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The British pound is trading cautiously against the US dollar on Tuesday, as traders await today’s key vote on Theresa May’s new deal Brexit plan in UK Parliament. The 1.3130 level is now key intraday support and has so far been defended by sterling dip-buyers. If we see PM May’s deal rejected later today, the GBPUSD pair is likely to test the pivotal 1.3090 level, if the plan is approved the GBPUSD pair could soar towards the 1.3295 level.

The GBPUSD pair is only bearish while trading below the 1.3130 level, key technical support is found at the 1.3090 and 1.3000 levels

If the GBPUSD pair trades above the 1.3130 level, key resistance is found at the 1.3210 and 1.3295 levels.

Early on Wednesday at 0030 GMT, the Australian Bureau of Statistics will publish inflation numbers for the fourth quarter of 2018. Forecasts are for another soft outcome of 1.7% year-on-year from 1.9% from the previous quarter. On a quarterly basis, the pace of consumer price increases is predicted to remain the same at 0.4% as before. The view however is that even in case of an upward surprise, policymakers are most likely to stand pat on policy until wages show a significant but a sustainable improvement.

In the third quarter, the Australian headline Consumer Price Index (CPI) arrived lower at 1.9% y/y from 2.1% in the previous period. The latest figure was in line with market consensus. In the latest Reserve Bank of Australia (RBA) meeting members discussed that the global economy had remained positive, particularly in the major advanced economies, where growth had remained around or above potential and labour markets had continued to tighten. During the next meeting on February 5, investors are not expecting a rate change but there will be considerable interest in the Governor’s statement and the subsequent communications.

Indeed, December’s employment report surprised markets by showing that the unemployment rate dropped to the desired 5.0%, from 5.1% previously, indicating that the economy is operating close to full-employment. The economy added 21,600 jobs while the number of unemployed decreased by 14,100. Wage growth, however, ticked slightly up to 2.3% year-on-year in the third quarter above 2.1% from the previous quarter and matching market expectations. On a quarterly basis, wages went up 0.6%, the same growth rate compared to the previous quarter and matching market consensus as well. Analysts believe that the trimmed mean and weighted median CPI, which are adjusted for volatile items, are seen steady at 1.8% and 1.7% respectively in yearly terms.

In FX markets, aussie/dollar has been under strong pressure over the last year, losing 11.6% from its value, touching a decade low of 0.6746 at the beginning of the current year. Despite that the RBA mentioned in November that further reductions in unemployment and an inflation rate within the target band of 2-3%, would likely drive interest rates higher. However, the pair remains in negative tendency.

Should inflation beat forecasts, aussie/dollar might extend gains towards 0.7235 and slightly higher towards the 38.2% Fibonacci retracement level of the downleg from 0.8135 to 0.6746, around 0.7278. A bigger surprise in the data, may also open the door for the 0.7340 – 0.7390 resistance area, while if this proves a weak obstacle, traders could turn their attention to the 50.0% Fibonacci of 0.7443.

On the flipside, disappointing figures may increase speculation that the next move in rates could be down, sending the pair below the 0.7100 round level. In this case, immediate support could come from the 23.6% Fibonacci of 0.7075, where the price paused in previous sessions. Lower than that, eyes would turn to the 10-year low of 0.6746.

Yet, investors might prefer to show patience until next week for the release of the RBA interest rate decision.

WTI oil price edges higher on Tuesday after previous day's strong fall was rejected just above daily cloud base and today's action is supported by formation of 20/55SMA bull cross. However, weakening momentum on daily chart warns of recovery stall as techs are mixed and lack clearer direction signal. Oil prices were boosted by US sanctions on Venezuela that may reduce country's oil export to the United States. On the other side, signals of global growth slowdown, with focus on Chinese economy, top Asian and the second world oil consumer, maintains pressure on oil prices. Trader will be looking for today's release of API crude stocks report and Wednesday's EIA report, which would provide fresh signals. Stronger bearish signal can be expected on sustained break and close below falling thick daily cloud, while lift above 10SMA ($52.95) is needed to ease existing downside risk and open way towards key near-term barrier at $54.48 (21 Jan recovery high).

