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Daily Pivots: (S1) 109.93; (P) 110.20; (R1) 110.65; More...

Intraday bias in USD/JPY remains on the upside for 61.8% retracement of 114.54 to 104.69 at 110.77. At this point, we'd still expect strong resistance from 110.77 to limit upside to bring near term reversal. On the downside, break of 109.66 minor support will turn intraday bias back to the downside for 108.49. Break will confirm completion of rebound from 104.69. However, sustained trading above 110.77 will dampen our bearish view and target a test on 114.54 resistance instead.

In the bigger picture, while the rebound from 104.69 is strong, there is no change in the view that it's a corrective move. That is, fall from 114.54, as part of the decline from 118.65 (2016 high), is not completed yet. Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. Nevertheless, sustained trading above 55 day EMA (now at 110.41) will dampen this bearish view and turn focus back to 114.54 resistance instead.

Daily Pivots: (S1) 1.2824; (P) 1.2883; (R1) 1.2922; More....

GBP/USD's breach of 1.2854 temporary low suggests that fall from 1.3217 is resuming. Intraday bias is turned back tot he downside. As noted before, current development suggests that rebound from 1.2391 has completed at 1.3217 already, after rejection by 1.3174 key resistance. Further decline would be seen back to retest 1.2391 low. On the upside, above 1.2938 minor resistance will turn intraday bias neutral first.

In the bigger picture, the rejection by 1.3174 key resistance revived the original view on GBP/USD. That is, decline from 1.4376 is possibly resuming long term down trend from 2.1161 (2007 high). Firm break of 1.2391 will solidify this bearish case and target 1.1946 (2016 low). However, decisive break of 1.3174 will invalidate this bearish case again and turn outlook bullish.

The British pound is coming under increasing downside pressure against the US dollar on Tuesday after sellers forced price below the important 1.2890 level. The 1.2850 level is the major support region to watch, further losses under this area may provoke additional technical selling towards the 1.2780 level. Sterling traders should be aware that Bank of England Governor Mark Carney is delivering a scheduled speech later today.

The GBPUSD pair is heavily bearish while trading below the 1.2890 level, key technical support remains at the 1.2850 and 1.2780 levels

If the GBPUSD pair moves above the 1.2890 level, buyers may test towards the 1.2920 and 1.2970 levels.

On Friday, the price of cryptocurrencies rallied, with most of the currencies having their best day this year. Bitcoin and Ethereum reached a high of $3695 and $125 respectively. The cause of the sudden jump was not known although most traders observed an increase in Bitcoin’s hash rate, which reached a three-month high. The hash rate is a measure of the performance of miners, with a high hash rate being better for the market.

The sudden rise in the price of cryptocurrencies came as the industry is still coming to terms with the disappearance of currencies worth more than $150 million from a Canadian exchange. There have been doubts whether Gerald Cotton, the CEO of QuadrigaCX died or whether he faked his own death as an exit strategy. According to Bloomberg, a number of external experts brought to asses the situation have found gaps in the explanation offered by Quadriga CX. For example, while the statement said that the currencies were in a cold storage, the CEO of Kraken has said that they have coins owned by the company. Investors will continue to watch out for this news as well as the regulations that are likely to come because of it.

After Friday’s jump, the price of Bitcoin has struggled to remain on those levels and is currently slightly lower. The currency is now trading at $3570. On the four-hour chart, the price is slightly above the 28-day and 14-day EMA. The price is also much lower than the important support of $4000. With no major news, there is a likelihood that the pair will continue moving lower to Friday’s levels of below $3400.

US futures rose in overnight trading after US lawmakers agreed, in principle, on funding border security. This was a culmination of weeks of negotiations in which the lawmakers wanted to avoid another government shutdown on Saturday. Even with the progress, there is a possibility that Donald Trump will reject the proposals. He has asked for $5.7 billion in border security. However, the current deal is in the range of $1.3 billion and $2 billion. This is less than half of what the President needs.

The US dollar rallied to the highest level this year. Today, the dollar index is in the ninth straight day of gains. The index measures the performance of the USD with that of a basket of currencies like the euro, yen and sterling. The reason for this is that while the Fed has halted further rate hikes, the US economy is doing better than that of its peers. The European Union’s economy is weakening while that of Japan is not strong either. The UK economy on the other hand is going through challenges of slow growth, which is compounded by the uncertainties brought about by Brexit.

