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The pair accelerated lower on Friday following double upside rejection at strong barriers provided by the base of thick daily cloud and 55SMA (1.3317/32). Better than expected Canada's Jan housing/labor data added to loonie's fresh strength.

Canada's housing starts beat forecast in Jan (208K vs 205K f/c) while upbeat jobs data showed 66.8K new jobs in Jan vs 8K f/c and downward revised Dec figure at -1.3%, boosted Canadian dollar despite higher than expected unemployment (Jan 5.8% vs 5.7 f/c).

Daily techs work in favor of further weakness as momentum broke into negative territory and stochastic is overbought.

Thursday's close above Fibo barrier at 1.3296 (38.2% of 1.3664/1.3068) generated short-lived bullish signal as further advance faced strong headwinds from daily cloud and subsequent reversal weakened near-term structure.

Fresh weakness cracked 20SMA support (1.3240) but close below here and nearby 1.3230/21 supports (Fibo 38.2% of 1.3068/1.3329 (1.3230/top of thick 4-hr cloud) is needed to signal reversal and lower top at 1.3329 (today's high).

Res: 1.3294; 1.3317; 1.3332; 1.3374
Sup: 1.3240; 1.3221; 1.3209; 1.3191

Markets

Global core bonds gained ground today as risk sentiment remained fragile. US Treasuries are outperforming German Bunds. WS tracked losses on European bourses yesterday as the US and China are still a long way from making a deal. US President Trump said he ‘probably’ won’t meet his Chinese counterpart Xi Jinping before the March 1 deadline. Global core bonds opened with a upward bias, even though German trade data surprised on the upside. Italy’s industrial production dropped 5.5% (M/M) in December (vs. ‑2.7% exp.), while France’s industrial production printed above expectations (0.8% M/M vs. 0.6% exp.). The German yield curve is mixed with changes in the range of -1.7 bps (10-yr) to +0.3 bps (2-yr). The German 10-yr yield dropped to 0.10%, confirming yesterday’s break of the 0.15% support level. US Treasuries continued the upward trend of late during EU trading hours as US equity futures pointed to further losses. With an empty economic calendar, risk sentiment remains in the driver’s seat. UST’s continued a gradual move higher, pushing the US yield curve lower. Changes vary between -1.1 bps (30-yr) to -2.2 bps (10-yr). Peripheral spreads over the German 10-yr yield widen with Greece (+3 bps) and Italy (+5 bps) underperforming.

The dollar outperformed the euro this week as uncertainty on the outlook for the EMU economy outweighed last week’s soft U-turn from the Fed. Today, the EUR/USD decline slowed. EMU eco data were second tier and mixed (poor Italian production, above consensus German foreign trade and French production data). EUR/USD revisited yesterday’s low in the 1.1325 area, but there were no follow-through losses. With risk sentiment still fragile, there was no trigger for a sustained EUR/USD rebound. Even so, the pair settled in a tight range within reach of recent lows. EUR/USD is currently trading in the mid 1.1350 area, awaiting upcoming events including a next phase in the China-US trade talks next week. USD/JPY trading developed within the every narrow boundaries that guided USD/JPY earlier this week (close to, mostly slightly below the 110 level).

Sterling trading was also limited to tight ranges in a session devoid of any important eco or political news. The UK PM currently tries to find backing for an alternative Brexit deal in Ireland, but any progress is far from evident. If anything, the UK currency traded with a tentative positive bias today, building on yesterday’s positive momentum. The BoE yesterday indicated that is holding to the scenario of limited, gradual rate hikes, including an additional hike this year, in case a chaotic no-deal Brexit can be avoided. EUR/GBP is changing hands close to opening levels at 0.875. Cable is trading at 1.296.

News Headlines

Activity in the Norwegian mainland economy (excluding the volatile petroleum and shipping sectors) grew 0.9% in the fourth quarter of last year, beating estimates for 0.7% growth. Activity regained momentum after subdued growth earlier in 2018 due to unusually dry summer weather. Mainland GDP increased 2.2% in 2018. Solid Q4 growth keeps the door open for the Norges Bank to raise rates further in March.

Strong Canadian labour market data lift the loonie. USD/CAD declines from 1.3310 towards 1.3240. The net change in employment amounted 66.8k in January, way above 5k consensus. Details showed that job growth was more or less evenly split between full time (+30.9k) and part time (+36k) jobs. The increase in the unemployment rate, from 5.6% to 5.8% was accompanied by a rise in the participation rate (from 65.4% to 65.6%).

Daily Pivots: (S1) 1.1319; (P) 1.1344; (R1) 1.1363; More.....

EUR/USD is losing some downside momentum as seen in 4 hour MACD. But further decline is expected with 1.1380 minor resistance intact. Firm break of 1.1289 support will argue that corrective pattern from 1.1251 has completed. And, in that case, larger decline from 1.2555 is ready to resume through 1.1251 low. On the upside, above 1.1380 minor resistance would probably extend the correction pattern with another rise towards 1.1569 resistance.

