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The euro is holding key support against the US dollar ahead of today’s key interest rate decision and monetary policy statement from the FOMC. The 1.1410 level is a pivotal area buyers will need to defend for further advancement towards the 1.1500 region. A sustained loss of the 1.1410 level will likely prompt sellers to test towards the technically important 1.1360 support level.

The EURUSD pair is bullish while trading above the 1.1410 level, key technical resistance remains at the 1.1460 and 1.1500 levels.

If the EURUSD pair trades below the 1.1410 level, sellers may test towards the 1.1360 and 1.1330 support levels.

The British pound is under downside pressure against the US dollar after EU officials failed to support British PM Theresa May’s new deal Brexit plan, which won the support of UK lawmakers on Tuesday. The GBPUSD pair is bearish while trading below the pivotal 1.3090 level and could potentially fall towards the 1.3000 level. The US Federal Open Market Committee policy meeting later today is next major risk event for GBPUSD pair.

The GBPUSD pair is bearish while trading below the 1.3090 level, key technical support is found at the 1.3000 and 1.2955 levels

If the GBPUSD pair trades above the 1.3090 level, key resistance is found at the 1.3130 and 1.3200 levels.

The Great British pound rose slightly earlier today, paring some of the losses made yesterday. The declines happened after the House of Commons voted on a number of amendments on Brexit. The members votes backed Theresa May’s efforts to rewrite her own draft treaty, a measure that has ben rejected by Brussels. The MPs voted by 317 to 301 to endorse a government-backed amendment that will replace the Irish backstop to alternate arrangements. In response to the vote, EU’s Donald Tusk said that Brussels was committed to the existing Brexit agreement that was negotiated over two years. For now, there are uncertainties on what will happen next as deadline nears.

The Australian dollar rose sharply after positive inflation numbers. Data from the Australian bureau of statistics showed that Q4’s CPOI rose by 1.8%, which was higher than the consensus estimate of 1.7%. This was lower, however, than Q3’s inflation growth of 1.9%. On a QoQ basis, the CPI increased by 0.5%, higher than the expected 0.4%. The CPI index number for the fourth quarter was 114.10 while the weighted mean CPI rose by 1.7%. These numbers could make a case for the RBA to raise rates later this year or early next year as they approach the target 2.0%.

It will be an important day for the USD and markets in general as traders prepare for important information. ADP research will release its reading for January’s nonfarm employment change. Investors expect it to show that more than 170K people were employed in the month, down from 271K in December. This number will be released two days before the official government jobs numbers. Traders will then receive the first reading of the US Q4 GDP numbers. Investors expect the numbers to show that the economy expanded by 2.6%. Later, they will receive the interest rates decision by the Fed. While the bank is not expected to hike, its statement will provide guidance on what to expect in the next meetings.

EUR/USD

The EUR/USD pair was little moved ahead of key economic data from the United States. The pair remained closer to the YTD high of 1.1450. On the four-hour chart, the current price is closer to the 50% Fibonacci Retracement level of 1.1430. The price is also above the 21-day and 42-day EMA while the RSI has remained unchanged below the 70 level. The same is true with the commodities channel index, which has been relatively unchanged. There is a likelihood that the pair will see some major movements today as key US data is released.

AUD/USD

The AUD/USD pair jumped today after the CPI numbers from Australia. The pair moved from a low of 0.7135 to a high of 0.7195. This price is above the 21-day and 42-day EMAs while the RSI has moved closer to the 70 level. While the upward trend of the pair could continue, there may be some volatility after the US data that will affect the US dollar. The key points to watch for the pair will be 0.7225 and 0.7170 as shown below.

XBR/USD

The XBR/USD pair rose today after API released weaker-than-expected inventory numbers. The pair reached an intraday high of 61.50. The price is above the 21-day and 42-day EMAs while the RSI has continued to move up. The same is true with the momentum indicator, which is currently above 100. The pair could potentially continue to move up to the 62 level.

EURGBP had one of its best trading sessions for this year over the last couple of days, following the bounce off the 20-month trough of 0.8616. Also, the pair jumped above the 23.6% Fibonacci retracement level of the downleg from 0.9110 to 0.8616 around 0.8730. However, the price is still lacking direction in the medium term and any daily close below the 0.8620 support level, would endorse the outlook for a negative tendency.

The very short-term bias looks quite positive, however, as the MACD keeps gaining ground below its red signal line and zero line, while the stochastic oscillator is moving higher approaching the overbought territory. On the other hand, the 20- and 40-simple moving averages (SMAs) created a bearish crossover in the preceding week.

The 0.8760 resistance level could be a trigger point for steeper bullish actions as in case of an upward break it would test the 38.2% Fibonacci mark of 0.8805. Higher up, resistance could run towards the 20-day simple moving average (SMA) around 0.8840 before touching the 50.0% Fibonacci of 0.8863.

However, if the pair reverses back to the downside, investors could find strong support area near the 20-month low of 0.8616. If the price continues to drop, support could next come from the inside swing low of 0.8530, registered on April 2017.

