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Daily Pivots: (S1) 108.55; (P) 108.81; (R1) 109.12; More...

With 109.14 minor resistance intact, intraday bias in USD/JPY remains mildly on the downside for 107.77 support first. Break there will confirm completion of rebound from 104.69 at 110.00. Then, further decline would be seen back to retest 104.69 low. On the upside, above 109.14 will turn intraday bias neutral first. Break of 110.00 will extend the rebound. But we'd expect strong resistance from 61.8% retracement of 114.54 to 104.69 at 110.77 to limit upside.

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 110.82) will dampen this bearish view and turn focus back to 114.54 resistance instead.

• Rates: Interesting eco calendar probably lost market-moving potential
  The post-Fed rally continued yesterday on core bond markets with more outperformance of US Treasuries. The German 10-yr yield hit 0.15% support. Today’s eco calendar is very interesting, but probably lost most of its market-moving potential after dovish signals from the ECB and the Fed. Stronger payrolls might nevertheless slow the bond rally.
• Currencies: EUR/USD returns in the 1.12/1.15 range. Topside test rejected
  The post-Fed USD decline eased soon yesterday. EUR/USD did run into resistance, but this was partially due to euro weakness on poor EMU data and soft ECB comments. Today focus turns to the US eco data. The balance of the data might be more supportive for the dollar than for the euro

The Sunrise Headlines

• US equity markets rallied higher yesterday to cap their biggest monthly gain in three years. Technology shares outperformed. Asian equities are trading mixed with Chinese indices outperforming before being closed for the week.
• US President Trump said he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as top negotiators on both sides are signalling substantial progress in the two days of high-level talks.
• Bundesbank President Weidmann said that Germany’s economic weakness will persist in 2019 and cause a significant lower growth. However, he added that the temporary slowdown shouldn’t deter the ECB from normalizing policy.
• UK PM May is seeking Labour support to get her Brexit deal through. They are discussing to enhance British employment rights and environmental protections after Brexit, as well as money for deprived parts of the country.
• US President Trump will suspend US obligations under the Intermediate-Range Nuclear Forces Treaty, a pact with Russia since 1987 that was a pillar of international arms control. The US accuses Russia of noncompliance.
• China’s Caixin PMI manufacturing decreased to 48.3 in January, down from 49.7 in December and below expectations (49.6). It is the second month of contraction in manufacturing sentiment and the biggest drop since July 2015.
• Today’s economic calendar is richly filled with payrolls, hourly earnings and the ISM Manufacturing Index in the US. Canada and the UK print the Manufacturing PMI as well with CPI inflation up for release in the EMU

Currencies: EUR/USD Returns In The 1.12/1.15 Range. Topside Test Rejected

EUR/USD fails to hold above 1.15 mark

The post-Fed USD decline already slowed yesterday. EUR/USD failed to sustain above 1.15. This wasn’t only due to a revival of the dollar. It was also to a large extent a sign of euro weakness. EMU data remained poor and European equities failed to join the US risk-rally. The euro declined further pressure after comments from BuBa’s Weidmann. He expects soft German growth in 2019 but doesn’t see it as reason for the ECB to delay policy normalisation. Still, the comments weighed further on the euro. EUR/USD closed at 1.1448 (from 1.1480). USD/JPY drifted south early in the session, but rebounded supported by a continuation of the US equity rally. The pair closed only marginally lower at 109.89.

Asian equities are trading mixed. China outperforms even as the Caixin manufacturing PMI (48.3) drifted further into contraction territory. The yuan (USD/CNY 6.74 area) returns part of this week’s gain. Uncertainty on China growth also weighs on the Aussie dollar (AUD/USD dropped below 0.7250). USD/JPY is trading little changed this morning (USD/JPY 108.90 area) and so does EUR/USD 1.1440 area). The eco calendar is well filled. In the US, the payrolls and the manufacturing ISM are in the spotlights. In Europe, EMU CPI and final manufacturing PMI’s are scheduled for release. EMU headline CPI is expected to ease further to 1.4%. It probably won’t help the euro even as the decline is mainly oil-driven. US job growth is expected to slow to 165k after a strong report (312K last month).The report might be distorted by the shutdown. The manufacturing ISM is expected to ease slightly to 54.0. We don’t see strong arguments for a big negative surprise. If so, today’s data might turn out to be (slightly) USD supportive and tentative euro negative. Yesterday, we looked out for further USD losses in the wake of Powell’s soft U-turn. However, the EUR/USD failure to regain the 1.15 level in a sustainable way is disappointing for euro bulls. EUR/USD remains blocked in the 1.12/15 range. Short term, a topside break looks far from evident.