Res: 52.95,53.62,53.91,54.48
Sup: 51.83,51.32,50.97,50.38

• Are US China talks stalling?
• More Brexit votes in parliament on Tuesday.

We're seeing mixed trade in Europe on Tuesday, with US futures marginally lower as trade talks with China face a potential setback, while the UK prepares to vote on a raft of amendments to Theresa May's plan B.

Trade talks between the US and China appeared to be going rather well until last week when speculation started circling that a preparatory meeting prior to Liu He's visit this week had been cancelled. While this was denied by Larry Kudlow, it was followed by claims that the two sides are miles and miles from a deal and now another spanner has been thrown in the works, with the US filing numerous charges against Chinese telecom giant Huawei.

Huawei has long been a target of the US so these charges aren't necessarily surprising but the timing of them is curious. For now, it threatens to ratchet up tensions between the world's two largest economies, as they work towards a deal that prevents further tariffs and ideally removes those already imposed. Only time will tell whether the charges damage negotiations or serve as a tool to progress the talks.

In the UK, parliament convenes today to discuss and vote on amendments to Theresa May's plan B, with a variety of options being considered by the speaker including those that make a no-deal Brexit less likely. It's difficult to say whether the UK will be in a better or even a clearer position by the end of the day, with the amendment that has May's support being one that simply forces her to back to Brussels to push for changes to the backstop.

This has not been a successful tactic in the past, with the EU claiming it has no desire to reopen the withdrawal agreement, which is perhaps why May favours it as it ultimately protects her deal. May's recent record in parliament isn't great, with her only victory of note being a marginal win following the vote of no confidence in her government. Perhaps her backing is the poisoned chalice that Graham Brady as his fellow Brexiteers would have rather done without.

The pound has been paring its gains in recent days in anticipation of the vote having previously made strong gains. The fading prospects of no deal as MPs rallied in opposition to it has clearly benefited the currency, lifting it to more than three month highs against the dollar and looking more than capable of building on this. We've seen some profit taking ahead of the vote around 1.32 but 1.33 marks a real test for the pair, having providing significant resistance throughout the second half of last year.

Notes/Observations

• UK parliament prepares to vote on amendments to PM May's Brexit withdrawal bill
• Significant supply in the euro zone issuance with Austria, Belgium and Greece opening syndicates

Asia:

• Canada confirmed US filed extradition request for Huawei CFO Meng; China asked US to withdraw arrest order for Meng
• Huawei denied subsidiaries or affiliates, had committed any of the asserted violations of US law in indictments
• China was planning over CNY2.5T ($370B) in tax cuts and infrastructure spending
• big divides said to remain as US/China trade talks restart; the Chinese delegation led by VP Liu planned to offer a big increase in purchases of US farm products and energy as well as modest reform of industrial policy
• RBA member Harper reiterates expect next rate move to be up

Europe:

• UK PM May urged MPs to support the 'Brady amendment' that called for the Irish backstop to be replaced by alternative arrangements
• UK MP Jacob Rees Mogg: Do NOT expected UK Government to produce an amendment ahead of debate on Tuesday, Jan 29th. ERG won't support any Brexit amendments tomorrow even if whipped unless PM clarified Brexit plan
• UK Home Office: if UK lefts the EU without a agreement, the govt will seek to end free movement of EU citizens as soon as possible
• ECB's Visco (Italy): with growth slowing, ECB monetary policy needed to stay substantially accommodating
• ECB's De Cos (Spain): Needed to see if some risks to growth more persistent. ECB's attitude had been that almost all deceleration seen in region was considered it temporary

Americas:

• House Speaker Pelosi invited President Trump to give State of the Union address on Tuesday, Feb 5th (Trump has agreed to the new date)
• Treasury Sec Mnuchin: we've had productive talks over last few weeks; looking forward to two days of talks this week with Chinese officials; President Trump will meet Chinese Vice Premier Liu He during his visit to Washington for trade talks

Macro

• (FR) France: January consumer confidence increased to 91 from 86 m/m suggesting that much of the initial impact from the Yellow Vest protests has tailed off. With the recovery in consumer confidence it will be hoped that production will now recover and help stabilize the economy.
• (UK) United Kingdom: The FTSE 100 is outperforming likely on expectations that there will be a Brexit extension beyond the March 29th deadline. Clearly the situation is fluid and there is no workable alternative to PM May's Withdrawal Agreement, but an extension will not be welcomed by the business community in the UK.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.60% at 356.62, FTSE +1.28% at 6,833.71, DAX +0.03% at 11,213.85, CAC-40 +0.49% at 4,912.74, IBEX-35 +0.40% at 9,099.00, FTSE MIB -0.01% at 19,606.50, SMI +0.51% at 8,907.70, S&P 500 Futures -0.02%]
• Market Focal Points/Key Themes: European Indices trade mostly higher across the board rebounding from losses seen yesterday following a mixed session Asia overnight and lower US futures this morning ahead of today's amendment vote to PM May's Brexit withdrawal bill. On the corporate front SAP declines after a slight earnings beat and restructuring plans, Royal Mail also declines sharply after guiding lower addressed letter volume while Dutch listed Philips is a notable riser after a top and bottom line earnings beat as well as €1.5B share repurchase program. Elsewhere Sartorius and Sarorius Stedim, UDG, SSAB, Crest Nicholson, Siemens Gamesa were among the names trading higher on earnings and trading updates, while CVS Group, PZ Cussons, Domino's Pizza, Siemens Healthineers, Hargreaves Lansdown were among the decliners. In other news Innate Pharma rises after being granted Fast track designation for IPH4102 while Norwegian Air Shuttle announced a NOK3.0B right issue along with prelim earnings. Looking ahead notable earners include Verizon, 3M, Pfizer, Lockheed Martin, Allergan and Danaher among others.

Equities

• Consumer discretionary: Domino's Pizza UK & Ireland [DOM.UK] -7.5% (trading update), Norwegian Air [NAS.NO] -10% (prelim earnings; rights issue), Zalando [ZAL.DE] -5.5% (analyst actions), Swatch Group [UHR.CH] -3%, Richemont [CFR.CH] -2% (Swiss trade balance), British American Tobacco [BATS.UK] +5% (analyst action)
• Financials: Swedbank AB [SWEDA.SE] -3% (earnings, raises dividend), Hargreaves Lansdown [HL.UK] -4.5% (earnings)
• Healthcare: Koninklijke Philips [PHIA.NL] +2% (earnings; buyback program), CVS Group [CVSG.UK] -26% (trading update), Sartorius Stedim Biotech [DIM.FR] +14% (earnings), UDG Healthcare [UDG.UK] +10.5% (trading update)
• Industrials: SSAB [SSABA.SE] +6% (earnings), Royal Mail [RMG.UK] -9.5% (trading update)
• Technology: SAP AG [SAP.DE] -1.5% (earnings; raises medium-term targets)

Speakers

• First Minister of Scotland Sturgeon: Brexit uncertainty already hurting the economy, effects caused by mismanagement
• Ireland Foreign Min Coveney stated that was agnostic about Brexit solution but reiterated stance that sought a smooth transition
• Northern Ireland DUP Brexit Spokesman Wilson: Party to judge its approach to parliament vote to be based upon PM May's statement
• Sweden Central Bank (Riksbank) Dep Gov Floden acknowledged that was in uncertain economic situation with risks including trade conflict and Brexit. Rate hikes in period ahead must not be too rapid. Reiterates stance that the Dec rate decision was hardly a tightening
• Spain Budget Min Montoro: EU ssaid that govt did not need to present new budget plan. 2nd independence vote for Scotland hinged on Brexit path; must wait and see on direction the UK takes
• Czech Central Bank's Benda stated that still room to raise interest rates; see 2-3 more hikes. To decide how to vote at next policy meeting (Feb 7th) after seeing updated staff projections

