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EURUSD (1.1363): The EURUSD currency pair closed bearish for the third consecutive day. Price action broke past the support at 1.1390 level and might retest the January 24 lows at 1.1300 potentially. Establishing support at this previous low could stall the declines for the moment. However, a break down below 1.1300 level could see the EURUSD extending the declines even lower. In the near term, the breached support at 1.1390 could be tested for resistance on a rebound.

The U.S. dollar posted gains on Wednesday. Economic data on the day showed that German factory orders fell 1.6% on the month missing estimates of a 0.3% decline. Revisions to the previous month's report showed an upward revision of a 0.2% decline from 1.0% decline previously reported.

Canada's building permits rose 6.0% on the month beating estimates of a 0.9% decline and extended gains from a revised 2.1% increase from the month before. The Ivey PMI fell to 54.7 from 59.7 previously missing estimates by a substantial margin.

In the U.S., the trade balance figures showed that the trade deficit narrowed in December to 49.3 billion. However, this was below estimates.

Mixed data

The overnight trading session saw the New Zealand quarterly employment report coming out. Data showed that the labor market reversed most of the gains made from the third quarter of 2018.

New Zealand's unemployment rate rose to 4.3% in the fourth quarter following a revised unemployment rate of 4.0% in the previous quarter. The quarterly employment change rose just 0.1%.

Later in the night, Fed Chair, Jerome Powell was speaking. In his speech, Powell said that the U.S. economy was now in a good place. Powell, however, did not make any direct references to monetary policy.

The European session starts off with the release of the German industrial production figures. Forecasts show that industrial production increased 0.8%, reversing some of the declines in activity from the month before.

The ECB will be releasing its economic bulletin. Investors will be looking into the assessment of the central bank on the Eurozone's economy and inflation forecasts.

The Bank of England will be holding its monetary policy meeting today. No changes are expected to the interest rates, but the Bank of England is likely to take a hawkish stance signaling a rate hike soon.

The NY trading session is relatively quiet today.

• BoE may adopt a cautious tone today amid slowing economy, Brexit uncertainty
• Kiwi dollar collapses after soft jobs data ignite speculation for RBNZ rate cut
• Greenback capitalizes on weakness in other currencies; stocks stall

BoE to strike cautious tone as Brexit uncertainty reigns

The spotlight will fall on the Bank of England (BoE) today, which is expected to keep its policy unchanged via a unanimous vote at 12:00 GMT. Updated economic forecasts and a press conference by Governor Carney will follow. The UK economy is currently going through a soft patch as evidenced by the drop in the nation’s PMIs, with much of the weakness owed to Brexit uncertainties holding back investment. Combining this slowdown in growth with the fact that there are now less than two months before the UK exits the EU without an accord in place yet, it’s safe to say the BoE will refrain from appearing hawkish.

Instead, Carney & Co. could adopt a more cautious tone, highlighting that the slowdown suggests a diminished need for any future hikes, while also stressing that a no-deal Brexit scenario may see the Bank Rate being cut. There’s little incentive for the BoE to amplify expectations for a future hike, only to risk having to walk back on that in a few weeks’ time in case of a disorderly Brexit. Money markets still assign a ~55% probability for a quarter-point rate hike this year, so if the BoE indeed downplays the prospect of a hike or emphasizes that the odds for a cut have risen, then the pound could slide.

In the political arena, PM May will meet EU chief Juncker in hopes of reopening negotiations on the Irish backstop. However, considering recent remarks from various EU officials lately, one shouldn’t hold their breath for a breakthrough, which further tilts the risks surrounding sterling to the downside in the immediate term.

Kiwi capitulates after soft jobs data, as markets eye RBNZ rate cut

The New Zealand dollar plunged overnight, closing the session down by more than one big figure against the greenback, after the nation’s employment data for Q4 disappointed. The unemployment rate rose by more than expected while the labor force participation rate fell, signaling weak jobs growth overall. Markets took this as a signal that the RBNZ will most likely follow in the RBA’s footsteps and hint at a rate cut when it meets next week.

A quarter-point RBNZ cut by the end of the year is now priced in with a ~65% probability. Mounting expectations for a dovish tone by policymakers could keep the kiwi under pressure heading into next week’s meeting, especially considering the absence of any tier-one economic data until then.

Dollar posts fifth day of gains, stocks lag

The US dollar outperformed on Wednesday, recording a fifth consecutive day of gains against a basket of six major currencies, without any US-specific catalyst driving the move. Instead, the world’s reserve currency seems to be exploiting weakness in other G10 peers, most notably in the pound, euro, loonie, aussie, and kiwi lately. Some remarks by Fed Chair Powell overnight didn’t provide any new information and hence, the market reaction was muted. Today, attention turns to remarks by Fed Vice Chair Richard Clarida (14:30 GMT), and Dallas Fed President Kaplan (14:15 GMT).

