rebound accelerated yesterday. The move was mainly technical in nature. There were few US/EMU data. The trade-weighted dollar and USD/JPY were testing key technical levels. USD/JPY cleared the 110 barrier on higher core yields and a better risk sentiment. Interest rate differentials between the US and Germany/EMU showed a mixed picture (widening at the short end, narrowing at the long end of the curve). Even so, the global USD bid finally also hit EUR/USD. The pair dropped to test the 1.1270/67 support area (late Nov/mid Dec lows). EUR/USD closed at 1.1276 (from 1.1323). USD/JPY finished at 110.38 (from 109.73). USD strength was the name of the game. Overnight, risk sentiment improved as US Congress reached a tentative deal on border security. Most major Asian equity indices are trading higher and core yields gain. Yesterday’s break higher in USD/JPY is confirmed as Japanese markets reopen after a long weekend. The BOJ reduced bond buying in a regular operation this morning, an indication that the recent decline in LT yields as gone far enough. For now, it didn’t help the yen. USD/JPY is trading in the 110.55 area. The EUR/USD decline is taking a breather (EUR/USD 1.1280 area). Today, there are again few US or EMU data. A better risk sentiment usually is at least as beneficiary for the euro as it is for the USD. However, it is unsure whether it is enough to trigger U-turn for the euro. Political event risk (Italy, Spain, trade issues) are still is playing on the background and the fragile eco picture questions the room for the ECB policy normalisation. Soon after the January Fed decision, EUR/USD was captured in a protracted downtrend as poor EMU data outweighed the soft U-turn of the Fed. The short-term momentum stays USD supportive/euro cautious. EUR/USD tested/is testing the 1.1270/67 support. The 1.1216 Nov low is the next level on the radar. After the recent decline, quite some euro negative news should be discounted. That said, we see no trigger yet to reverse the USD-positive/euro negative bias. We don’t row against the tide. Positive news on global trade or on the US-EU trade talks (autos) might provide such a trigger.

Yesterday, EUR/GBP gained a few ticks. UK eco data (Q4 GDP, Dec production) were poor and didn’t confirm last week’s relatively positive BoE assessment. Today, UK PM May will address the UK Parliament on the Brexit process and probably try to get more time to reach an amended deal with the EU. As we don’t see signs of a break-through yet, more technical order driven EUR/GBP trade near current levels might be on the cards

EUR/USD testing the 1.1290/67 support area

A key overhang for the Dollar may be clearing up after US lawmakers announced they have a deal in principle to avoid another US government shutdown this weekend. However, President Trump’s approval is still required before the spending bill can go through.

At the time of writing, the DXY is holding marginally close to 97, having posted gains over the last eightconsecutive days – its longest winning streak since 2016. This recent run of form certainly goes against initial expectations for muted Dollar strength this year given the Federal Reserve’s recent U-turn on US monetary policy.

There is a likelihood that central bank policy in the form of the Federal Reserve is not the catalyst behind the USD rally. It probably doesn’t have anything to do with the U-turn from the Fed a few weeks ago either. Investors are possibly thinking that “no news” when it comes to the ongoing US-China trade talks is not necessarily an example of “no news is good news” for this environment of trade tensions. The threat can’t be understated that the United States will pull the trigger on extra trade tariffs on Chinese goods at the beginning of March. We saw throughout the second half of 2018 that market anxiety over trade tensions pushed the Dollar higher against its global counterparts, and it wouldn’t be that much of a surprise if recent history repeats itself – if there is another escalation in the trade tariff world.

According to the Bloomberg terminal, spot returns for G10 currencies against the stronger Dollar since January 30 have experienced a clear sea of red in favour of the USD. This is following the euphoria that was created when Fed Chair Jerome Powell signalled the need for “patience” when it comes to the potential of hiking interest rates in the United States.

What else is driving the Dollar train higher?

Another perspective on what could potentially be driving the USD higher is the lure towards the Greenback being amplified by ongoing praises for the US economy. At the same time, it has become a strain to market headlines that counterparts to the United States throughout a range of developed and emerging markets are highlighting downside risks to their respective economies.

Those who are fatigued from yo-yo trade headlines in the market might be inclined instead to align their mindset to the return of economic and central bank divergence between the United States, and pretty much everywhere else. This ultimately supports the prospects of a stronger Dollar.

What data to look out for next and what could this mean to interest rate policy?

Markets will look to this week’s US January CPI reading as the next test of the Fed’s data dependence. Following that, attention will turn to next week’s release of the FOMC January 30 meeting minutes for potentially further clues on what could have encouraged the Fed’s recent pivot.

The current stance on US interest rate policy is expected to, in turn, allow other central banks to take a pause on tightening monetary policy. With central banks worldwide either standing pat or moving towards another round of a potential easing bias, investors may have less impetus to part with theircurrent darling, the Dollar.