EUR/GBP initially hovered in the mid 0.87 area yesterday, but declined later. We didn’t see much of high profile Brexit news. There are headlines on all kinds of political moves behind the scenes. A Brexit delay is still not excluded. However, big part of the EUR/GBP decline was probably euro-driven. Aside from Brexit headlines, the UK manufacturing PMI is expected to ease from 54.2 to 53.5. We assume more order-driven trade in EUR/GBP near current levels.

EUR/USD: returning in the 1.12/1.15 range as topside test/break failed

Daily Pivots: (S1) 0.9918; (P) 0.9935; (R1) 0.9963; More....

USD/CHF is staying in consolidation from 0.9994 and intraday bias remains neutral first. As long as 0.9905 support holds, further rally is expected in the pair. We're holding on to the view that corrective pull back from 1.0128 has completed at 0.9716 already. On the upside, break of 0.9994 will resume the rise from 0.9716 to retest 1.0128 high. However, break of 0.9905 will dampen this view and turn bias to the downside.

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. Break of 0.9963 will affirm this bullish case. 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.

It seems that the impacts of poor economic data and Fed's dovish turn on the markets are "roughly balanced" for now. Stocks in the US and Asia turned mixed and stayed mixed since yesterday. Poor Chinese manufacturing data gives the markets nothing to cheer for, yet there is no notable selloff in equities. Dollar continues to recover post FOMC selloff and it's for now the strongest one for today, followed by Yen. On the other hand, commodity currencies are the weakest, led by Aussie.

The two-day US-China trade talks ended without anything concrete, expect China's pledge to buy 5M tons of soybeans per day. The demand on enforcement of the agreement was emphasized throughout. And China seemed to have listened. But even Trump admitted it's not yet at the stage to set up a meeting with Chinese Xi to seal the deal yet. The next milestone will be USTR Lighthizer's visit to Beijing after Chinese New Year. For now, Dollar and stocks will turn to today's non-farm payroll first.

In other markets, the most notable development is the free fall in US treasury yields overnight. 10-year yield dropped -0.60 to 2.635, moved further away from 2.7 handle. 30-year yield dropped -0.048 to 3.005, threatening 3.0 handle. Major US stock indices were mixed. DOW dropped -0.06%. S&P 500 rose 0.86%. NASDAQ rose 1.37% Asian markets are also mixed. Nikkei closed up 0.07% at 20788.39. Hong Kong HSI is down -0.21%. China Shanghai SSE is up 1.30%. Singapore Strait Times is down -0.02%. Japan 10-year JGB yield is down -0.0188 to -0.016.

Trump: Not quite at the stage to meet Xi to seal trade deal yet

Trump met with Chinese Vice Premier Liu He in the oval office yesterday as the two-day top level US-China trade talks concluded. Trump said in during the meeting that "we're not quite at that stage yet", referring to the meeting with Chinese President Xi JinPing. He noted the representatives of both sides were "coming to a conclusion, except for certain very important points." When he and Xi meets, "we want to have it down so that we have certain points that we can discuss and, I would say, agree to." For now the meeting wasn't set up yet.

Nevertheless, Trump hailed that Liu's promise to buy five millions tons of soybeans per days. He said " it really is a sign of good faith for China to buy that much of our soybeans and other product that they've just committed to us prior to the signing of the deal — is something that makes us very proud to be dealing with them."

On the March 1 negotiation dead line, Trump said it has stayed and "we haven't talked about extending the deadline." But he added that "at a certain point, you're going to have — this is a very complex, and a very large — it's the largest transaction ever made, to be perfectly straight." Regarding Huawei's case Trump said "it will be discussed" at some point. And it's "very small compared to the overall deal, but that will be discussed."

US Trade Representative Robert Lighthizer reiterated in the meeting that " We focused on the most important issues, which are the structural issues and the protection of U.S. intellectual property, stopping forced technology transfer, intellectual property protection, agriculture and services issues, and enforcement, enforcement, enforcement." And, "both sides agree this agreement is worth nothing — if we can get an agreement, it's worth nothing without enforcement." Lighthizer will go to China shortly, after Chinese Year Year.