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.

Daily Pivots: (S1) 1.2871; (P) 1.2933; (R1) 1.3014; More....

Intraday bias in GBP/USD remains neutral for consolidation above 1.2854 temporary low. Risk stays on the downside as long as 1.3217 resistance holds. As noted before, rebound from 1.2391 has completed at 1.3217, after rejection by 1.3174 key resistance. Firm break of 1.2814 resistance turned support will bring retest of 1.2391 low.

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.

Daily Pivots: (S1) 1.0007; (P) 1.0018; (R1) 1.0037; More....

USD/CHF's consolidation from 1.0028 is extending and intraday bias remains neutral first. Deeper retreat cannot be ruled out. But downside should be contained by 0.9908 to bring another rally. As noted before, corrective decline from 1.0128 should have completed at 0.9716 already, after hitting trend line support. On the upside, above 1.0028 will resume the rise from 0.9716 to retest 1.0128 high first.

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.

Daily Pivots: (S1) 109.59; (P) 109.84; (R1) 110.07; More...

Intraday bias in USD/JPY remains neutral as it's staying in tight range below 110.16 temporary top. In case of another rise, we'd expect strong resistance from 61.8% retracement of 114.54 to 104.69 at 110.77 to limit upside to bring reversal. On the downside, break of 108.49 support will now confirm completion of the rebound and bring retest of 104.69 low. 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 110.55) will dampen this bearish view and turn focus back to 114.54 resistance instead.

Daily Pivots: (S1) 1.3236; (P) 1.3277; (R1) 1.3351; More...

USD/CAD's sharp fall suggests temporary topping at 1.3329 and intraday bias is turned neutral first. Further rise remains in favor with 1.3229 minor support intact. Above 1.3329 will target 1.3375. Decisive break there should confirm completion of whole fall from 1.3664. In that case, further rise should be seen back to retest 1.3664. On the downside, below 1.3229 minor support bring deeper pull back towards 1.3068 support.

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 1.3070) 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.

Risk aversion is the main theme in the financial markets today. Worries over US-China trade tension escalation resurfaced after Trump said he will not meeting Chinese President Xi this month. This came despite Trump's schedule to meet North Korean leader Kim Jong-Un on February 27-28 in Vietnam, just next to China. Re-escalation in trade tension would drag on the already weakened global recovery. US stocks open sharply lower with DOW losing -100 pts, following weakness in Europe.

The forex markets are relatively steady though as major pairs and crosses are generally staying in Thursday's range. While Canadian Dollar surges after strong job data, USD/CAD is, so far, held above 1.3229 minor support. Thus there is no clear confirmation of topping yet. Decline is EUR/USD and EUR/JPY lost momentum ahead of weekly close. In particular, EUR/JPY is holding on to 124.36 minor support despite breaching it briefly. AUD/USD also recovers after earlier selloff and is back above 0.7076 support. Traders mildly want to wait for fresh inspiration next week before committing further.

In other markets, DOW is currently down -0.50%. FTSE is down -0.22%, DAX is down -0.78%. CAC is down -0.35%. German 10 year yield is down -0.02 at 0.097, broken 0.1% handle. Earlier in Asia, Nikkei closed down -2.01%. Hong Kong HSI dropped -0.16%. Singapore Strait Times rose 0.04%. Japan 10-year JGB yield dropped -0.0185 to 0.027.

Canada added 67k jobs in January, CAD surges

Canadian Dollar rebounds strongly in early US session after stellar employment data. The job market grew 67k in January, way above expectation of 6.5k. Employment gains were driven entirely by private sector, which grew 112k. Unemployment rate rose to 5.8%, up from 5.6%, higher than expectation of 5.7%. But that was because "more people looked for work." Also from Canada, housing starts dropped to 208k annualized rate in January, above expectation of 206k.

Released earlier, Germany trade surplus widened to EUR 19.4B in December. Swiss unemployment rate was unchanged at 2.4%. Japan household spending rose 0.1% yoy in December, below expectation of 0.8% yoy. Labor cash earnings rose 1.8% yoy, matched expectations. Current account surplus widened to JPY 1.56T.

EU Barnier: Will not reopen Brexit agreement, but open to rework political declaration

EU Chief Brexit negotiator Michel Barnier is going to meet UK Brexit Minister Steve Barclay on Monday. Ahead of that, Barnier reiterated that EU will no re-open withdrawal agreement negotiation.

Barnier tweeted: "I am looking forward to meeting @SteveBarclay in Brussels on Mon evening. I will listen to how the UK sees the way through. The EU will not reopen the Withdrawal Agreement. But I will reaffirm our openness to rework the Political Declaration in full respect of guidelines."

