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• Rates: Italy set to launch new 30-yr syndicated benchmark
  Today's eco calendar is empty apart from US and Italian supply. The Italian debt agency probably launches a new 30-yr syndicated benchmark deal. We expect demand will be there, benefiting peripheral bonds. Core bonds are stuck in no man's land. More sentiment-driven trading within existing technical ranges is probable.
• Currencies: EUR/USD drifting lower in the 1.15/1.13 ST range
  The news flow from Europe was mixed yesterday rather than negative, but it didn't help the euro. EUR/USD is drifting below the 1.14 big figure. There are few data to guide trading in the major FX cross rates. Italian and US bond auctions might influence intraday sentiment. Sterling stays in the defensive as PMI's indicate that Brexit uncertainty is weighing on growth

The Sunrise Headlines

• US equity markets gained ground yesterday with gains varying between 0.50%-0.75%. Half of Asian bourses are closed due to the Lunar New Year holiday, Other bourses are mainly trading in green this morning.
• US President Trump called for bipartisanship in his State of the Union address, with a special focus on border wall funding. Next, he announced the meeting with North Korean leader Kim Jong Un will take place Feb 27-28 in Vietnam.
• Rumours suggest that ECB officials don't see any urgency to offer new long-term loans to banks (e.g. TLTRO's), as they are not convinced about the necessity for more liquidity in the market. ECB spokesman declined to comment.
• The Brexit debates continues as UK PM May is in Northern Ireland to discuss modifications to the Irish backstop, while Irish PM Varadkar travels to Brussels today. May meets with European Commission President Juncker tomorrow.
• The French government's discontent with the EU's is growing as the latter is expected to veto a rail merger (Alstom/Siemens). France calls for an overhaul of the bloc's antitrust rules and a stronger backing for its companies.
• Reserve Bank of Australia chief Philip Lowe unexpectedly shifted to a more neutral policy outlook (probability of next move – rate cut or hike – 50/50) after the bank left policy rates unchanged yesterday without altering its bias.
• Today's economic calendar is empty. Earnings season continues with Q4 results of amongst others GM. The US taps the market, while Italy will likely launch a new 30-yr syndication today

Currencies: EUR/USD Drifting Lower In The 1.15/1.13 ST Range

EUR/USD extends downside drift

The dollar held the benefit of the doubt yesterday. EUR/USD extended its gradual rebound off last week's correction top, reached on Thursday, soon after the Fed policy decision. As such, the news flow was not too bad for the euro. EMU PMI's were less weak than expected, but (FX) markets focused on poor readings in France and Italy. There were also rumours that the ECB was unlikely to change (ease) its guidance on rates in March. It hardly helped the euro. A break lower in cable also weighed on EUR/USD. The US manufacturing ISM was close to expectations with little impact on FX trading. EUR/USD finished at 1.1406. USD/JPY held close to the 110 mark but couldn't sustain above. In his State of the Union, US president Trump reiterated the need to build a wall on the Mexican border, but didn't elaborate on market sensitive items. Most Asian equity indices show modest gains. The Aussie dollar (more than) reversed yesterday's post-RBA gain. In a speech, Governor Lowe clarified that the RBA has currently a neutral stance. Developments in the labour market will decide whether the next rate move will be a hike or a cut. AUD/USD lost about a full big figure and nears the 0.7140 area. EUR/USD is drifting below the 1.14 handle. USD/JPY (109.75) is losing a few ticks.

The eco calendar is thin today. The US trade balance will probably only be of intraday significance for USD trading, at best. Markets will keep an eye at an (expected) sale of 30-y Italian bonds and the auction of 10-y US Notes. Of late, sales of long-dated EMU bonds went smooth. If this is again the case for today's Italian auction, it might remove a source of euro caution. Last week, the post- Fed USD decline (EUR/USD rebound) halted soon, mainly due to poor EMU data. The subsequent USD rebound was not impressive, but gradually continues. The day-to-day momentum is USD supportive & cautious on the euro. However, we don't seen a strong case for the pair to drop below key support. Intermediate support at 1.1390 is currently under test. The 1.1290/67 area is the next line in the sand.

Sterling remained in the defensive yesterday. The composite (50.3) and services (50.1) PMI's suggested that the UK economy might be heading for stagnation. Cable dropping below 1.30 triggered additional sterling selling. EUR/GBP closed at 0.8809. Today, there are no UK eco data. After yesterday's GBP-decline, trading might sift into wait-and-see modus ahead of tomorrow's BoE meeting.

EUR/USD: drifting lower in the 1.15/1.13 ST trading range

GBPAUD is advancing considerably today following the bounce off the 1.7860 support level and successfully surpassed above the 20- and 40-simple moving averages (SMAs) in the daily timeframe. Momentum indicators suggest that the market sentiment might get even better as the RSI is reversing back to the upside entering in positive territory. The stochastic also looks to be changing direction, moving up after the bullish crossover within the %K and %D lines.