During the meeting, Liu also noted the need to establish three key themes, including "enforcement or implementation."

China Caixin PMI manufacturing dropped to 48.3, no significant effect from countercyclical economic policy

China Caixin PMI manufacturing dropped to 48.3 in January, down from 49.7 and missed expectation of 49.7. That's the lowest reading since February 2016 and points to continued softening in the health of China's manufacturing sector. Markit also noted that underlying trend in production weakens. Export sales increase slightly, but overall new work softens. Though, a positive note is that business confidence rose to eight-month high.

Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said "On the whole, countercyclical economic policy hasn't had a significant effect. While domestic manufacturing demand shrank, external demand turned positive and became a bright spot amid positive progress in Sino-U.S. trade talks. As companies were more willing to reduce their inventories, their output declined, indicating notable downward pressure on China's economy. China is likely to launch more fiscal and monetary measures and speed up their implementation. Yet the stance of stabilizing leverage and strict regulation hasn't changed, which means the weakening trend of China's economy will continue."

Japan PMI manufacturing finalized at 29-month low, bad news for global trade cycle

Japan PMI manufacturing was finalized at 50.3 in January, revised up from 50.0. But that's still the lowest level in 29 months. And, new export orders decline at sharpest pace since July 2016. Also, business confidence falls for the eighth month running.

Joe Hayes, Economist at IHS Markit said "the data "brought bad news for the global trade cycle at the start of 2019, with new export orders falling at the sharpest rate in two-and-a-half years" And, "domestic markets also showed signs of frailty as total demand declined for the first time since September 2016."

Besides, "with Abe set to levy the consumption tax this year, and Sino-US trade tensions still lurking, domestic weakness in Japan further adds to already existing challenges.

Also from Japan, jobless rate dropped to 2.4% in December, below expectation of 2.5%.

Looking ahead

PMI data will be the focuses in European session. In particular, UK and Swiss will release PMI manufacturing. Eurozone will also release PMI manufacturing final too. In addition, Eurozone will release CPI flash. Later in the day, US non-farm payroll will be the major focus. US will also release ISM manufacturing and construction spending.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9918; (P) 0.9935; (R1) 0.9963; More....

USD/CHF is staying in consolidation from 0.9994 and intraday bias remains neutral first. As long as 0.9905 support holds, further rally is expected in the pair. We're holding on to the view that corrective pull back from 1.0128 has completed at 0.9716 already. On the upside, break of 0.9994 will resume the rise from 0.9716 to retest 1.0128 high. However, break of 0.9905 will dampen this view and turn bias to the downside.

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. Break of 0.9963 will affirm this bullish case. 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.

Economic Indicators Update

Litecoin is consolidating towards the middle of its weekly trading on Friday, as the popular digital currency remains resilient despite the broader cryptocurrency coming back under selling pressure. A clear technical breakout from the $28.00 to $33.00 price range is now needed for a new short-term trend to emerge. A bearish head and shoulders pattern is still visible on the lower time frames, with a downside projection of over $10.00.

The LTCUSD pair is bearish while trading below the $28.00 level, key support is found at the $25.50 and $20.00 levels.

If the LTCUSD pair trades above the $33.00, buyers may test the $36.00 and $40.00 resistance levels.

Entering into European session, Dollar continues to pare back post FOMC losses and is trading as the strongest for today. The boost from Fed's dovish turn on equities was rather brief. Yen follows as the second strongest as overall market sentiments turned mixed. On the other hand, commodity currencies turned lower, as lead by Australian Dollar, after poor manufacturing data from China.

The two-day US-China trade talks ended without anything concrete, expect China's pledge to buy 5M tons of soybeans per day. The demand on enforcement of the agreement was emphasized throughout. And China seemed to have listened. But even Trump admitted it's not yet at the stage to set up a meeting with Chinese Xi to seal the deal yet. The next milestone will be USTR Lighthizer's visit to Beijing after Chinese New Year. For now, Dollar and stocks will turn to today's non-farm payroll first.

For the week, Sterling is the weakest one on Brexit uncertainty. The EU, Britons and the markets are awaiting UK's alternative proposals on Irish backstop. Swiss Franc is the second weakest. Despite today's pull back, commodity currencies are the strongest ones this week together with Yen.

