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The most dovish statement year to date by the Fed was released yesterday. They are “patient” and flexible in terms of reducing the size of their balance sheet. It is highly likely the word "patient" means no rate hike until the second half of this year as we discussed yesterday. This killed the back of the bull rally for the dollar index but investors should make no mistake in forgetting the fact that every meeting is a live meeting. The Fed is data dependent and they can change their tone anytime.

Donald Trump, the US president, must have been a happy person yesterday after listening to the Fed stance because it shows that the Fed has capitulated to his demand. He could not resist but to tweet that Dow Jones has broken above the 25K.

Of course, market participants are also happy as for them Christmas has come early and because of this reason we are seeing a lot of optimism in the markets and major indices are trading higher. In fact, this news is so powerful that investors have ignored all other adverse factors such as the ongoing trade war between the US and China, the slow growth over in China and the US cooperates blaming their poor earning on China.

Earnings: Facebook

Facebook reported another stellar quarter and made its investor comfortable. Facebook's team has all the necessary tools available to fight any situation. The increase in their user number in Europe shows that the firm has the right people who can not only understand the data privacy challenges for the company but they can find innovative solutions around it. It is because of this that the firm was able to increase its revenue along with healthy operating profit margin.

However, it is not about the current quarter, the challenges are ahead and the management needs to make sure that its spending doesn’t get out of control because it is expected to increase this number. Any increase in spending should justify user numbers, currently, the expectations are that this number may go flat. Increasing user activity and new members are the two key areas for Facebook where it drives the most of its margin and any dent in this area is only going to push the profit margins lower.

Shell

Royal Dutch shell also came out with their smashing earning numbers, riding the wave of uncertainty. The Anglo-Dutch earned $5.69 billion, ahead of the average estimate of $5.39billion. The company used its cash flow very wisely and this resulted in working capital deployed in the right place and at the right time. Cash flow from operation was $22 billion and the positive move brought a benefit of $9.1 billion. The company has kept their top priority of keeping the cost low and this resulted in their fourth-quarter earnings as the highest period in nearly 6 years. In other words, their earning for the fourth quarter matched the numbers when Crude price used to $100. This really shows the importance of controlling the cost because right now the cost of crude $54 a barrel.

Daily Pivots: (S1) 1.5762; (P) 1.5880; (R1) 1.5956; More....

At this point, EUR/AUD is staying in consolidation above 1.5774 and intraday bias remains neutral first. Outlook also stays bearish with 1.6154 resistance intact and further decline is expected. On the downside, break of 1.5774 will resume the fall from 1.6765 and target 1.5346 key support next. On the upside, break of 1.6154 will argue that the pull back has completed. Intraday bias will then be turned back to the upside for retesting 1.6765.

In the bigger picture, the failure to sustain above 1.6587 key resistance (2015 high) argues that up trend from 1.1602 (2012 low) is not ready to resume yet. But still, as long as 1.5346 support holds, outlook will remain bullish. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

Daily Pivots: (S1) 1.1377; (P) 1.1403; (R1) 1.1439; More...

EUR/CHF's rally is still in progress and intraday bias remains on the upside for 1.1501 key resistance. Decisive break there will complete double bottom reversal pattern (1.1173, 1.1181) and turn outlook bullish. On the downside, break of 1.1259 support is needed to confirm completion of the rebound. Otherwise, further rise is expected in case of retreat.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

Pivot (invalidation): 109.10

Our preference Short positions below 109.10 with targets at 108.75 & 108.50 in extension.

Alternative scenario Above 109.10 look for further upside with 109.40 & 109.75 as targets.

Comment A break below 108.75 would trigger a drop towards 108.50.

Pivot (invalidation): 1.3095

Our preference Long positions above 1.3095 with targets at 1.3170 & 1.3200 in extension.

Alternative scenario Below 1.3095 look for further downside with 1.3055 & 1.3015 as targets.

Comment The break above 1.3095 is a positive signal that has opened a path to 1.3170.

Pivot (invalidation): 1.1450

Our preference Long positions above 1.1450 with targets at 1.1535 & 1.1570 in extension.

Alternative scenario Below 1.1450 look for further downside with 1.1410 & 1.1390 as targets.

Comment The RSI is bullish and calls for further upside.

• Rates: Rejuvenation of Fed put
  The US yield curve bull steepened as the Fed dropped its guidance of more rate hikes. The omission of a risk assessment to the eco outlook highlights uncertainty over the near future. Powell also indicated willingness to alter the speed of the balance sheet run-off. All signals indicate that the Fed will be sidelined at least until, and probably beyond, the Summer.
• Currencies: Fed's dovish U turn propels EUR/USD
  The Fed staged a remarkable U turn yesterday, dropping its reference to more gradual rate hikes in the near future. Doubts about the economic outlook warrant a patient and flexible monetary policy, both with respect to rates as its balance sheet normalization. EUR/USD skyrocketed and we expect the dollar to remain under pressure at least in the near term.