Currencies/Fixed Income

• USD locked in a range ahead of key event risks later in the week including a Fed rate decision and press conference and high-level China/US trade talks in Washington. US data continued to be delayed despite the govt reopening on Monday. Dealers noted that affected agencies would take time to get back to normal
• GBP/USD was slightly higher ahead of Tuesday's vote on Brexit amendments. There was concern that PM May was losing control of the Brexit process as she fights to keep her path alive. UK PM May urged MPs to support the 'Brady amendment' that called for the Irish backstop to be replaced by alternative arrangements
• EUR/USD continued to trade within the 1.13-1.15 range with some key data later in the week. Germany reports its preliminary January CPI on Wednesday followed by the Euro Zone reading on Friday
• USD/JPY steady around 109.50 as the US-China trade talks resume on Wednesday. Japan also has a heavy slate of December data releases this week

Economic Data

• (CH) Swiss Dec Trade Balance (CHF): 1.9B v 4.8B prior; Real Exports M/M: -5.0% v +1.7% prior; Real Imports M/M: +3.7 v -1.6% prior; Watch Exports Y/Y: -2.8 v +4.1% prior - (FR) France Jan Consumer Confidence: 91 v 88e
• (ES) Spain Q4 Unemployment Rate: 14.5% v 14.5%e
• (AT) Austria Jan Manufacturing PMI: 52.7 v 53.9 prior (36th month of expansion)
• (IS) Iceland Jan CPI M/M: -0.4% v +0.7% prior; Y/Y: 3.4% v 3.7% prior
• (IT) Italy Dec PPI M/M: -0.6% v -0.7% prior; Y/Y: 5.2% v 5.8% prior

Fixed Income Issuance

• (AT) Austria Debt Agency (AFFA) opened its book to sell EUR-denominated 10-year RAGB bonds; guidance seen -17bps to mid-swaps
• (BE) Belgium Debt Agency (BDA) opens book to sell EUR-denominated Jun 2050 OLO bond via syndicate; guidance seen +46bps to mid-swaps
• (GR) Greece Debt Agency (PDMA) opened its book to sell EUR-denominated Apr 2024 bond via syndicate; Yield guidance seen 3.75-3.875%
• (ID) Indonesia sold total IDR23.2T in 3-month and 9-month Bills, 5-year, 10-year, 15-year, 20-year bonds
• (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg Yield: % v 0.215% prior; Bid-to-cover: x v 1.33x prior
• (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2023, 2032 and 2044 bonds
• (CH) Switzerland sold CHF238.0M in 3-month Bills; Avg Yield: -0.766% v -0.281% prior