In Asia,

• Nikkei closed up 0.07% at 20788.39.
• Hong Kong HSI is down -0.21%.
• China Shanghai SSE is up 1.30%.
• Singapore Strait Times is down -0.02%.
• Japan 10-year JGB yield is down -0.0188 to -0.016.

Overnight,

• DOW dropped -0.06%.
• S&P 500 rose 0.86%.
• NASDAQ rose 1.37%.

Long term US treasury yields tumbled sharply.

• 10-year yield dropped -0.60 to 2.635, moved further away from 2.7 handle.
• 30-year yield dropped -0.048 to 3.005, threatening 3.0 handle.

The euro currency is starting to give back early week gains against the greenback after buyers failed to sustain price above the 1.1500 level on Thursday. The EURUSD pair is likely to weaken towards the 1.1410 level in the near-term if price falls below the important 1.1430 support level. Buyers need to move the EURUSD pair back above the 1.1460 resistance area to regain bullish momentum.

The EURUSD pair is bearish while trading below the 1.1430 level, key technical support is found at the 1.1410 and 1.1370 levels.

If the EURUSD pair trades above the 1.1460 level, buyers may test towards the 1.1500 and 1.1550 resistance levels.

The British pound continues to drift lower against the US dollar on Friday as traders scale back positions ahead of the release of the US Nonfarm payrolls and ISM manufacturing report. GBPUSD buyers need to defend the pivotal 1.3095 area, or they risk extended intraday losses towards the 1.3000 area. It is also worth noting that sterling performed a bullish monthly price close above the 1.3100 level.

The GBPUSD pair remains bullish while trading above the 1.3095 level, key technical resistance is found at the 1.3130 and 1.3170 levels

If the GBPUSD pair trades below the 1.3090 level, key support is found at the 1.3070 and 1.3055 levels.

The Australian dollar declined in the Asian session after weaker-than-expected data from China. The data showed that manufacturing activity continued to contract in January. The Caixin manufacturing PMI was at 48.3, which was lower than the expected 49.5. It was also lower than December’s 49.7. A PMI data below 50 is viewed as an indicator of contraction. This data comes a day after the China Logistics Information Center released manufacturing PMI data that showed activity at 49.5. Later today, investors will receive the PMI numbers from Germany, UK, US, Switzerland, and the European Union.

It will be an important day for the markets as the United States releases the jobs numbers for January. The numbers are expected to show that non-farm Payrolls increased by 165K during the month. This will be much lower than December’s growth of 312K. The unemployment rate is expected to remain at 3.9% while the private non-farm payrolls are expected to be at 170K. The average weekly hours and earnings are expected to remain unchanged at 34.5 and 3.2% respectively. At the same time, investors will receive the ISM manufacturing PMI, which is expected to show a reduction to 54.2.

Investors will continue to watch the progress on the US-China trade talks. Yesterday, the US President met with China’s vice premier, Liu He, who visited him at the White House. The two sides said that progress was still being made. Another meeting between the US and China is still being considered. While investors are optimistic that a deal will be made, there are still many issues such as intellectual property and forced technology transfer that could make this impossible.

EUR/USD

The EUR/USD pair declined from Wednesday’s highs to a low of 1.1435. On the four-hour chart, the pair is trading slightly below the 20-day EMA but higher than the 40-day EMA. The MACD indicator too has started dropping from Wednesday’s high while the momentum indicator has dropped to below the 100 level. Today, the pair’s price will depend on the US jobs numbers. Numbers that meet the analysts estimates will likely take the pair higher.

AUD/USD

The AUD/USD pair declined after weaker-than-expected numbers from China. The pair declined to a low of 0.7235, which is lower than Wednesday’s high of 0.7295. On the hourly chart, the pair is below the 20-day and 40-day EMA. It is also between the 100% and 61.8% Fibonacci Retracement level. There is a possibility that the pair will continue moving lower to the 0.7210 level, which is the 61.8% Fibonacci level and the 100-day EMA before it resumes the upward trend.

USD/JPY

Yesterday, the USD/JPY pair declined to a low of 108.5. This level was an important support level as shown below. Overnight, the pair was little moved as traders waited for data from the US. It is now trading at the 108.85 level, which is along the short and medium-term EMAs. The RSI too has remained neutral at the 47 level. There is a possibility that the pair will be unmoved today until the US jobs numbers.

