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• Fed removes guidance for more hikes; dollar crumbles, stocks soar
• Trade talks conclude today – any signs of progress crucial for markets
• Eurozone releases GDP data, risks seem skewed to the downside

Dollar drops, stocks roar as Fed folds on further rate hikes

While the Fed kept rates unchanged as expected yesterday, the meeting wasn't short of surprises. Policymakers adopted an even more cautious tone, dropping the reference that further gradual rate hikes may be needed, instead reiterating the mantra that they will be ‘patient' for now. Chair Powell's press conference wasn't any different. He was hesitant to specify whether this is the end of the hiking cycle or not, noting that for more hikes to become necessary, inflation would likely need to pick up substantially. The officials also confirmed that the balance sheet unwinding could end soon; another dovish hint.

The dollar retreated across the board as US bond yields fell, diminishing some of the reverse currency's carry appeal. Meanwhile, the signals for lower rates for longer propelled riskier assets higher, with both the S&P 500 (+1.55%) and Dow Jones (+1.77%) posting meaningful gains. Dollar-denominated gold also posted new multi-month highs, on the back of a weakening greenback.

Focusing on the dollar, while the Fed's U-turn is clearly negative for the currency, it must be noted that market pricing on future hikes was already largely non-existent. Hence, while the overall mood around the greenback indeed seems to be gradually shifting, the reserve currency is unlikely to lose all its shine overnight either as yield differentials remain wide, and in its favor. That is, until – and if – other central banks such as the ECB start turning more ‘confident', which seems unlikely over the coming months at least.

Trade dispute in focus as top-level talks conclude today

The latest round of US-China trade negotiations that commenced yesterday will wrap-up later today, with any comments from key officials such as US Trade Representative Robert Lighthizer having the capacity to shake markets. In short, while China has made some concessions in previous rounds – such as proposing plans to eliminate the bilateral trade deficit – there's been little progress on key issues like intellectual property protection and forced technology transfer, reportedly.

While striking an actual deal today seems highly unlikely, any signs the two sides are making headway could still raise hopes for a breakthrough down the road, and perhaps support risky assets like equities and commodity currencies. It will be fascinating to see whether the Trump administration ‘digs in' and waits for major concessions on the biggest issues, or whether it will settle for a near-term solution that lifts markets and can also be presented as a ‘victory' ahead of next year's election campaign.

Day ahead: Eurozone's preliminary GDP due, downside surprises possible

Outside of the trade talks, the economic calendar is relatively light. The main release will be the Eurozone's preliminary GDP data for Q4. While projections point to an unchanged quarterly rate of growth, considering the sharp drop in the bloc's PMIs throughout the quarter, the risks surrounding that forecast may well be tilted to the downside. A weaker-than-expected print could cause euro/dollar to give back some of its latest gains.

In China, the official PMIs for January were already released and encouragingly pointed to some stabilization in activity, helping the aussie and the kiwi to climb somewhat, alongside most Asian equity indices.

In equities, the earnings season continues with Amazon today, which will release its quarterly results after the closing bell on Wall Street.

Finally, there's two ECB speakers on the schedule: Mersch (1015 GMT) and Weidmann (1600 GMT).

Pivot (invalidation): 2657.50

Our preference Long positions above 2657.50 with targets at 2695.00 & 2709.50 in extension.

Alternative scenario Below 2657.50 look for further downside with 2640.25 & 2626.00 as targets.

Comment The RSI is bullish and calls for further upside.

Pivot (invalidation): 11216.00

Our preference Short positions below 11216.00 with targets at 11074.00 & 10995.00 in extension.

Alternative scenario Above 11216.00 look for further upside with 11280.00 & 11340.00 as targets.

Comment As Long as 11216.00 is resistance, look for choppy price action with a bearish bias. Prices need to push above 11216 to invalidate the intraday bearish bias.

Daily Pivots: (S1) 142.63; (P) 143.12; (R1) 143.50; More...

Intraday bias in GBP/JPY stays neutral as consolidation from 144.84 continues. Further rise is still expected as long as 140.62 support holds. Above 144.84 will extend the rebound from 131.51 to trendline resistance at around 147.35. We'd expect strong resistance from there to limit upside at 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.

Pivot (invalidation): 5.2600

Our preference Short positions below 5.2600 with targets at 5.1940 & 5.1700 in extension.

Alternative scenario Above 5.2600 look for further upside with 5.2910 & 5.3220 as targets.

Comment The break below 5.2600 is a negative signal that has opened a path to 5.1940.

Pivot (invalidation): 0.7235

Our preference Long positions above 0.7235 with targets at 0.7300 & 0.7325 in extension.

Alternative scenario Below 0.7235 look for further downside with 0.7205 & 0.7175 as targets.

Comment The RSI is bullish and calls for further upside.

Daily Pivots: (S1) 124.88; (P) 125.18; (R1) 125.47; More....

Upside momentum in EUR/JPY is rather unconvincing as seen in 4 hour MACD. But further rise is still expected with 123.78 support intact. Rebound from 118.62 is in progress for 55 day EMA (now at 126.20). Though, break of 123.78 will indicate completion of the rebound and turn bias back to the downside.

In the bigger picture, medium term rebound from 109.03 (2016 low) has completed at 137.49 already, with corrective structure. Fall from 137.39 is possibly just the second leg of the corrective pattern from 109.03. Break of 133.12 resistance should start the third leg to 137.49 and above. Nevertheless, break of 118.62 will resume the decline from 137.49 for 109.03/114.84 support zone instead.

Pivot (invalidation): 1.3185

Our preference Short positions below 1.3185 with targets at 1.3115 & 1.3060 in extension.

Alternative scenario Above 1.3185 look for further upside with 1.3220 & 1.3260 as targets.

Comment A break below 1.3115 would trigger a drop towards 1.3060.

Pivot (invalidation): 0.9955

Our preference Short positions below 0.9955 with targets at 0.9900 & 0.9885 in extension.

Alternative scenario Above 0.9955 look for further upside with 0.9975 & 0.9995 as targets.

Comment The RSI has broken down its 30 level.

Daily Pivots: (S1) 0.8724; (P) 0.8744; (R1) 0.8774; More...

Intraday bias in EUR/GBP remains on the upside as rebound from 0.8617 is in progress for 38.2% retracement of 0.9101 to 0.8617 at 0.8802. Break will target 61.8% retracement at 0.8916. On the downside, however, break of 0.8678 minor support will turn bias back to the downside for 0.8620 key support. Decisive break of 0.8620 will resume larger decline from 0.9305 and target 100% projection of 0.9305 to 0.8620 from 0.9101 at 0.8416.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). The medium term range is set between 0.8620 and 0.9101. Downside breakout of 0.8620 will pave the way back to 0.8312 support . Break of 0.9101 will bring retest of 0.9304/5 resistance.