The dovish outlook on global monetary policy, coupled with further positive indicators of US economic strength, should support the Dollar’s attractiveness and this could mean DXY returning to its recent high of 97.54 achieved in November 2018.

Remember a positive conclusion to trade talks would be seen as Dollar-negative

However, this isn’t to say that demand for the Greenback will continue unabated in the nearterm. Traders should not be looking at the USD as one-way traffic going higher up the charts by any means.

While the US government shutdown may have been averted, markets are also having to contend with this week’s crucial talks in Beijing surrounding US-China trade tensions. Both countries are nearing the end of the 90-day truce and in the event that President Trump pushes through with hiking tariffs on Chinese goods come March 2, that will be seen as a potential trigger to give the US dollar another leg up.

Although given the political and economic pressures that are at risk of creating headwinds to the world’s two largest economies, markets are holding out hope that a deal would be struck sooner rather than later. This would be viewed in the market as a potentially Dollar-negative outcome.

Should key deals be approved in Washington (to fund the US government) and in Beijing (to avert a tariff hike), these will be viewed as the catalysts for risk-on sentiment to return to the fore. Meaning that this would be a significant driver behind potentially higher global equity markets, improved demand for emerging markets and commodities like Oil.

It would however be seen as a risk to the relentless Dollar rally that has taken place over February.

Where do Emerging Markets stand in the currency environment?

Yet amidst this winning streak against G10 currencies, the US dollar has seen mixed results against emerging-market currencies during the same period.

Some of these EM currencies that posted gains against the Greenback are coming back from oversold positions last year, and are supported by factors such as resilient domestic economic fundamentals, foreign fund inflows, and rebounding commodity prices.

However, EM currencies are still exposed to major events that can sway global risk sentiment, such as US-China trade tensions, Brexit uncertainties, and slowing global growth. China’s moderating economic conditions remain a major overhang for the global growth narrative, and the slowdown may be felt in many emergingeconomies via the trade and FX channels.

Ultimately, EM currencies will likely be dictated primarily by the broader US dollar theme, and whether the Greenback can build on its one percent climb so far in 2019.

The euro is trading at its weakest level against the US dollar since December last year after sellers finally broke through the important 1.1300 support level. If sellers can move the EURUSD pair below the 1.1260 level, a further decline towards the 1.1215 support region appears possible. It is worth noting that the 1.1300 level is now former support turned key intraday resistance.

The EURUSD pair is heavily bearish while trading below the 1.1300 level, key technical support is found at the 1.1260 and 1.1215 levels.

If the EURUSD pair moves above the 1.1280 level, buyers may test towards the 1.1300 and 1.1330 resistance levels.

Litecoin is under mild selling pressure on Tuesday after cryptocurrency traders started to book profits from the $45.00 region. The LTCUSD pair may continue to trade higher, as the bullish inverted head and shoulders pattern seen on the lower time frame has an upside projection close to the $50.00 level. Overall, short-term bulls are in charge of the LTCUSD pair while price trades comfortably above the $36.00 level.

The LTCUSD pair is bullish while trading above the $36.00 level, key technical resistance is found at the $50.00 and $55.00 levels.

If the LTCUSD pair trades below the $36.00 level, key support is found at the $34.50 and $33.00 levels.

Daily Pivots: (S1) 1.3268; (P) 1.3294; (R1) 1.3327; More...

USD/CAD is staying in tight range below 1.3329 temporary top. Intraday bias remains neutral first. At this point, we're favoring the case that decline from 1.3664 has completed with three waves down to 1.3068 already, on bullish convergence condition in 4 hour MACD, just ahead of medium term channel support. Hence, rise will stay on the upside as long as 1.3068 holds. Break of 1.3375 resistance will confirm this bullish case and target a test on 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 1.3086) 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) 0.7043; (P) 0.7076; (R1) 0.7094; More...

AUD/USD's breach of 0.7060 temporary low suggests fall resumption. Intraday bias is turned back to the downside. Rebound from 0.6722 should have completed at 0.7295 already. Further fall should be seen to 61.8% retracement of 0.6722 to 0.7295 at 0.6941 next. On the upside, break of 0.7107 will bring recovery. But upside should be limited below 0.7295 resistance to bring another fall.

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) 1.0000; (P) 1.0027; (R1) 1.0068; More....

Intraday bias in USD/CHF remains on the upside. Current rise from 0.9716 is in progress for retesting 1.0128 key resistance next. Decisive break there will resume larger up trend from 0.9186. On the upside, below 0.9988 minor support will turn intraday bias neutral again. But any retreat should be contained by 0.9908 support to bring rise resumption.

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.