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• Rates: Heavy supply vs risk sentiment
  Asian stock market recovered from an intraday blow after the US officially pressed charges against Chinese telco Huawei. The impact on FI markets was hardly visible. Heavy bond supply hangs in the balance today with risk sentiment. Q4 earnings by 3M and Apple risk hurting sentiment. Volumes might remain low though ahead of tomorrow's Fed meeting.
• Currencies: EUR/USD extends rebound as USD is trading soft overall.
  EUR/USD regained slightly further ground yesterday after Friday's ST trend reversal. The dollar remained in the defensive even as sentiment on risk turned negative. FX traders apparently anticipate a soft Fed at tomorrow's meeting. Sterling reverses part of last week's gains going into a series of key Parliamentary votes on Brexit today.

The Sunrise Headlines

• US stock indices edged lower yesterday with losses varying around 1% on disappointing Q4 results. Asian equities opened mostly in red this morning with technology shares underperforming on new US-Sino trade worries.
• The US officially pressed criminal charges against China's Huawei Tech. company on charges of violating US Sanctions on Iran and trade secret theft. China already responded saying the indictments are unfair and immoral.
• The US administration imposed extensive sanctions on Venezuelan state-owned oil firm PDVSA, a move that escalates the pressure on current President Nicolas Maduro to step down. Maduro said to take legal actions in response.
• The US Congressional Budget Office's forecasts the US deficit to widen in the coming years. However, the budget deficit will pass $1 trillion only in 2022 (vs. previous est. 2020). It also forecasts the economy to slow over the next 3 years.
• UK PM May faces losing control of Brexit to Parliament today in a series of vital votes on the Brexit deal. May herself abandoned the agreement she negotiated with the EU, in order to support a separate proposal to re-write the deal.
• Australia's NAB Business conditions fell to 2 in December, down from 11 the month before. AUD/USD lost ground on the news, but recovered afterwards on comments of RBA's Harper who's expecting the next rate move to be up.
• Today's eco calendar contains US consumer confidence and S&P housing data. Greece, Austria, Belgium, Germany and the US tap the market. UK Parliament votes on amendments to the Brexit deal. Pfizer and Apple publish Q4 earnings

Currencies: EUR/USD Rxtends Rebound As USD Is Trading Soft Overall

EUR/USD drifts back higher in established range

The dollar extended Friday's decline/reversal, but losses remained modest. There were no important data. Risk sentiment deteriorated and equity selling accelerated in the US on disappointing earnings. It didn't help the dollar which also lost interest rate support against several other major currencies including the euro and the yen. US Treasuries outperform ahead of tomorrow's Fed decision. EUR/USD finished at 1.1428 (from 1.1406). USD/JPY closed at 109.35 (from 109.55).

Asian equities opened in negative territory this morning with tensions between the US and China on Huawei weighing on sentiment. However, losses are gradually reversed and remain limited given yesterday's US sell-off. The yuan holds strong (USD/CNY 6.74 ). USD/JPY (109.30) reversed an initial loss. EUR/USD (1.1435) remains well bid. The (trade-weighted) USD is holding within reach of yesterday's lows. The Aussie dollar (AUD/USD 0.7170) dropped temporary on poor business confidence data. However, the move was reversed later.

There are again only second tier eco data in EMU today. US consumer confidence (conference board) is expected to decline further from 128.1 to 124.0. The expected decline looks reasonable given the potential impact from the shutdown. Headlines on the China-US trade conflict will probably multiply in the run-up to official talks later this week. The dollar lost interest rate support over the previous days with markets positioning for a soft Fed. We indicated that EUR/USD looks rather well bid as its ST downtrend halted on Friday. We hold on to that view. EUR/USD might still drift cautiously higher in the 1.12/15 trading range.

Sterling developed a countermove yesterday on recent sharp rises as investors ponder the potential outcome of a series of key votes in parliament today. Of late, it looked that chances for a delay of Brexit were growing. However, yesterday/overnight UK PM May apparently showed willingness to to try new EU negotiations on the Irish backstop. The next steps in this approach are highly uncertain, causing some further profiting taking on sterling. An outcome that questions the delay scenario further might be a short-term negative for sterling. EUR/GBP is again aheading for the 0.87 barrier

EUR/USD rebounds as USD stays in the defensive ahead of Fed meeting

West Texas Intermediate (WTI) futures have declined beneath the 20- and 40-simple moving averages (SMAs) in the 4-hour chart, indicating possible negative retracement. Momentum signals are bearish as well, as the red Tenkan-sen line, which is below the blue Kijun-sen line, looks to be heading south, while the RSI has reversed lower, holding beneath its 50 neutral mark. Also, the MACD oscillator lies in negative zone with stronger movement than before.

Should the price continue this downward rally of the last session, the next support level for investors to have in mind is the 51.30. Slightly below this area, the 23.6% Fibonacci retracement level of the sharp downward movement from 76.90 to 42.50, around 50.65 could attract attention ahead of the 49.80 inside swing support zone, taken from the high on January 7.