Should the bulls drive the price higher, the next resistance is coming from the previous peaks of 1.8520, taken from the highs on January 25. A significant leg above this barrier would increase speculation that the uptrend continues and test the more than two-high year high of 1.8730.

Alternatively, if the price manages to turn lower again below the 23.6% Fibonacci retracement level of the upleg from 1.5725 to 1.8730, around 1.8015, nearby support could come from the 1.7860 hurdle. Below that, the area within 1.7575 – 1.7610, which encapsulates the 38.2% Fibonacci would be the next levels for investors to look for.

Overall, GBPAUD has been trading within an upside rally since October 2016, creating higher highs and higher lows during this period.

The British pound is coming under increasing selling pressure against the US dollar after data on Tuesday showed that the United Kingdom economy is slowing due to Brexit. The GBPUSD pair has broken below the 1.3000 level, while the next important intraday support is found at the 1.2890 level. It is worth noting that technical indicators are starting to approach oversold conditions, a technical correction back towards the 1.3000 could occur.

The GBPUSD pair is bearish while trading below the 1.3000 level, key technical support is found at the 1.2930 and 1.2890 levels

If the GBPUSD pair trades above the 1.3000 level, key resistance is found at the 1.3030 and 1.3090 levels.

The euro is under increasing downside pressure against the US dollar on Wednesday, as the greenback comes back into favour with investors. The EURUSD pair has broken below the 1.1410 level, with the 1.1360 level now the most important technical region to watch below the 1.1400 level. Indicators on the four-hour time frame continue to turn lower signalling further losses ahead.

The EURUSD pair is intraday bearish while trading below the 1.1410 level, key technical support is found at the 1.1390 and 1.1360 levels.

If the EURUSD pair trades above the 1.1410 level, buyers may test towards the 1.1430 and 1.1460 resistance levels.

Litecoin is starting to trade lower on Wednesday after buyers once again failed to break above the technically important $33.00 level. Technical indicators are starting to turn lower, which may signal that the LTCUSD pair is ready to test the bottom end of its trading range. A large head and shoulders pattern with a $10.00 downside projection is still valid on the four-hour time frame.

The LTCUSD pair is only bullish while trading above the $33.00 level, key resistance is found at the $36.00 and $40.00 levels.

If the LTCUSD pair trades below the $28.00, sellers may test towards the $25.00 and $18.00 support levels.

Crypto talk so far this week has revolved around the death of an exchange CEO who died with the password of all wallets kept secret. Gerry Cotton, the CEO of Quadriga CX, died in a trip to India where he was set to provide funds for the construction of a children’s home. His death has affected more than 100K customers who had cryptocurrencies worth more than $137 million. Yesterday, a judge at Halifax granted the company a 30-day stay as it searches for the lost crypto. During this period, the company cannot be sued by disappointed customers, some who are owed more than $1 million.

His death has also led to fresh conspiracy theories with many people believing that he faked his death as an exit strategy. In the past, many people have faked their deaths in a bid to evade prison time or in order to receive their life insurance funds. In 2016, all the directors and co-founders of the company resigned, which has been viewed as further evidence for the theories. Further, the company did not have insurance for the operations.

In a statement to Wired Magazine, Emin Gun Sirer, a professor at Cornell University said:

It’s astounding to me that a company of this size can be run with the same accounting procedures of Joe’s Fish ‘n Chips, with a single person in charge and no accountability. That’s far from the norm. It’s not a good look for our industry.

The exchange saga comes at a time when investors are concerned about regulations. To self-regulate, most exchanges have multiple ways to access currencies. They also have backups and insurance policies, which ensures that the funds are safe.

The ETH/USD pair is currently trading along the important 100 level, which provides an important support. This price is below the YTD high of more than 150. The pair could continue to decline, with the next support being 90.

The Australian dollar declined sharply after the central bank introduced the probability of a rate cut. In a statement, the governor said that there were scenarios where the next move in interest rates was up and other scenarios where it was down. The statement came a day after the central bank left the cash rate unchanged at 1.5% and issued a hawkish statement. The Australian economy is facing challenges with increased personal debt and falling house prices in major cities. In the statement, he added that:

In the event of a sustained increased in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point.

The price of crude oil was little moved in the Asian session as Saudi Arabia and its Persian Gulf allies tries to form a formal deal with Russia to manage the global oil market. This move is intended to put a floor on oil prices and reduce the chances of declining prices. This comes as the cartel is under increased pressure from the United States to keep prices lower by increasing production. In recent years, Russia has worked very closely with OPEC, including reducing supplies to lift prices. More deliberations on this will take place in Vienna next week.