Looking Ahead

• 05:30 (UK) Weekly John Lewis Partnership LFL sales: No est v +2.0% prior
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (DE) Germany to sell €5.0B in new 0% Dec 2020 Schatz
• 06:00 (IE) Ireland Jan Unemployment Rate: No est v 5.3% prior
• 07:30 (BR) Brazil Dec Total Outstanding Loans (BRL): No est v 3.202T prior; M/M: No est v 1.1% prior; Personal Loan Default Rate: No est v 4.8% prior
• 07:45 (US) Weekly Chain Store sales data
• 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave Base rate unchanged at 0.90%; Leave Overnight Deposit Rate unchanged at -0.15%
• 08:00 (UK) Baltic Dry Bulk Index
• 08:00 (RU) Russia announces upcoming OFZ Bond issuance
• 08:30 (US) Dec Advance Goods Trade Balance data delayed due to US govt shutdown
• 08:30 (US) Dec Preliminary Wholesale Inventories data delayed due to US govt shutdown
• 08:45 (IT) Italy Fin Min Tria in Washinton
• 08:55 (US) Weekly Redbook Retail Sales data
• 09:00 (US) Nov S&P Case-Shiller 20-City M/M: 0.40%e v 0.41% prior; Y/Y: 4.90%e v 5.03% prior; House Price Index (HPI): No est v 213.89 prior
• 09:00 (US) Nov S&P Case-Shiller (overall) Y/Y: No est v 5.48% prior; Overall HPI Index: No est v 206.03 prior
• 09:00 (EU) Weekly ECB Forex Reserves: No est v €274.6B prior
• 09:00 (HU) Hungary Central Bank Gov Matolcsy post rate decision statement
• 10:00 (US) Jan Consumer Confidence: 124.6e v 128.1 prior
• 10:00 (MX) Mexico weekly International Reserve data
• 11:30 (BR) Brazil Dec Central Govt Budget Balance (BRL): -32.0Be v -16.2B prior
• 11:30 (US) Treasury to sell 52-Week Bills
• 11:30 (US) Treasury to sell 2-Year Floating Rate Notes
• 13:00 (US) Treasury to sell 7-Year Notes
• 14:00 UK Parliament vote on amendments to Prime Minister May's Brexit deal
• 16:00 (KR) South Korea Feb Business Manufacturing Survey: No est v 71 prior; Non-Manufacturing Survey: No est v 72 prior
• 16:30 (US) Weekly API Oil Inventory data

EUR/USD

Current level - 1.1437

The intraday bias is positive, for a rise towards 1.1490. The latter is expected to provoke a reversal, for a downswing towards 1.1330.

USD/JPY

Current level - 109.22

My outlook is positive against 109.10 support, for a rise towards 110.20, en route to 111.45.

GBP/USD

Current level - 1.3137

The overall bias is positive above 1.3135, for a test of 1.3290 resistance. The latter would be able to cap the upside, for a downswing towards 1.3000 area.

The common European currency has been trading in a junior ascending channel pattern against the Japanese Yen since January 24. The pair tested the upper boundary of the channel pattern at the end of last week trading session.

The 50-hour simple moving average is currently providing support for the exchange rate at 124.66.

Everything being equal, it is likely that the currency exchange rate will continue to edge higher within this session. The potential upside target will be Friday's swing high of 125.40.

Although, the rate could reverse from current price level and aim for the 200-hour SMA at 124.56.

The Australian Dollar depreciated about 63 base points against the US Dollar on Monday. The currency pair tested a support cluster formed by the combination of the weekly and the monthly pivot points at 0.7152 as predicted.

Technical indicators flash strong sell signals on the weekly time-frame chart. However, it is likely that bullish traders push the currency exchange rate towards a swing high of 0.7200 within this session.

If the support cluster as mentioned earlier continues to hold today, a breakout through the upper boundary of an ascending channel pattern is likely to occur in the nearest future.

The US Dollar gained about 0.62% of its values against the Canadian Dollar on Monday. The currency pair bounced of its lower boundary of a junior descending channel pattern at 1.3200 during yesterday's trading session.

The exchange rate breached the 50-hour simple moving average at 1.3254 during the middle of the European trading session on Tuesday.

Most likely, it is expected that the Greenback continues to rally today and potentially aim for a resistance cluster formed by the 100– and 200-hour SMAs at 1.3298.

However, the currency exchange rate needs to surpass a traditional weekly pivot point at 1.3271.

The New Zealand Dollar edged lower against the US Dollar on Monday. The decline was stopped by the 50-hour simple moving average at 0.6820 at the end of the previous trading session.

Technical indicators demonstrate that the currency exchange rate could continue to trade in a junior ascending channel pattern within this session.

If this upside sentiment continues today, a breakout through the upper boundary of a dominant descending channel is likely to occur.

Traders should look for opportunities to trade the currency pair if a resistance cluster at 0.6889 holds