On the other side, if the oil heads higher it could find nearby resistance at the 20- and 40-SMAs around 52.80 and 53.09 respectively. Further up, the price could rest around the 53.90 resistance and if there is a successful break above this barrier, the one-and-a-half-month high of 54.50 could be another pause for traders.

To sum up, oil futures returned back below the near term SMAs and the bias seems to be neutral to bearish at the moment. A decline below the 23.6% Fibonacci would switch the medium-term outlook back to negative. On the other side, a jump above 54.50 would open the way for bullish actions.

GBPJPY started the week on a softer note after hitting a seven-week high at 144.82 on Friday. The technical picture predicts now that a sideways move could follow in the short-term as the RSI moves down to meet its 50 neutral mark, whereas the MACD continues to gain strength in positive territory and above its red signal line.

Should traders resume bullish actions, the price could retest the 144.82 peak ahead of the 200-day simple moving average which currently stands at 145.20 and around the upper surface of the Ichimoku cloud. If the bulls manage to break above the cloud, the rally could continue until 147.20, where the pair created a floor in early October.

On the flipside, additional losses could drive the price straight down to 143.12, which is the 61.8% Fibonacci of the downleg from 149.70 to 132.49. Another leg lower could stretch until the 50% Fibonacci of 141.10, while steeper declines could also target support between 139.88 and 139, identified by the lows on August 15 and the 38.2% Fibonacci correspondingly.

In the three-month timeframe, the bearish outlook turned to neutral after the rally above 143. Yet, for the medium-term bull market to come back into play the the pair needs to close significantly above the 149.40 top.

• Risk appetite stays fragile as key companies sound the alarm on Chinese growth
• In the UK, it may be a deciding day for Brexit as lawmakers vote on various plans
• Earnings season continues in full throttle today, little on economic calendar

Corporate warnings on China rattle stocks, drag oil lower

US equity markets closed in the red, after industrial bellwether Caterpillar (-9.1%) reported disappointing earnings and chipmaker Nvidia (-13.8%) slashed its revenue forecasts, both companies pointing the finger to weakening demand in China. The S&P 500 (-0.78%) fell modestly, while oil prices plunged, with WTI dropping by roughly 3% as investors reassessed the outlook for growth in the world’s second-largest economy. It’s striking that crude’s heavy losses came despite the US announcing sanctions on Venezuela’s oil industry, and Saudi Arabia hinting at deeper production cuts.

Sentiment remains in the doldrums early on Tuesday as well, with Asian markets closing mostly lower. Meanwhile, futures tracking the likes of the S&P 500 and Dow Jones are pointing to a negative open today. The latest wave of pessimism is likely owed to overnight news that the US Justice Department filed criminal charges against Huawei and its CFO, who is under arrest in Canada. Although both China and the US have maintained that this case is entirely separate from the trade dispute, the market reaction implies that traders nevertheless believe this could hamper progress in these pivotal talks, the next round of which begins tomorrow.

UK Parliament votes: Brexit clarity, or more uncertainty?

This could be a decisive day for the Brexit process, as lawmakers will vote on Theresa May’s alternative Brexit plan, and more crucially, on amendments to it. Given that there is no obvious majority for anything in the House of Commons, a series of votes will be held to determine which plan commands the most support. The two most popular amendments come from lawmakers Cooper and Brady, the former aimed at avoiding a no-deal exit and the latter at replacing the Irish backstop with “alternative arrangements”.

PM May has thrown her weight behind the Brady amendment, which if accepted would mean the backstop has to be renegotiated – something the EU has denied repeatedly absent a change of position from the UK. May seems to believe the EU will be more willing to talk if she has a mandate from her lawmakers, though it’s truly an open question whether the EU has any incentive to do so. As for the pound, its performance may depend on which amendments pass, if any. An approval of the Cooper amendment for instance would see the risk of a no-deal diminish further and likely support sterling. On the flipside, if no amendment passes, there would be no clear plan for proceeding, keeping the Brexit process in limbo.

Day ahead: Earnings season in full throttle, second-tier US data due

Moves in the FX market were subdued otherwise, with the US dollar trading nearly flat against a basket of six major currencies as traders seemed reluctant to assume major positions ahead of tomorrow’s Fed policy decision. Before that though, attention may turn to the CB consumer confidence index today, as well as on the Case-Shiller housing price index. While neither is typically a major market mover for the dollar, concerns around housing market weakness and a broader economic slowdown may render these more important than usual.

In stock markets, the earnings season continues in earnest today. Notable names releasing their quarterly results include Apple and Ebay, both after the US market close. It will be interesting – and crucial for sentiment – to see whether Apple echoes the recent concerns around China’s slowdown. Pfizer and Harley Davidson will announce their own figures before Wall Street’s opening bell.

Finally, Australia’s quarterly inflation data will be in focus during the early Asian session on Wednesday, at 0030 GMT.

The price of cryptocurrencies declined sharply after a damning report by analysis firm Chainalysis which indicated two firms responsible for the stealing of currencies worth more than a billion dollars. The report also showed that the two companies – known as Alpha and Beta - were continuing the malpractice of stealing currencies. Each of the hacks they conduct is worth about $90 million. Once they steal crypto, the companies wait for more than three months before they cash out. They do this to avoid detection by the authorities. The report added that:

The hackers typically move stolen funds through a complex array of wallets and exchanges in an attempt to disguise the funds’ criminal origins. The hackers then often observe a quiet period of 40 or more days in which they don’t move funds, waiting until interest in the theft has died down. Once they feel safe, they move quickly. At least 50% of the hacked funds are cashed out through some conversion service within 112 days.