In equity markets, the major US indices struggled and ultimately closed with marginal losses, with disappointing earnings by video game makers such as Electronic Arts (-13.3%) and Take-Two Interactive (-13.76%) contributing to the weakness. The earnings season continues today with Twitter, which will release its results before the US market open.

• Rates: Stuck in no man’s land
  Global core bonds are stuck in no man’s land following last month’s decision by both the ECB and the Fed to stay side-lined in “assessment mode” for the next months. More range-bound sideways action can be expected today with intraday gyrations possibly caused by US supply, new EC forecasts and central bank speakers.
• Currencies: EUR/USD slide continues as doubts on EU economy continue to weigh
  EUR/USD extended the gradual but protracted decline yesterday that started after last week’s Fed policy decision. The dollar remains well bid and ignores potential USD negative news as investor worries on the EU economy prevail. Sterling traders will look out for a new meeting between UK PM May and EU’s Juncker and for the BoE policy statement.

The Sunrise Headlines

• US equity markets lost limited ground yesterday in thin trading. Technology shares underperform (Nasdaq -0.36%). Asian equities are mixed with Japan underperforming. Chinese bourses are closed ( Lunar New Year holiday).
• US Fed chairman Powell said that the economy is now in a good place, in his first appearance after the January Fed policy meeting. Fed Vice Chair Quarles said labour market is ‘extremely solid’ and called China key for US growth.
• UK media reports that a 2nd vote on PM May’s Brexit deal may be pushed back to the week of Feb 25, as she’s unlikely to bring a renegotiated divorce deal back to Parliament by next week (Feb 13). May meets EC president Juncker today.
• The Reserve Bank of India has unexpectedly cut its benchmark policy rate for the first time in 18 months to 6.25%, down from 6.50%. The bank added that headline inflation is to remain soft and changed its policy stance to neutral.
• New Zealand’s jobless rate unexpectedly rose to 4.3% in the fourth quarter of last year, adding to concerns that the labor market isn’t generating inflationary pressure. The New Zealand dollar weakened with NZD/USD falling to 0.675.
• Brazil’s central bank left the benchmark interest rate at a record low of 6.5%. The Bank said that inflation remains subdued and signalled that Congress needed to approve cost-cutting measures before the bank can consider a cut.
• Today’s economic calendar contains US weekly Jobless Fed Clarida & Kaplan and ECB Mersch & Constancio speak. The Bank of England meets and the European Commission publishes its new forecasts. The US holds a 30-yr Bond auction

Currencies: EUR/USD Slide Continues As Doubts On EU Economy Continue To Weigh

USD stays in the driver’s seat

The EUR/USD slide continued yesterday. Euro selling restarted on poor German factory orders, pushing the pair well below 1.14. The Italian 30-y bond auction attracted ample interest but it was not enough to smooth investor concerns on the Italian economy and/or help the euro. Political bickering between the EU and the UK on Brexit maybe weighed on the euro, too. Later, USD strength prevailed. Remarkably, the dollar gained on higher US yields which were the result of a mediocre 10-y auction. EUR/USD finished the day at 1.1362 (from 1.1406). USD/JPY reversed earlier losses and finished almost unchanged at 109.97. This morning, Asian indices are trading mixed. Japan underperforms. The dollar maintains its recent gains. USD/JPY is again testing the 110 barrier. EUR/USD is going nowhere (1.1360 area). The Kiwi dollar (NZD/USD 0.6750 area) nosedived on disappointing New Zealand Q4 labour data. Softer data caused markets to anticipate a soft RBNZ at next week’s policy meeting. Markets are pondering the chances for a rate cut further down the road if eco data continue to disappoint. Today, the EC economic forecasts will get ample attention as markets are looking for clues on the EU economic performance in 2019 and its potential impact on ECB policy. The message from the EC forecast will probably be soft, but should that still be a surprise for markets? This afternoon, Fed’s Clarida will discussus the topic of the neutral policy rate. The US Treasury will sell 30-y bonds. Yesterday, a mediocre auction didn’t hurt the dollar. On the contrary, the USD profited, illustrating the USD-friendly market momentum. Last week, the post-Fed USD decline (EUR/USD rebound) halted very soon, mainly due to poor EMU data. The started a gradual, but protracted rebound. The day-to-day momentum is USD supportive & cautious on the euro. However, we don’t seen a strong case for EUR/USD to drop below key support coming in at 1.1290/67. We look for signs of a bottoming process.

Sterling rebounded slightly against the euro yesterday, even as political comments showed that the rift between the UK and the EU on Brexit remains very wide. Euro weakness also weighed on EUR/GBP (close at 0.8787). Today, UK PM May will meet EU’s Juncker. A breakthrough on the Irish backstop topic is unlikely. At its regular policy meeting, the BoE will almost certainly leave rates unchanged. The will probably continue to indicate that gradual rate increases are possible in case of an orderly Brexit. If any, we expect any positive impact on sterling to be limited.