Today, trader focus will be on the United States, which is set to release a bunch of data. The first reading of the Q4 GDP is expected to show that the economy rose by 2.6%, which will be lower than the expected 3.6% for the third quarter. The GDP price index is expected to have risen by 1.7%, higher than the previous 1.5%. The core durable goods orders are expected to rise by 0.2% after sliding by -0.3% in December. Housing starts are expected to be at 1.25 million, lower than the previous 1.256 million. The trade deficit for November is expected to decline slightly to $54 billion.

AUD/USD

The AUD/USD pair declined sharply to an intraday low of 0.7150, which is below the 38.2% Fibonacci Retracement level. The pair’s sudden decline brought it to below the 25-day and 50-day EMAs while the RSI has moved sharply to the oversold territory of 21. The dovish statement from the RBA could push the pair lower to the 0.7130 level, which is also along the 21.6% Fibonacci Retracement level

EUR/USD

The EUR/USD pair continued moving lower and is now trading at the 1.1400 level, which is the lowest level since January 29. The pair is along the lower line of the Bollinger Band while the pair’s momentum indicator continues to remain below the 100 level. The MACD remains below the neutral line. While the pair could continue moving lower, caution should be taken because of important economic data from the US.

XBR/USD

The price of Brent crude oil remained closer to yesterday’s low of 61.70. On the hourly chart, the pair is below the 25-day and 50-day EMA while the Parabolic SAR points to more downward movements. The DeMarker indicator has moved closer to the oversold level. Today, the pair will likely see some major movements as EIA releases inventory data and as investors discuss the formalization of OPEC+.

Market movers today

In the euro area, German factory orders for December will be in focus after last months' marked declines. Markets will especially keep an eye on whether orders from car manufacturers, which declined by -8.8% y/y in November, recovered some ground at the end of 2018 (see also Research Germany - The epicentre of the euro area slowdown, 27 January 2019).

In the US, trade data for November is due out. After the scarcity of hard economic data releases during the government shutdown, it will be good to finally get more evidence on how the economy has fared in Q4 18.

We might also get yesterday's postponed Swedish industry and services production data (for December), set to be released sometime between 6-12 February and in Denmark the refinancing auctions continued.

Selected market news

There was little market driving news to be found in Trump's State of the Union overnight. Trump argued that the US has a 'moral obligation' to build the border wall. However, he did not declare a 'national emergency' to fund the wall as some commentators had been speculating ahead the speech. Trump bragged about his 2017 tax cuts but did not speak of new ones ahead of the 2020 election. In respect of the risk of a new government shut-down when the current extension runs out there was little news except that Trump called for bipartisan unity. Importantly, there was little reference to the on-going China-US trade talk.

The service PMI from the Eurozone countries yesterday once again underlined the division between Italy and Spain in the periphery. In Italy we saw yet another negative surprise that points to still very weak domestic demand and a sustained slowdown in the Italian economy stretching also into 2019. On the other hand, the fourth consecutive increase in Spanish Service PMI was encouraging. It indicates that the private sector there had a strong start into 2019. It's quite astonishing how resilient the Spanish economy continues to be to the European slowdown.

The rally in global risk markets continued yesterday with especially European indices moving notably higher. The positive sentiment was carried over to the US where NASDAQ once again took the lead. NASDAQ is now almost 20% percent higher from the December low and are about to enter an 'official' bull market. Asian markets are also in green.

10Y Bund yields ended the day lower as periphery came under pressure despite a Reuters story based on 'sources' said that ECB members where reluctant to change the forward guidance [in a softer direction] as it would tie the hands of a new ECB president. US Treasury yields ended the day lower. A slightly lower than expected ISM non-manufacturing index in the US supported the move.

Elliott wave view in General Electric (ticker symbol: $GE) suggests that the rally from December 11.2018 low ($6.66) is unfolding as Elliott wave zigzag structure when the first leg of a bounce ended in lesser degree 5 waves structure in wave A at $9.25 high. Down from there, wave B ended 3 wave pullback at $8.56 low. Zigzag (5-3-5) is a combination of 3 waves corrective sequence labeled as A, B, C. The inner sub-division of wave A & wave C consists of 5 waves structure either as impulse or a diagonal. While wave B can be any 3 wave corrective sequence.

Up from $8.56 low, wave C is unfolding in another 5 waves structure where lesser degree wave ((i)) ended at $9.21 high. Wave ((ii)) pullback ended in lesser degree zigzag structure at $8.65 low. Wave ((iii)), also unfolded in lesser degree 5 waves & ended at $10.77 high. Below from there, wave ((iv)) pullback ended at $9.92 low. Wave ((v)) remain in progress in lesser degree 5 waves structure and should be looking to extend higher 1 more push towards $11.15-$12.76 100%-161.8% Fibonacci extension area of A-B before ending the wave C of a zigzag structure in a bigger wave (4). Afterwards, General Electric is expected to resume the downside or should do a 3 wave pullback at least. Near-term, as far as the pivot from $8.65 low stays intact expect stock to extend higher.

