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Market movers today

Today, the US-China trade top-level negotiations begin. The US prosecution of Huawei has added some uncertainty to the equation but we believe the US and China will still aim to keep this track separate from the trade talks. The negotiations are entering a crucial stage with more thorny issues coming up regarding technology transfer, intellectual property rights and China's industrial policy. The issue of enforcement will also be on the table. We may enter a rockier phase of negotiations, which have been smooth so far. However, we still believe in a deal by the end of Q2 with a 75% probability.

Tonight it is time for the FOMC meeting. Recently, we have seen more dovish signals from the Fed supporting it being on hold for now and likely until the June meeting. From now on, Jerome Powell will hold a press conference after each meeting, but as the Fed has not updated its projections, we do not expect any new signals. That said, it will be interesting to see if a new stance on the balance sheet is forming given that the Wall Street Journal story on this was a key factor behind the dollar decline last Friday.

In the data calendar, we have US ADP employment figures and German January HICP data. In the Scandie markets, Swedish confidence numbers and Norwegian retail sales are in focus.

Selected market news

Asian equity markets are somewhat mixed this morning while S&P futures point to a higher opening after better-than-expected Apple earnings results yesterday, boosting tech stocks. US consumer confidence fell back to the weakest level since July 2017, as optimism soured during the US government shutdown.

Yesterday's Brexit vote in the House of Commons set the scene for a renewed collision course with Brussels. Against our expectation, the Brady amendment (replacing the backstop with 'alternative arrangement's) passed while the Cooper amendment (requiring a vote on asking for an extension of Article 50 if no deal was reached by 26 February) failed. PM Theresa May now needs to go back to the EU27 leaders but they have been adamant in saying they will not renegotiate the Withdrawal Agreement. That said, the EU may be more willing to listen now that May has found a majority. As May has promised another similar vote on 14 February if no deal is found by 13 February, it means she has two and a half weeks to renegotiate the backstop, which seems unrealistic. Uncertainty remains high but overall, yesterday's vote support our base case that May's deal (or something very similar) will pass eventually (40% chance). The second most likely outcome is a second EU referendum (30%). For more details, see Brexit Monitor: May has two and half weeks to renegotiate the backstop , 30 January. EUR/GBP broke above 0.8750 on disappointment that the Cooper amendment was rejected, but as such, the vote has not changed much for the GBP outlook.

A symbolic step forward for Brexit that will swiftly be followed by another step back

A mixed start for Europe is expected on Wednesday, with the FTSE the rare outperformer after the pound dipped on Tuesday evening following more Brexit votes in parliament.

It was a rare good evening for Theresa May, as the Brady amendment she supported received majority backing while those designed to block no-deal failed on this occasion. This obviously doesn’t include the Spelman amendment which called on the government to avoid no-deal but this was merely advisory and non-binding, in other words, largely pointless.

May will now head back to Brussels and attempt to renegotiate the backstop again, a tactic that’s been very unsuccessful in the past and faces the same result this time, with various officials reiterating after the vote that the withdrawal agreement will not be reopened. It’s almost as if they’re not taking the threat of no-deal seriously and therefore have no reason to negotiate on the backstop.

As far as the pound is concerned, I don’t view the drop on Tuesday as anything more than profit taking. The votes were merely symbolic and the view of parliament could easily change when May returns from Brussels without the amendments to the withdrawal agreement that she and others crave.

Sterling slipped back below 1.31 against the dollar but this is only a minor loss compared to the gains were saw in the run up to the vote and so I don’t believe the views of traders has actually dramatically changed, when it comes to the prospect of a no-deal Brexit. The pound remains well supported and a lot more will need to change, I feel, before no-deal becomes a realistic possibility. With so many in parliament strongly against it, I don’t see that happening and I don’t think traders do either.

High level talks begin as US targets major Chinese firm

We’re not short of other talking points on Wednesday, with high level trade talks between the US and China resuming in Washington, as the 90 day deadline draws ever nearer. The meeting comes only a couple of days after the US brought charges against Huawei, a curiously timed move that risks creating friction between the two superpowers and threatening the progress that has already been made.

Quantitative tightening the new buzzwords

We’ll also hear from the Fed later as it announces its first monetary policy decision of the year. This is also the first meeting in which Jerome Powell will hold a press conference after the announcement, despite fresh economic projections not being released. We’ll be treated to this every meeting going forward now, which is convenient given the amount of questions circling about the Fed’s bond buying and the potential for it to slow its quantitative tightening experiment.

For the 24 hours to 23:00 GMT, the EUR rose 0.07% against the USD and closed at 1.1435.

In the US, data indicated that the US CB consumer confidence index declined to a level of 120.2 in January, compared to a revised level of 126.6 in the previous month. Market participants had envisaged the index to fall to a level of 124.0. Moreover, the nation’s S&P/Case-Shiller home price index fell to a 4-year low level of 5.19% on a yearly basis in November, following a revised reading of 5.33% in the prior month.

In the Asian session, at GMT0400, the pair is trading at 1.1436, with the EUR trading slightly higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1415, and a fall through could take it to the next support level of 1.1393. The pair is expected to find its first resistance at 1.1454, and a rise through could take it to the next resistance level of 1.1471.