UK PM May to meet Irish PM Varadkar to seek legally binding change to Brexit deal

UK Prime Minister Theresa May will meet Irish Prime Minister Leo Varadkar in a dinner today. May would make use of the opportunity to press for legal binding changes to Irish backstop arrangement in the Brexit withdrawal agreement.

May's spokesman said "This is about building on the discussions that she had in Northern Ireland and in Brussels yesterday. She will be emphasizing what we are looking for - seeking the legally binding changes to the Withdrawal Agreement that parliament says it needs to approve the deal."

RBA projects slower rise in inflation and fall in unemployment

Australian Dollar suffers another round of selloff today after RBA revealed rather dovish economic forecasts in the Statement on Monetary Policy. In the summary part, Governor Philip Lowe's "balanced" turn was echoed.

The first scenario is "further progress in reducing unemployment and bringing inflation into the target range can reasonably be expected." In this case, higher interest rate "would become appropriate at some point". However, in other scenarios, "If there were then to be a sustained increase in unemployment and a lack of progress in returning inflation to target, it might instead be appropriate to lower the cash rate."

RBA now judges " the probabilities of these two sets of scenarios have shifted to be more evenly balanced than previously."

In the new economic projections:

• 2019 year-end growth was revised to 3%, down from 3.25%.
• 2020 year-end growth was revised to 2.75%, down from 3%.
• June 2020 unemployment rate was revised to 5%, up from 4.75%.
• That is, unemployment rate will fall at a slower pace.
• 2019 year-end CPI was revised to 1.75%, down from 2.25%.
• 2020 year-end CPI was unchanged at 2.25%.
• That is, CPI will rise at a slower pace.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3236; (P) 1.3277; (R1) 1.3351; More...

USD/CAD's sharp fall suggests temporary topping at 1.3329 and intraday bias is turned neutral first. Further rise remains in favor with 1.3229 minor support intact. Above 1.3329 will target 1.3375. Decisive break there should confirm completion of whole fall from 1.3664. In that case, further rise should be seen back to retest 1.3664. On the downside, below 1.3229 minor support bring deeper pull back towards 1.3068 support.

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 1.3070) 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.

Economic Indicators Update

The first month of 2019 saw 66.8k Canadian jobs created, on net. The unemployment rate rose to 5.8% as more Canadians were looking for work, sending the labour force participation rate 0.2 p.p. higher, to 65.6%.

The composition of the gains was high quality. 30.9k full-time jobs were added, with 36k part-time. Public sector employment was up 15.9k as private hiring roared ahead by 111.5k net positions – the strongest gain on record. Bringing the total back down was a 60.7 net drop in self-employment.

Younger Canadians led the way, with 52.8k net positions added among those aged 15 to 24. Employment was little changed among working age and older Canadians.

The service sector led hiring in January, adding 99.2k net  positions, helped by trade (+33.9k), professional services (+28.5k), and public administration (+21.1k). In contrast, the goods sectors pulled back by 32.3k overall, on broad-based weakness across subsectors.

Encouragingly, wages accelerated a hair to 1.8% y/y for permanent employees (up from 1.5% in December), despite the boost from last year's minimum wage hike falling out of the data. In contrast to the strong headline gains, aggregate hours worked fell 0.3% in January.

On a trend basis, labour markets remain solid. The six month average pace of hiring stood at 32.8k per month in January, with employment up 1.8% year-on-year.

Key Implications

What a pleasant surprise. With the exception of hours worked, this was a solid report. Not only did we see the strongest private hiring gains on record, the increase in the unemployment rate was for the 'right' reason as more Canadians were drawn to labour markets in January. In fact, another record was broken for the participation rate among core-aged (25-54 year old) Canadians, at 87.6%. Today's data continues the solid trend that typified last year's labour market performance

While we should hardly throw a parade for one month's data, the uptick in wage growth after a few months in the doldrums is a welcome development, particularly as the boost from last year's minimum wage hike should be largely out of the data.

For the Bank of Canada, this is an encouraging report, both in terms of some early vindication in the wage data, as well as the strength of employment gains among the youngest age groups – an area that Governor Poloz has expressed concern about in the past. Elevated risks, energy sector adjustments and benign underlying inflationary pressure all suggest little reason to hike any time soon, but today's data is more reason to believe further rate hikes have only been delayed, not eliminated.

EU Chief Brexit negotiator Michel Barnier is going to meet UK Brexit Minister Steve Barclay on Monday. Ahead of that, Barnier reiterated that EU will no re-open withdrawal agreement negotiation.

Barnier tweeted: "I am looking forward to meeting @SteveBarclay in Brussels on Mon evening. I will listen to how the UK sees the way through. The EU will not reopen the Withdrawal Agreement. But I will reaffirm our openness to rework the Political Declaration in full respect of guidelines."

https://twitter.com/MichelBarnier/status/1093863102326730752