General Electric 1 Hour Elliott Wave Chart

General Trend:

• Nikkei rises amid key earnings from Softbank
• Toyota’s shares fluctuate after earnings; Cut FY Net guidance on securities-related losses, affirmed Op and Rev targets
• Australia’s Commonwealth Bank declines after H1 earnings
• RBA Gov now sees rate outlook as more evenly balanced vs. ‘ the next rate move likely to be an increase’ (prior position)
• AUD/JPY declines over 1.3% following RBA comments
• Second Trump/North Korea Kim summit expected Feb 27-28th
• Indonesia Rupiah (IDR) rises, Q4 GDP contraction not as bad as feared
• Thailand Central Bank expected to hold rate decision later today (consensus is unchanged)
• Chinese Lunar New Year holiday break continues through this week, Hong Kong due to reopen on Friday (Feb 8th), South Korea resumes trading on Thursday (Feb 7th)
• US companies expected to report earnings on Wed include Chipotle, Cummins, FireEye, GM, GoPro Humana, New York Times, Spotify, (includes afterhours)

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.4%
• 7203.JP Reports 9M Net ¥1.42T v ¥2.01T y/y; Op ¥1.94T v ¥1.77T y/y; Rev ¥22.48T v ¥21.80T y/y; Cuts FY18/19 Net due to ¥310B in unrealized losses on securities, affirms Op and Rev; raises global sales forecast
• 9843.JP CEO: To cancel its store target for China - Japanese Press
• (JP) Bank of Japan (BoJ) Gov Kuroda: Economy has improved significantly since 2013; reiterates inflation to gradually accelerate to 2%
• (JP) Japan PM Abe: Recognize BoJ yet to meet [2%] price target but what is important is job growth

Korea

• Kospi closed, re-opens Feb 7th
• (KR) South Korea and US expected to announce date for joint military drills soon – Yonhap
• (KR) South Korea Jan foreign investors bought KRW4.05T in domestic shares (45-month high) – Yonhap
• (KR) North Korea Kim and Trump to meet in Vietnam Feb 27-28th
• (KR) Foreigners received record high dividends >KRW9.0T in 2018 from top 4 conglomerates, for the first time – Yonhap
• (KR) South Korea 2018 nuclear power utilization 65.9% (37-yr low) - Yonhap

China/Hong Kong

• Hang Seng and Shanghai Composite closed all week
• (CN) US planning to send trade delegation to China next week; Mnuchin and Lighthizer to lead talks - US press
• (CA) According to traders, shipments of Canada made canola oil are being slowed through Chinese ports and customs, thought to be in retaliation to Huawei CFO detainment – press
• (CN) US President Trump to meet with China president Xi later in Feb - US press

Australia/New Zealand

• ASX 200 opened +0.1%
• (AU) Reserve bank of Australia (RBA) Gov Lowe: Interest rate outlook more evenly balanced; expects 2018 GDP a little below 3%; notes large number of uncertainties, including supply of credit - speech "Year Ahead"
• IAG.AU Reports H1 (A$) Net 500M v 551M y/y; Gross written premium 5.88B v 5.65B y/y
• CBA.AU Reports H1 (A$) cash NPAT 4.7B v 4.6B y/y, Op 12.4B v 12.6B y/y; Rev A$12.31B v $12.6B y/y
• VAH.AU Names Paul Scurrah CEO
• (AU) Australia sells A$900M v A$900M indicated in 2.50% May 2030 bonds, avg yield 2.2814% v 2.3296% prior, bid to cover 3.13x v 2.93x prior

North America

• (CA) Canada Finance Min Morneau expected to meet with economists ahead of the budget on Feb 22 - Canadian Press
• (US) Weekly API Oil Inventories: Crude: +2.5M v +2.1M prior
• TSLA Spokesperson: Cut prices on all versions of Model 3 by $1,100, due to ending referral program

Europe

• (UK) Brexit ministers looking at a plan that would keep Ireland border open – Sun
• (UK) Ministers considering a plan that would delay Brexit to May 24th from the currently planned March 29th - Telegraph
• Levels as of 12:40ET
  - Hang Seng closed; Shanghai Composite closed; Kospi closed; Nikkei225 +0.2%; ASX 200 +0.3%
• Equity Futures: S&P500 +0.1%; Nasdaq100 +0.1%, Dax +0.0%; FTSE100 -0.0%
• EUR 1.1395-1.1419; JPY 109.64-110.06; AUD 0.7151-0.7246;NZD 0.6866-0.6906
• Commodity Futures: Gold -0.1% at $1,317/oz; Crude Oil +0.0% at $53.67/brl; Copper +0.2% at $2.82/lb