EUR/USD: dollar remains well bid. At the same time euro caution persists on eco worries

US futures are trading lower picking up the momentum where they left off yesterday. For the S&P 500 index, there were 288 stocks which moved lower and 213 stocks which moved up- the battle was won by the bears. Although, the volume was once again not impressive at all. The 200-day moving average is really putting the ceiling for the bulls and it appears that the bulls are losing ground. Nonetheless, the S&P 500 is up 8.91% year-to-date, the NASDAQ index is up 11.15% YTD and the Dow Jones is up 8.84% YTD.

Back in the UK, time is slipping away and Theresa May cannot see any light at the end of the tunnel. It is highly likely that she will return empty-handed from Brussels, especially in the light of recent comments from the head of the European Commission who said “there is a special place in hell” for those who orchestrated Brexit. May has no choice but to delay Brexit, and that is only possible if she gives up on her stubbornness.

Sterling is evidently reacting to this situation and what matters the most for traders is the delay of Brexit. No one has priced in that the U.K. will tumble out of Europe without any deal- something which is not short of any disaster. If that occurs, the economy will only become worse, because the wage growth is at a level not seen for ten years.

The feeble wage growth has pushed the inflation back to 2.1% from its previous reading of 3%. It is in this essence that Super Thursday; a day when the Bank of England makes its monetary policy decision, inflation and growth forecast, is going to be boring. Mark Carney, the governor of the Bank of England, has no reason to be hawkish. His main qualm, for now, is Brexit. If the disorderly exit takes place, there will be no shock to see the bank cutting the interest rate and opening up the quantitative easing taps again. Even then we are not certain if these measures will be adequate to combat the situation. This Brexit situation has clouded the bank's choice about its monetary policy. Having said this, the bank cannot be excessively dovish either in its statement and I trust that they are going to balance their tone by carrying some hawkish element. Carney could warn about the likelihood of a steeper path of interest rate hikes if there is orderly Brexit- the only scenario for which the bank is appropriately prepared for.

What is also likely in this meeting is that the MPC members may also bring some of their inflation and growth to a reality; during their November meeting, the growth forecast was 0.3% for 4Q and 0.4% for 1Q, and given that we have experienced more weakness in the PMI numbers, the MPC will have to adjust these numbers today- a lower forecast.

Gold bulls have lost their momentum and the price is threatening the psychological level of $1,300. The bulls must defend this level, otherwise, it is highly that the bears will drive the price all the way to $1,270 mark. The weakness in the gold price is mainly due to the strength in the dollar index- it has regained its strength after being beaten down brutely. Fundamentally speaking, there is no clear evidence why the gold price should be moving lower, the possible explanation behind the current move is that investors are looking at the handsome gains in the equity markets (YTD) and they are more interested in getting their money involved in those asset classes rather than parking it in the safe haven.

Speaking from a technical perspective, the price retraced from its minor resistance level (shown by dotted red line) and the failure of the price breaking above this level made traders take the profit off the table. The gold price is trading below the 50-day moving average shown in green colour on a 4-hour time frame (an intra-day time frame) and this confirms weakness. The hope is that the price will not break the 100-day moving average shown in pink, however, if the bulls fail to defend this, the next support zone is at 1275 followed by major support which is at $1,233.

The RSI indicator is showing that the price is oversold and it is highly likely that the bulls may take control of the price. The Balance of Power indicator needs to move above zero- only that will confirm that the bears are no longer in control of the price.

Pivot (invalidation): 53.35

Our preference Long positions above 53.35 with targets at 54.30 & 54.65 in extension.

Alternative scenario Below 53.35 look for further downside with 52.85 & 52.50 as targets.

Comment The RSI has just landed on its neutrality area at 50% and is turning up.

Pivot (invalidation): 15.7900

Our preference Short positions below 15.7900 with targets at 15.5800 & 15.4300 in extension.

Alternative scenario Above 15.7900 look for further upside with 15.9100 & 15.9800 as targets.

Comment The RSI is bearish and calls for further decline.

Pivot (invalidation): 1310.50

Our preference Short positions below 1310.50 with targets at 1299.50 & 1295.00 in extension.

Alternative scenario Above 1310.50 look for further upside with 1313.00 & 1317.00 as targets.

Comment The RSI advocates for further downside.

Daily Pivots: (S1) 141.78; (P) 142.15; (R1) 142.56; More...

Intraday bias in GBP/JPY remains neutral at this point. On the upside, above 144.84 will extend the rebound from 131.51. But we'd expect strong resistance from trend line (now at 147.13) 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.