Asia-Pacific stocks rose as investors grew optimistic about the current round of talks between the US and China. US officials are currently in Beijing, negotiating a deal as the March 1 deadline nears. In China, the Shanghai composite and Hang Seng rose by 0.75% and 0.20% while in Japan, the Nikkei rose by 2.60%. In Australia and New Zealand, the ASX 200 and DJ New Zealand index rose by 0.35% and 1% respectively.

EUR/USD

In the US session yesterday, the EUR/USD pair declined sharply, crossing the important support of 1.1290. The pair reached an intraday low of 1.1265, which was the lowest level since November last year. On the four-hour chart, the price is still below the 25 and 50-day EMA while the momentum indicator remains below the 100 level. The RSI is trading along the oversold level of 70. Therefore, while the pair could continue moving lower, there is a likelihood that it will make a short-term reversal.

GBP/USD

The GBP/USD pair continued the downward trend as traders waited for more guidance on Brexit. The pair is now trading at 1.2845, which is the lowest level since January 23. On the hourly chart, the price is below the 14-day and 28-day EMA while the RSI has moved closer to the oversold level. The Parabolic SAR points to more downward movements. There is a possibility that the pair will continue moving lower today.

USD/JPY

The USD/JPY pair continued the upward trend started in December. The pair reached a high of 110.65, which is the highest level since December 28. On the hourly chart, the pair is above the 14-day and 28-day EMAs while the RSI has moved to almost the 70 level. The momentum indicator has moved above the 100 level. The pair will likely maintain the upward trajectory.

Daily Pivots: (S1) 1.1249; (P) 1.1290; (R1) 1.1315; More.....

Intraday bias in EUR/USD remains on the downside at this point. Current development suggests that corrective pattern from 1.1215 has completed already. Further decline should be seen through 1.1215 low to 1.1186 fibonacci level. On the upside, break of 1.1329 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

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.

Dollar is paring some gains today after yesterday's rally, but remains the strongest one for the week. A temporary agreement was reached in the US Congress to avert another government shut down. Focus is turning back to trade negotiation with China in Beijing. There is little news regarding the actual mid-level discussions. But words coming out of the White House and Trump have been positive.

As of now, Australia Dollar is the strongest one for today, as lifted by another day of rebound in Chinese stocks. Japanese Nikkei also came back from holiday with a strong rise. But upside momentum in Aussie is so far capped by dovish RBA expectations. Canadian Dollar follows as the second strongest one. WTI crude oil drew support from 51.37 support and is recovering, back at 52.8. Yen and Swiss Franc are the weakest ones at this point.

Looking ahead, the economic calendar is relatively empty today. Bundesbank head Jens Weidmann, BoE Governor Mark Carney and Fed Chair Jerome Powell will speak. UK Prime Minister Theresa May will also deliver a statement on Brexit in the Commons.

Technically, USD/CHF and USD/JPY resumed recent rebound yesterday and are both heading higher. EUR/USD's break of 1.1289 support should now bring deeper fall to 1.1215 low. GBP/USD breached 1.2854 temporary low and further decline is now tentatively in favor, towards 1.2391 low. AUD/USD breached 0.7060 temporary low earlier but quickly recovered. Focus will be on whether it's rebounding from here, or selloff will resume soon.

In Asia, Nikkei closed up 2.61%. Hong Kong HSI is up 0.09%. China Shanghai SSE is up 0.53%. Singapore Strait Times is down -0.01%. Japan 10-year JGB yield is up 0.0113 at -0.017, staying negative. Overnight, DOW closed down -0.21%. S&P 500 rose 0.07%. NASDAQ rose 0.13%. 10-year yield rose 0.029 to 2.661. 30-year yield rose 0.023 to 2.999, just failed to reclaim 3% handle.

Tentative deal reached to avert another US government shutdown, with border fencing

A tentative deal was agreed yesterday between the Republicans and Democrats to avert another partial government shutdown this Saturday. But the agreement does not include the USD 5.7B funding for the border wall that Trump demanded. No detail is provided for the deal yet. But based on unnamed source, there would be USD 1.375B in funding for new fencing along the southern border of the US. That is around the same amount the Congress allocated last year. Also, it's reported that only currently deployed design could be used for 90km of additional barriers, which might include steel bollard fencing.