Having a look at the bigger picture, EURGBP has been developing in a trading range since September 2017.

We move one step closer to the Brexit endgame on Tuesday with votes on two critical amendments (details below). The debates shall progress throughout the day before the votes are due at 19:00 London/GMT. Apple earnings follow two hours later. The US announced charges against Huawei in a further ramp of the trade war. Below is the Premium video for subscribers with regards to GBPUSD, indices, EUR, gold and JPY.

UK MPs will get a say on the direction of Brexit on Tuesday in a pair of critical votes. One vote is the Cooper-Boles amendment, which would block a hard Brexit. As we write this, GBP is being lifted by reports that Labour has expressed its willingness to vote for the amendment. May reportedly told Conservatives on the weekend that she won't allow a hard Brexit but she's hoping to defeat the bill because it would curb her negotiating leverage.

The other vote is the Brady amendment which would replace the Irish border backstop with 'alternative arrangements'. May hopes to take the vote to Brussels to secure something she can pass in a meaningful vote that's now scheduled for February 13. On one hand, passing the Brady Amendment would raise hopes that the Backstop will be amended so that it is more suitable to the Democrat Union Party, which will vote on it. The main challenge here is that this will require Theresa May to go to the EU and negotiate again on the Backstop. If the Brady amendment does not pass, then we are stuck at the same position where we were before.

With regards to GBPUSD trading, the pair remains above the 200-DMA for the 3rd straight day, formerly a resistance that took 7 months to break. The base assumption is that there is no breakthrough in the day ahead but such low expectations open the door to a surprise that could lift the pound especially as the risk of a no-deal diminishes and that of delaying Article 50 strengthens.

GBP traders beware this week from other important events such as the revised US Q4 GDP, Federal Reserve decision on Wednesday, US and Canada jobs report on Friday. The resumption of the US-China trade talks on Wednesday will laso be mulled in light of the US criminal charges against Huwawei.

Otherwise, we continue to watch China closely. On Monday, Caterpillar and Nvidia both highlighted slowing growth in China as they cut guidance. The US also announced charges against Huawei and CFO Meng Wanzhou in an escalation that sure to dog relations between the countries while leaving Canada stuck in the middle.

• Rates: Investors hold their breath for more earnings and Fed
  Global core bonds ended mixed yesterday with US Treasuries outperforming German Bunds. An empty eco calendar left investors unguided but the bund proved resilient. US-Sino trade talks, more earnings (Facebook, Boeing,…) and the run-up to the Fed policy meeting are determinative for today’s sentiment.
• Currencies: Sterling tumbles as UK Parliament votes to renegotiate Irish Backstop
  Yesterday, the dollar showed no clear trend as markets await the Fed policy decision. The Fed Chair giving more weight to policy flexibility might still be a modest USD negative. EMU eco data and headlines on the US-China trade talks are a wildcard for EUR/USD trading. Sterling traders are again facing a period of uncertainty after yesterday’s UK voting in Brexit

The Sunrise Headlines

• US markets closed mixed yesterday. The Dow Jones managed to eke out gains (+0.21%) but the S&P (-0.15%) and Nasdaq (-0.81%) ended in red. Most Asian equities are under slight pressure. Japan underperforms (-0.4%).
• The British Parliament rejected the Cooper-Boles amendment – that seeks a delay of Brexit – but approved the Brady proposal. Brady’s plan is to renegotiate the Irish backstop, which already has been rebuffed by the EU.
• Australian Q4 inflation (0.5% QoQ, 1.8% YoY) was marginally higher than expected (0.4% QoQ, 1.7% YoY). Markets braced for a negative surprise after a recent batch of weak(er) data. The Aussie dollar jumped.
• League members put pressure on Italy’s Deputy PM Salvini to force a snap election to cash the party’s growing lead and to ditch the coalition partner 5SM, which they say hamper League’s efforts to deliver on election promises.
• French BBP grew 0.3% QoQ (0.9% YoY) in the last quarter of 2018, as expected. Growth was mainly driven by the public sector, capex and exports while household consumption stagnated.
• The race to succeed the ECB’s chief economist Peter Praet concludes today. Ireland’s central bank governor Philip Lane is, so far, the sole candidate. Lane holds a similar view on the economy as Draghi.
• Today’s economic calendar contains January ADP employment change, the first 2019 Fed meeting and high level trade talks in the US. The EC’s economic confidence is due in the EMU and Germany releases January inflation data. Tech giants Microsoft and Facebook publish Q4 results

Currencies: Sterling Tumbles As UK Parliament Votes To Renegotiate Irish Backstop

Sterling hammered after UK Brexit voting

FX traders were in wait-and-see modus yesterday, ahead of today’s FOMC meeting and the restart of the China-US trade talks. There were again few eco data. US consumer confidence was weak, but had little impact. Interest rates differentials between the USD and the likes of the euro and the yen narrowed further but had also little impact. EUR/USD finished at 1.1433 (from 1.1428). USD/JPY ended 109.40 (from 109.35).