Looking forward, investors would keep an eye on the Euro-zone’s economic confidence, business climate indicator, industrial confidence, consumer confidence index, all for January along with Germany’s GfK consumer confidence for February and consumer price index for January, all set to release in a few hours. Later in the day, the Federal Reserve’s interest rate decision along with the US ADP employment change for January, annualised gross domestic product for the fourth quarter, pending home sales for December, will keep traders on their toes.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP declined 0.53% against the USD and closed at 1.3080, after UK lawmakers dismissed calls to extend the Brexit negotiations, indicating that the UK has exactly two months before leaving the European Union, whether or not a deal has been secured. Meanwhile, the MP's passed an amendment that the UK Prime Minister Theresa May should initiate a substitute agreement over the Irish backstop with a view to avoid a no-deal Brexit.

In the Asian session, at GMT0400, the pair is trading at 1.3087, with the GBP trading 0.05% higher against the USD from yesterday's close.

The pair is expected to find support at 1.3029, and a fall through could take it to the next support level of 1.2972. The pair is expected to find its first resistance at 1.3172, and a rise through could take it to the next resistance level of 1.3258.

Going ahead, traders would await UK's net consumer credit and mortgage approvals, both for December, set to release in a few hours.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.10% against the JPY and closed at 109.40.

In the Asian session, at GMT0400, the pair is trading at 109.37, with the USD trading marginally lower against the JPY from yesterday's close.

Overnight data showed that Japan's retail trade climbed 1.3% on an annual basis in December, higher than market consensus for a rise of 1.0%. In the prior month, retail trade had advanced 1.4%.

On the other hand, the nation's large retailer's sales dropped 1.0% on a monthly basis in December, less than market expectations for a fall of 1.1%. In the previous month, large retailer's sales had recorded a decline of 2.2%. Moreover, the consumer confidence index fell to a level of 41.9 in January, more than market expectations for a drop to a level of 42.4. The index had recorded a level of 42.7 in the previous month.

The pair is expected to find support at 109.19, and a fall through could take it to the next support level of 109.02. The pair is expected to find its first resistance at 109.54, and a rise through could take it to the next resistance level of 109.72.

Moving ahead, traders would closely monitor Japan's industrial production and housing starts, both for December, slated to release overnight.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.26% against the CHF and closed at 0.9946, amid surge in exports.

Data showed that Switzerland's trade surplus sharply narrowed to CHF1.8 billion in December, after exports rose to a decade high level. In the preceding month, the nation posted a revised surplus of CHF4.7 billion.

In the Asian session, at GMT0400, the pair is trading at 0.9954, with the USD trading 0.08% higher against the CHF from yesterday's close.

The pair is expected to find support at 0.9922, and a fall through could take it to the next support level of 0.9891. The pair is expected to find its first resistance at 0.9971, and a rise through could take it to the next resistance level of 0.9989.

Trading trend in the Swiss Franc today is expected to be determined by Switzerland's KOF leading indicator for January, scheduled to release in a while.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.06% against the CAD and closed at 1.3271.

In the Asian session, at GMT0400, the pair is trading at 1.3263, with the USD trading 0.06% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.3242, and a fall through could take it to the next support level of 1.3220. The pair is expected to find its first resistance at 1.3285, and a rise through could take it to the next resistance level of 1.3306.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the AUD declined 0.08% against the USD and closed at 0.7154.

LME Copper prices rose 0.2% or $11.0/MT to $6007.0/MT. Aluminium prices declined 0.4% or $7.0/MT to $1853.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7193, with the AUD trading 0.55% higher against the USD from yesterday's close.

Overnight data revealed that Australia's consumer price index (CPI) climbed 0.5% on a quarterly basis in 4Q 2018, compared to a gain of 0.4% in the prior quarter. Market participants had expected the CPI to climb 0.4%.

The pair is expected to find support at 0.7159, and a fall through could take it to the next support level of 0.7126. The pair is expected to find its first resistance at 0.7211, and a rise through could take it to the next resistance level of 0.7230.

Amid lack of macroeconomic releases in Australia today, investors would focus on global events for further direction.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Gold rose 0.61% against the USD and closed at USD1316.70 per ounce, amid persistent uncertainties over the US China trade war. Gold prices were further supported on the back of expectations that the US central bank will end its rate hike cycle.

In the Asian session, at GMT0400, the pair is trading at 1318.30, with gold trading 0.12% higher against the USD from yesterday’s close.

The pair is expected to find support at 1311.20, and a fall through could take it to the next support level of 1304.10. The pair is expected to find its first resistance at 1322.30, and a rise through could take it to the next resistance level of 1326.30.

The yellow metal is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, Silver rose 0.63% against the USD and closed at USD15.85 per ounce, tracking gains in gold prices.

In the Asian session, at GMT0400, the pair is trading at 15.93, with silver trading 0.50% higher against the USD from yesterday’s close.

The pair is expected to find support at 15.79, and a fall through could take it to the next support level of 15.66. The pair is expected to find its first resistance at 15.99, and a rise through could take it to the next resistance level of 16.07.

The white metal is trading above its 20 Hr and 50 Hr moving averages.