White House Conway: Trump wants to meet Xi very soon

Mid-level trade negotiations between US and China continue in Beijing today. That's supposed to lead up to high level meeting between USTR Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He on Thursday and Friday. So far, little news is reported regarding the actual talks. It's believed that the teams are only in the stage of drafting a common document that addresses the issues. But they're still struggling to find concrete ways on the main issue, enforcement of the agreement.

White House adviser Kellyanne Conway said yesterday that Trump "wants to meet with President Xi very soon." She added that This president wants a deal. He wants it to be fair to Americans and American workers and American interests." Also, Trump has "forged a mutually respectful relationship with President Xi," and "they will meet again soon." However, Conway also noted that no deal will be final until the Trump-Xi meeting happens.

As the March 1 trade truce deadline is approaching, time is running out for the talks. It's reported that an option for the US is to extend the period. However, to maintain pressure on China and urgency on the negotiations, any extensions won't be open-ended. And based on unnamed sources, the US side intend not to let the Trump-Xi meeting slip much past end of March.

EU Barnier and UK Barclay held constructive meeting on next step for Brexit

EU chief Brexit negotiator Michel Barnier had a meeting with UK Brexit Minister Stephen Barclay in Brussels on Monday evening. A UK government spokesman said the two had a "constructive" meeting.

And they met to "discuss the next steps in the UK's withdrawal from the EU and explore whether a way through can be found that would be acceptable to the UK Parliament and to the European Union".

UK Prime Minister Theresa May is scheduled to make a statement on Brexit today. Without any progress, there will not be another meaningful vote on her withdrawal agreement. Instead, debate will resume on Thursday in the Commons, with some lawmakers pushing for shift control of the negotiation from the government to the parliament.

NAB on RBA: Next rate move could be down rather than up

Australia NAB Business Condition staged a moderate rebound in January up from 2 to 7 and beat expectation of 4. That came after the sharp decline from 11 to 3 in December. Business Confidence also rose slightly from 3 to 4. NAB noted that even after the recovery, "conditions and forward orders continue to trend lower and still show a sizeable decline over the past 6 months."

Alan Oster, NAB Group Chief Economist noted that "Based on the confirmation that conditions have deteriorated further and our current set of forecasts we now see the RBA staying in neutral for the foreseeable future, though think the next move could be down rather than up based on the current trajectory of growth and growing downside risks".

Also from Australia, home loans dropped -6.1% mom in December versus expectation of -2.0% mom.

RBNZ survey: Inflation, house price and GDP expectations dropped

RBNZ quarterly survey showed inflation expectation for a year ahead dropped from 2.09% to 1.82%. One-year house price expectations dropped sharply from 2.86% to 1.91%. One-year rolling annual GDP expectation dropped slightly from 2.44% to 2.38%. Regarding RBNZ monetary policy, a net 75.6% of respondents believe monetary conditions in one year's time will be easier than neutral.

China MOFCOM: Consumption faces more challenges in 2019 after slowdown last year

Chinese Commerce Department's Deputy Director of the Market Operation Wang Bin admitted that consumption growth in 2018 has slowed down. In particular, growth in products related to automobiles and housing have been weak. Additionally, there will be more challenges for consumption growth in 2019 than expected.

Wang added that there will be measures to boost consumption in five aspects. Those include polices on urban consumptions, rural consumptions, service consumptions, product circulations and consumption environments.

Elsewhere

Japan M2 rose 2.4% yoy in January. Tertiary industry index dropped -0.3% mom. Machine tool orders dropped -18.8% yoy.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1249; (P) 1.1290; (R1) 1.1315; More.....

Intraday bias in EUR/USD remains on the downside at this point. Current development suggests that corrective pattern from 1.1215 has completed already. Further decline should be seen through 1.1215 low to 1.1186 fibonacci level. On the upside, break of 1.1329 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.

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.

Economic Indicators Update

GBPUSD short-term Elliott wave view suggests that the rally to 1.322 on Jan 26, 2019 ended wave ((X)). Decline from there is unfolding as a 5 waves impulse Elliott Wave structure.Down from 1.322, wave (i) ended at 1.3053, wave (ii) ended at 1.316, wave (iii) ended at 1.2853 and wave (iv) ended at 1.2997. Subdivision of wave (i), (iii), and (v) are also impulse 5 waves in lesser degree. Currently, wave (v) is in progress towards 1.271 – 1.282 area before pair ends cycle from Jan 26, 2019 high.