Asian equities are trading mixed this morning, with Japan and China slightly underperforming. The yuan (USD/CNY 6.7150 area) extends gains despite a cautious risk sentiment. USD/JPY (109.30 area) is trading with a tentative negative bias. EUR/USD (1.1445) is gaining a few ticks. Australian Q4 inflation remained soft as expected but, contrary to some other recent data evidence, it brought no negative surprise (headline at 1.8% Y/Y)/ AUD/USD rebounded to the high 0.71 area. In EMU, French Q4 GDP printed soft (0.3% Q/Q), but marginally stronger than expected, slightly supporting EUR/USD. EC confidence is expected to ease further and this is also the case for the German CPI (headline expected 1.6%). The US GDP release is delayed. ADP job growth is expected to return to a more trend-like growth (185k) after last month’s very strong figure. Any FX reaction will probably be muted, ahead of the FOMC decision. The Fed chair is expected to confirm policy flexibility. Markets will look whether the Fed holds its view on gradual rate hikes and to what extent policy flexibility also applies to the shrinking of the balance sheet. Over the previous days, the dollar lost interest rate support, suggesting that markets are positioned for a rather soft Fed. EUR/USD drifted higher in the 1.12/1.15 ST range after a ST downtrend ended on Friday. EUR/USD remains well bid, but the Fed probably needs to stress flexibility (also on the balance sheet) to push the dollar below (EUR/USD above) technically significant levels. Intermediate resistance comes in in the 1.15 area ahead of the 1.1570/1.1621 range top.

Yesterday evening, sterling was sold after the UK Parliament approved an amendment, instructing UK PM May to remove/renegotiate arrangement on the Irish backstop in the EU-UK Brexit deal. EUR/GBP is again trading north of the 0.87 big figure. First comments from Europe suggested that the room of manoeuvre is close-to-non-existent. In this context, sterling is probably again becoming more vulnerable if some kind of ‘last minute’ arrangement is still possible. ST-term, we see more downside that upside sterling for sterling in this binary Brexit proces.

EUR/USD: USD trading slightly in the defensive ahead of Fed policy decision

Swiss KOF Economic Barometer dropped for he fourth time in a row to 95.0 in January, below expectation of 98.1. It's now 5pts below its long term average.

KOF noted that "The downward tendency that emerged at the end of last year continues. The economic outlook for Switzerland continues to dampen at the beginning of 2019". And, "this renewed decline is especially attributable to negative developments within the manufacturing industry and the service industry. In addition, export prospects cloud over."

Full release here.

Germany Gfk consumer confidence rose 0.4 to 10.8 in February, above expectation of 10.3. Gfk noted that rising income prospects and an increasing propensity to buy mean that the consumer climate is improving once more. This is further reinforced by a decrease in propensity to save in January.

Rolf Bürkl, GfK Consumer Expert, explains, "For the whole of 2019, GfK is predicting real growth in private consumer spending in Germany of 1.5 percent. The key pillars for the consumer economy will above all be the expected positive trend on the labor market coupled with positive income expectations. However, this is based on there being no significant growth in German consumers' uncertainty about the economy. For example, if there were an escalation in the trade dispute, putting further strain on export prospects, this would be a bad sign for the export nation of Germany. If this were to again increase workers' fears of job losses, it would have an adverse impact on the consumer climate, jeopardizing the forecast."

Full release here.

French GDP rose 0.3% qoq in Q4 2018, same pace as prior quarter and matched expectation. Looking at the details, household consumption expenditures decelerated (0.0% after +0.4%), likewise total gross fixed capital formation slowed down (GFCF: +0.2% after +1.0%). Overall, final domestic demand excluding inventory changes decelerated: it contributed 0.1 points to GDP growth, after 0.5 points in the previous quarter.

Imports bounced back in Q4 (+1.6% after −0.7%) and exports accelerated significantly (+2.4% after +0.2%). All in all, foreign trade balance contributed positively to GDP growth again: +0.2 points, after +0.3 points in Q3. Conversely, changes in inventories contributed negatively to GDP growth (−0.1 points after −0.5 points).

Full release here.

Daily Pivots: (S1) 0.7137; (P) 0.7157; (R1) 0.7175; More...

Intraday bias in AUD?USD remains neutral as consolidation fro 0.7235 might extends. For now, as long as 0.7076 support holds, further rise is still expected. On the upside, break of 0.7235 will extend the rebound from 0.6722 to 0.7393 resistance next. We'd expect strong resistance from there to limit upside.

In the bigger picture, the failure to sustain below 0.6826 (2016 low) suggests that the long term down trend is not ready to resume yet. But prior rejection by 55 week EMA indicates underlying medium term bearishness in the pair. Outlook will also bearish as long as 0.7393 resistance holds. On the downside, sustained break of 0.6826 will target 0.6008 (2008 low).