General Trend:

• Amazon declines following earnings/guidance, weighs on Nasdaq Futures
• Nikkei 225 rose to Dec highs, later pared gain on China PMI data
• Nintendo, Nomura and Mizuho all decline post earnings
• South Korea Jan Semiconductor exports down over 23% y/y
• Australia CoreLogic House price index sees 16th straight m/m decline in Jan
• Aussie declines on weaker than expected China PMI data
• Various Reserve Bank of Australia (RBA) events seen next week (including policy decision, comments from Gov Lowe, SOMP)
• Yuan weakens ahead of upcoming holiday, trims recent gains
• Chinese markets to be closed from Feb 4-8th for Lunar New Year holiday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%
• (AU) Australia Jan CoreLogic House Price M/M: -1.2% v -1.3% prior (16th straight decline); Y/Y: -5.6% v -4.8% prior
• *(AU) AUSTRALIA Q4 PPI Q/Q: 0.5% V 0.8% PRIOR; Y/Y: 2.0% V 2.1% PRIOR
• (AU) Australia Jan Final CBA PMI Manufacturing: 53.9 v 54.3 prior
• (AU) Australia Jan AIG Performance of Manufacturing Index: 52.5 v 50 prior
• (AU) Australia sells A$400M v $400M in 3.75% April 21 2037 bonds, avg yield: 2.5517%, bid to cover: 2.6x

China/Hong Kong

• Shanghai Composite opened +0.5%, Hang Seng +0.9%
• *(CN) CHINA JAN CAIXIN PMI MANUFACTURING: 48.3 V 49.6E (weakest reading in ~3-years, 2nd straight contraction)
• (CN) China: US trade talks make important progress; China to expand imports of US services – Xinhua
• (CN) Pres Trump: Lighthizer and US delegation will travel to China soon; Have NOT extended March 1 deadline for China trade talks; March 1 is a hard deadline
• (CN) White House: China trade talks have included the role of currencies
• (CN) China PBoC sets Yuan Reference Rate: 6.7081 v 6.7025 prior
• (CN) China PBoC Open Market Operation (OMO): Injects CNY80B in 14-day reverse repos v CNY50B injected in 14-day reverse repos prior: Net: CNY80B injected v CNY50B injected prior
• (CN) China Financial News denies report related to PBOC guidance over banks fast lending growth
• (HK) Macau Jan Casino Rev (MOP) 24.9B -5% y/y v -9%e (first decline since July 2016)

Japan

• Nikkei 225 opened +0.1%
• (JP) Japan Dec Jobless Rate: 2.4% v 2.5%e
• (JP) Japan Jan Final Manufacturing PMI: 50.3 v 50.0 prior (29-month low)
• (JP) Bank of Japan (BOJ) announces Bond purchases for month of Feb (Note amounts and frequency unchanged m/m)

Korea

• Kospi opened +0.3%
• (KR) South Korea Jan Trade Balance: $1.3B v $3.1Be
• (KR) South Korea comments on Jan trade balance: Exports declined on chip and oil product shipment declines; expects exports to improve in H2 on chip and oil recovery
• (KR) SOUTH KOREA JAN CPI M/M: -0.1% V 0.4%E; Y/Y: 0.8% V 1.3%E (lowest since Jan 2018)
• (KR) South Korea Jan Manufacturing PMI: 48.3 v 49.8 prior (matches lowest level since Nov 2016)

Other

• (ID) Indonesia Jan CPI M/M: 0.3% v 0.5%e; Y/Y: 2.8% v 3.0%e
• (ID) Indonesia Jan PMI Manufacturing: 49.9 v 51.2 prior (first contraction or reading below 50 in 1 year)
• (TW) Taiwan Jan Manufacturing PMI: 47.5 v 47.7 prior (lowest since Sept 2015)
• (TW) Taiwan sells NT$10B in 10-year bonds: yield 0.848% v 0.947% prior: bid to cover 3.51x

Levels as of 01:00ET

• Nikkei 225, flat, ASX 200 flat, Hang Seng -0.4%; Shanghai Composite +0.8%; Kospi flat
• Equity Futures: S&P500 flat; Nasdaq100 -0.4%, Dax -0.5%; FTSE100 -0.3%
• EUR 1.1451-1.1437 ; JPY 108.96 ; AUD 0.7279-0.7237 ;NZD 0.6924-0.6898
• Gold -0.1% at $1,323/oz; Crude Oil -0.2% at $53.71/brl; Copper -0.7% at $2.767/lb