The 5 waves lower from Jan 26 high will end either wave ((i)) or wave ((a)) of larger Elliott Wave degree. Pair should then bounce in wave ((ii)) or ((b)) to correct cycle from Jan 26 high in 3, 7, or 11 swing before the next leg lower. As far as pivot at 1.322 high stays intact, expect rally to fail and pair to extend lower at least another leg lower. We do not like buying or fading the 5 waves move lower as the impulsive move can always extend to the downside further. A break above the parallel channel can be the first indication that wave ((i)) is complete.

GBPUSD 1 Hour Elliott Wave Chart

General Trend:

• Japanese automakers rise ahead of earnings from Nissan
• Japanese chipmaker Renesas Electronics rises over 15% following earnings/guidance
• Toshiba declines over 6%, confirmed plan to lower FY Op profit guidance
• Chinese Telecom and Tech names add to Monday’s gains, US/China trade talks in focus
• Healthcare names rise in Hong Kong, China Premier pledged to offer preferential VAT on rare disease treatments
• Geely rises over 5% after monthly sales figures
• Banks in China underperform
• Macquarie rises over 3% in Australia, issued guidance
• Australia Dec Home Loans were the weakest since 2015, NAB business confidence and conditions rebounded
• BoJ reduced daily 10-25 yr JGB purchases, reversed move from early Dec; little reaction seen in USD/JPY
• US Senator Shelby (R) said ‘agreement in principle’ has been reached in the gov’t shutdown talks, in line with his comments from Feb 7th
• China MOFCOM Official: In Jan trade in goods maintained growing trend (comments ahead of trade balance data)
• US/China trade talks due to occur in Beijing from Feb 14-15
• US companies expected to report earnings on Tuesday include Activision, Akamai, Groupon, Huntsman and Under Armour (includes afterhours)

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.5%
• 6502.JP Confirms press report related to FY18/19 Op guidance
• (JP) Bank of Japan (BOJ) announcement related to daily bond buying operation: cuts 10-25-yr JGB buying by ¥20B to ¥180B
• 6723.JP Reports FY18 Net ¥54.6B v ¥77.2B y/y; Op ¥66.8B v ¥78.4B y/y; Rev ¥757.4B v ¥780.3B y/y (rises to daily limit)
• Japan Industry Min Seko: There is 'absolutely no truth' to media report that France government told Japan that Renault could lower its stake in Nissan - Japanese Press

Korea

• Kospi opens +0.1%
• (KR) North Korea strongly condemned Japan for its attempt to lay territorial claim to the South Korean island of Dokdo, calling it an illogical, gangster-like act – Yonhap
• 005930.KR Agrees to preliminary settlement over recalled washing machines recalled in the United States in late 2016, no terms disclosed
• (KR) Bank of Korea (BOK): 2018 CPI may have risen ~2.0% if public prices strictly controlled by the government are not taken into account – Yonhap
• 037560.KR To be acquired by LG Uplus for KRW800B

China/Hong Kong

• Hang Seng opens -0.2%; Shanghai Composite opens flat
• 293.HK Will close Toronto cabin crew base, 120 jobs may be lost, nothing decided yet; no plans currently to close other flight attendant bases – SCMP
• (CN) China PBoC Open Market Operation (OMO): Skips reverse repo operations for second consecutive session; Net: CNY100B drain v CNY20B drain prior
• 175.HK Reports Jan sales 158.4K units +2% y/y
• (CN) CHINA JAN FOREIGN RESERVES: $3.088T V 3.080TE; gold reserves rise for a 2nd month (released on Feb 11th)
• (CN) China Premier Li Keqiang: Govt to support banks to add capital via various channels; To offer preferential VAT on drugs for rare diseases; to cut VAT from March - financial press
• 1055.HK Carried 2.1M passengers over Spring Festival holiday (Feb 4-10), +8% y/y
• (CN) US Undersecretary for International Affairs Malpass: March 1 deadline for US-China trade deal will not be extended; US deputy-level delegation is currently in Beijing for the second day of trade talks -HK Press