Since the invention of the cryptocurrencies industry, theft has been a major concern. This is because many exchanges have been hacked leading to the loss of cryptocurrencies worth billions of dollars. Tracking the stolen transactions has become very difficult because of how the industry was created. Therefore, companies that would accept the currencies have largely abandoned the industry because they fear that their funds will be stolen.

After the report was published, the price of Ethereum and other currencies dropped sharply. The price reached an intraday low of $99.99. This price was below the 21-day and 42-day EMAs. The RSI also dropped to 20, which is viewed as an oversold level. With the sentiment of the currencies being lower, there is a possibility that the price will continue moving lower to test the previous lows of 79.

The euro currency continues to trade higher against the US dollar on Tuesday, with the pair so far finding interim resistance from the 1.1444 level. If the EURUSD pair continues to move higher, the 1.1460 resistance level offers strong resistance before the key 1.1500 level comes into focus. It is worth noting that the FOMC interest rate decision is tomorrow and traders may start to become cautious.

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

If the EURUSD pair trades below the 1.1410 level, sellers may test towards the 1.1385 and 1.1360 support levels.

The LTCUSD pair has given back recent trading gains, after finding strong technical resistance from the $33.00. Price is trading inside a bearish head and shoulders pattern, which may indicate a larger price decline may occur soon. It is also worth noting that Litecoin is still creating bullish higher price lows, despite the broader cryptocurrency market starting the week under heavy selling pressure.

The LTCUSD pair is bearish while trading below the $32.00 level, key support is found at the $28.00 and $25.00 levels.

If the LTCUSD pair trades above the $33.00, buyers may test the $36.00 and $40.00 support levels.

The US dollar continues to trade lower against Japanese yen currency on Tuesday, with the pair falling towards the key 109.00 support level. Price is now trading close to the neckline of a bearish head and shoulders pattern with a one-hundred point downside projection. The MACD histogram continues to track lower and has just moved into negative territory on the four-hour time frame.

The USDJPY pair is bearish while trading below the 109.14 level, key technical support is found at the 108.58 and 107.80 levels.

If the USDJPY pair moves above the 109.45 level, buyers may test towards the 109.60 and 110.00 levels.

US stocks declined yesterday after a number of companies released weaker-than-expected results. Before the market opened, Caterpillar released results that missed the consensus estimate and lowered its guidance. The same happened to Nvidia, which said that its Chinese sales were expected to slow. In recent weeks, a number of companies like Apple, Intel, and Jaguar Land Rover have lowered their growth partly because of the problems in the country. This month, China released GDP and PMI numbers that missed the consensus estimate.

The New Zealand dollar rose today after positive trade numbers. The data released today showed that the country’s export increased to $5.48 billion from $4.91 billion in November. At the same time, imports decreased to $5.22 billion, which was lower than the expected $5.86 billion. As a result, the trade surplus increased to $264 million, which was better than the expected $225 million. The NAB business confidence for December remained unchanged at 3.

In Asia, stocks declined following the lower Wall Street session. The drop was also mostly because of the United States, which announced that it was filing charges against Huawei and its CFO, Meng Wanzhou. The justice department said that the company was charged with stealing intellectual property from AT&T, the telecommunications company. It was also accused of skirting sanctions put in place by the US in Iran. In recent months, the US has warned its allies against using Huawei devices because it believed its systems exposes them to Chinese surveillance. Huawei has denied such allegations. Furthermore, no evidence has been revealed to show that Huawei is engaged in surveillance for the Chinese.

EUR/USD

The EUR/USD pair was relatively unchanged in overnight trading. The pair remained close to yesterday’s high of 1.1443, which was higher than the YTD low of 1.1288. On the hourly chart, the pair’s current price is below the 21-day and 42-day EMAs and is along the 50% Fibonacci Retracement level. Any further upward movements will likely take the pair to the 61.8% Fibonacci Retracement level of 1.1462.

NZD/USD

The NZD/USD pair rose slightly today after positive trade numbers from New Zealand. The pair reached a high of 0.6840. The current price is along the 21-day EMA but above the 42-day EMA. It is also between the 61.8% and 100% Fibonacci Retracement level. The RSI, which was dropping yesterday has started moving up. There is a possibility that the pair will continue the upward trend. If it does, it will likely test the important level of 0.6900

USD/JPY

The USD/JPY pair moved up by a few pips in the Asian session, halting the decline that started on Friday. The pair’s current price is along the important support shown in the chart below. The double EMAs show that the pair could continue the downward trend. This is confirmed by the Average Directional Index and the Parabolic SAR indicator as shown below.

Daily Pivots: (S1) 0.7148; (P) 0.7176; (R1) 0.7193; More...

Intraday bias in AUD/USD is turned neutral after failing to take out 0.7235 resistance and retreated. 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).