The Sunrise Headlines

• US equity markets jumped higher yesterday with gains up to +2.20% (Nasdaq) as the Fed delivered a dovish policy more dovish. Asian equities opened higher this morning with Japanese indices outperforming (+1.0%).
• The Fed signalled that it will be patient with future rate hikes and said the next move could either be up or down. They've added that they will be flexible on reducing its balance sheet as the global economic outlook is worsening.
• The EU is not planning to give UK PM May any concessions to work out her ‘plan B', which is set to be voted on in the UK Parliament on February 14, as the official stance remains the EU won't rework the current deal.
• US lawmakers, both Democratic and Republican, are introducing legislation to limit president Trump's power to levy import tariffs for ‘national security reasons'. The bills underline bipartisan concerns over Trump's trade policies.
• The Chinese Composite PMI rose in January to 53.2, up from 52.6 in December. The manufacturing component prints below 50 (contraction) for a second month in a row, while the non-manufacturing component increased to 54.7.
• Italian PM Conte admits the Italian economy is in recession, as GDP for the fourth quarter will ‘probably' be negative. The recession puts pressure on the populist government's spending plans.
• Today's economic calendar contains the Jobless Claims and the Chicago PMI (Jan) in the US. Q4 GDP results are printed for Spain, Italy and EMU (agg). Earnings seasons continues (Amazon and GE) and ECB members speak

Currencies: Fed's Dovish U Turn Propels EUR/USD

Fed soft U turn propels EUR/USD to key levels

Investors largely ignored a richly filled calendar (French GDP, German CPI, EC confidence, ADP job report) yesterday. Markets avoided any directional positions ahead of what turned out to be a (very) soft Fed meeting. The central bank altered its forward guidance dramatically. It dropped the reference to 'some further gradual increases' in its statement and implicity left open all options, including rate cuts. The Fed also refrained from a formal risk assessment, which highlighted lingering doubts among officials and underscores the bank's patience going forward. In a separate statement, the Fed also signalled flexibility with regards to the balance sheet normalisation. Powell did little effort to counterbalance the soft statement(s) during the press conference. He did not alter his current economic assessment much but stressed that the increased uncertainty warranted a patient and data dependent policy. A much softer than expected Fed triggered a wave of dollar selling that propelled EUR/USD close to the technically relevant 1.15-mark. USD/JPY slipped to 109. Asian equity markets are surfing the Fed induced risk on wave, which might have found additional support in slightly better than expected Chinese PMI's. Asian cross rates hold on or even extend yesterday's gains vs. the dollar. USD/JPY edges lower (108.8), USD/CNY trades at 6.70. The kiwi dollar strengthened further after the S&P lifted the country's outlook from stable to positive.

Today's economic calendar has been stripped of important US (PCE) data. 2018Q4 GDP growth in the EMU is expected weak but shouldn't come as a huge surprise. Today's price action will be mostly driven by yesterday's Fed. The dovish U turn of Powell lifted EUR/USD to the upper side of sideways trading 1.12/15 trading range. We expect the dollar to remain under pressure in the near term as the case for rate hikes in the short term has all but disappeared.

From a technical perspective a test of EUR/USD 1.1620 might be on the table. Sterling stabilized more or less yesterday after the UK Parliament decided to send May back to Brussels to renegotiate the Irish backstop agreement. The EU however is unwilling to reopen Irish border talks EUR/GBP edged a little higher to close at 0.8753. We see little reasons for sterling to outperform in the foreseeable future as parties aren't close in solving Brexit any time soon

Dovish U turn by the Fed propels EUR/USD towards key technical levels

The GBP/USD could also break below the support trend line (green) of the uptrend channel. In that case a bearish reversal is taking place, which would indicate that wave A (green) has been completed at the recent high and that price is then most likely building a retracement within wave B.

The GBP/USD seems to have completed a bearish ABC (light green) zigzag correction within wave 4 (dark red). Price has also bounced at the 38.2% Fibonacci retracement level and price is now approaching the key resistance trend line (red). A bullish break could confirm the wave 5 (dark red) whereas a bearish break below the 61.8% Fib of wave 4 vs 3 would invalidate the wave 4 (dark red).

Have we reached the end of the tightening cycle?

The Federal Reserve has taken a 180-degree turn. After raising interest rates four times in 2018, the Fed said it would be patient as it determines what future adjustments to the target range ofthe federal funds rate may be appropriate.

The key words here are ‘patient’ and ‘adjustment’. Patience suggests that the Fed might be done with tightening policy in the short run, meanwhile adjustment means interest rates may go either up or down.

Although markets have been anticipating a dovish Fed, what was delivered on Wednesday was beyond expectations. As a result, the Dow Jones Industrial Average surged 435 points, the yield curve steepened, and the Dollar fell against its major peers.

Key changes to the Fed statement

In addition to the patience approach, the Fed is no longer on autopilot mode forreducing its balance sheet. The central bank stated that it isnow prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments.

Although the Fed continues to see economic activity remaining healthy, it has downgraded its overall assessment of economic activity from ‘strong’ to ‘solid’.

Green light to take risk?

From an equity valuation perspective, the required rate of return has been pulled lower for now, suggesting that further gains may be in the cards. However, this component is not enough to provide a sustainable rally to equity markets. A weakening global economy, the U.S.-China trade conflict, Brexit, and other geopolitical factors will continue to challenge risk appetite.

In short, the shift taken by the Fed is of great relief to equity bulls, but other factors need to be resolved in order for the bull market to be sustained.

Gold shines again

A dovish Fed, lower bond yields and a weaker Dollar are key ingredients for higher gold prices. However, it seems the yellow metal is also seeing a boost from central bank purchases. In its most recent report, the World Gold Council stated that central banks added 651.5 tons to official gold reserves in 2018, creating the second highest annualtotal on record. If this trend is expected to continue in 2019, the chances of retesting the 2016 peak of $1,375 is highly likely in the coming two months.

Bitcoin is attempting to recover early week losses, after the number one cryptocurrency by market capitalization failed to break below the important $3,300 support level. Price is now trading in descending price channel, with the $3,500 level topside resistance. Short-term range-bound trading action is expected in the BTCUSD pair until a clear breakout from the channel occurs.

The BTCUSD pair is only bearish while trading below the $3,300 level, key technical support is found at the $3,150 and $3,000 levels.

If the BTCUSD pair trades above the $3,500 level, key resistance is found at the $3,680 and $3,960 levels.