Australia/New Zealand

• ASX 200 opened slightly lower
• (NZ) New Zealand Jan Retail Card Spending M/M: 1.8% v 1.4%e; Total Card Spending M/M: +2.0% v -1.9% prior
• MQG.AU Gives Q3 update: Trading conditions were satisfactory with significant realizations across the Group; Affirms FY19 results +15% y/y
• SUL.AU Reports prelim H1 (A$) EBIT 124.5M v 113.6M y/y; Rev 1.4B v 1.3B y/y
• (AU) AUSTRALIA JAN NAB CONFIDENCE: 4 V 3 PRIOR; BUSINESS CONDITIONS: 7 V 2 PRIOR
• (AU) AUSTRALIA DEC HOME LOANS M/M: -6.1% V -0.9% PRIOR (weakest reading since 2015)
• (NZ) New Zealand Q1 1-year Avg Inflation Expectations: 1.8% v 2.1% prior - Reserve Bank of New Zealand (RBNZ)

North America

• (US) White House announces initiative on Artificial Intelligence (AI)
• (US) US President Trump said the Tennessee Valley Authority (TVA) should consider the importance of coal in the power mix before closing coal-fired plants; could compromise on border - speaking at rally
• VALE Vale reportedly was aware in Oct that the failed Brumadinho dam in Brazil was at a heightened risk of rupture; internal classification of risk level would have required company to notify CEO and board – press
• (US) Sen Shelby (R-AL): Agreement in principal reached on shutdown talks; border bill will have some money for a barrier

Europe

• (UK) According to 'cabinet minister sources,' UK PM May is readying to resign in the summer so she can influence who succeeds her - UK's The Sun
• (UK) UK Parliament Treasury Committee said Chancellor Hammond target for a budget surplus in the mid-2020s is no longer credible - financial press
• (UK) EU Brexit Negotiator Barnier: Very little time left before the Brexit; PM May has told us she wants to work for a deal before March 29th
• (IT) Northern League party: draft proposal for Constitutional change would allow the govt to sell gold reserves

Levels as of 12:50ET

• Hang Seng +0.0%; Shanghai Composite +0.3%; Kospi +0.6%; Nikkei225 +2.6%; ASX 200 +0.3%
• Equity Futures: S&P500 +0.5%; Nasdaq100 +0.6%, Dax +0.6%; FTSE100 +0.4%
• EUR 1.1271-1.1286; JPY 110.35-110.66; AUD 0.7054-0.7088; NZD 0.6720-0.6740
• Commodity Futures: Gold 0.0% at $1,311/oz; Crude Oil +0.5% at $52.68/brl; Copper -0.1% at $2.78/lb

Market movers today

Today is relatively quiet in terms of market moving events, with the main one being US Fed Chair Jerome Powell's speech tonight. While the Fed is very explicitly patient in raising rates, we will monitor any insights it might give on how it plans the balance sheet reduction.

In Scandi, the next focal point is the Riksbank meeting tomorrow.

Selected market news

Stocks and bond yields rose overnight on news that US lawmakers had reached an agreement 'in principle' to avert another government shutdown. However, the deal came under fire from some conservatives and still needs to be passed in Congress and signed by Donald Trump.

White House Adviser Kellyanne Conway told Fox News yesterday that it 'absolutely' looked like a deal to end the trade war was close and that Trump 'wants to meet with Xi Jinping very soon'. In another sign that Trump is eager to close a deal, she said that 'this president wants a deal'. Chinese stocks rose further overnight and are now trading at the highest level since October.

More US-China trade talks were initiated yesterday in Beijing at a lower level before high level talks resume on Thursday and Friday. With regard to the question on whether the 1 March ceasefire deadline would be extended, US trade negotiator David Malpass answered 'no'. However, our view is still that if more time is needed to finalise a detailed trade document, the deadline will be extended.

UK Prime Minister Theresa May seeks more time to negotiate the Brexit deal with the EU. On Tuesday, she is set to address lawmakers in parliament to update on the progress of talks with the EU before a debate on the deal on Thursday.

The US small business optimism index was released overnight. It has been at elevated levels for a long time but in January it dropped sharply from 104.4 in December to 101.2. It is the lowest level since November 2016, when Donald Trump was elected US President, and is further testament that US businesses have faced headwinds from the trade war and probably also the US government shutdown, which is hurting sub-contractors to the government.