Sample Category Title

Pivot (invalidation): 15.6900

Our preference Long positions above 15.6900 with targets at 15.8700 & 15.9800 in extension.

Alternative scenario Below 15.6900 look for further downside with 15.6200 & 15.5500 as targets.

Comment The RSI advocates for further advance.

Pivot (invalidation): 1299.00

Our preference Long positions above 1299.00 with targets at 1304.00 & 1307.00 in extension.

Alternative scenario Below 1299.00 look for further downside with 1296.50 & 1293.50 as targets.

Comment The RSI advocates for further advance.

The longest government shutdown in US history is finally over “at least temporarily” after President Trump announced the reopening of the government for three weeks hoping that the Democrats and Republicans will reach a deal to fund the border wall. Markets were barely moved by the news.

The annual meeting of the World Economic Forum in Davos did not achieve any breaking headlines, especially that Trump and Xi Jinping were absent. No answers were provided on what will happen next in the US-China trade war, or on what terms the UK will divorce from the EU. All we got was a downgrade to the global economy from the IMF, which has already been priced in financial markets.

This week is certainly going to be more meaningful, with the Federal Reserve's first meeting of the year, US and China returning to the negotiation table, another meaningful vote on Brexit, US big tech earnings announcements, and top tier economic data.

Will the Fed continue supporting the bulls?

The Federal Reserve will conclude its two-day meeting on Wednesday. Investors will be focusing on whether the tightening policy pauses. Given that many economic data were not released due to the shutdown, it might be hard to assess how the US economy has performed. Another factor that's likely to contribute to Fed caution is a no guarantee of US and China reaching a trade deal prior to the March 1 deadline. While policymakers will not update their economic projections, going forward every meeting will be followed by a press conference by Fed ChairJerome Powell. If the term ‘patience' appears again, it would suggest no rate hike will occur in the first quarter, maybe not even in the first six months of 2019. This is likely to be good for equities but may hurt the US dollar.

Deal or no Deal?

US and China are returning to the negotiating table this week in an attempt to end the ongoing trade war. Vice Premier Liu He will meet his US counterpart Trade Representative Robert Lighthizer on 30 and 31 January. While we do not expect a final deal to be drafted this week, all investors are hoping for is the meeting to end with big smile on both faces, followed by statements indicating great progress has been achieved. If no statements were to follow the meeting, keep an eye on Trump's Twitter account that willlikely reveal the outcome. A positive outcome will remove one of the biggest obstacles preventing risk taking.

Brexit Plan B

Sterling has rallied significantly over the past several days on optimism that a no-deal scenario will be averted. The “Plan B” which might look a lot like “Plan A” will be debated in Parliament on 29 January, and maybe voted on later on the same day. Labour leader Jeremy Corbyn has refused to participate in talks that do not take the ‘no deal' scenario off the table. While Mrs. May is not likely to include such an amendment, the most realistic outcome is to seek an extension for Article 50.

US Earnings

It's going to be a busy week on the earnings front with Apple, Facebook, Microsoft, Amazon, Tesla and many other tech and industrial firms releasing their Q4 results. The tech sector which makes up more than a quarter of the S&P 500 market cap will likely determine the US equities direction.

The British pound is trading close to the 1.3200 resistance level in early week trade against the US dollar, as traders await Tuesday’s vote on British PM Theresa May’s new Brexit deal. The GBPUSD pair retains a strong bullish bias while trading above 1.3170 level, although the MACD indicator on the four-hour time frame is currently extremely overbought. If sterling continues to rise, the 1.3290 to 1.3300 region is likely to be buyers short-term upside objective.

The GBPUSD pair is strongly bullish while trading above the 1.3170 level, key technical resistance is now found at the 1.3250 and 1.3300 levels.

If the GBPUSD pair trades under the 1.3170 level, a decline towards the 1.3130 and 1.3095 levels may occur.

The euro is holding onto Friday’s strong gains against the greenback in early-week trading, as the US dollar comes under selling pressure across the board. The EURUSD pair has a strong bullish bias while trading above the 1.1410 level, with buyers likely aiming for the pivotal 1.1460 level. Technical failure from current levels may provoke sellers to test towards the 1.1360 area.

The EURUSD pair is strongly bullish while trading above the 1.1410 level, key technical resistance is found at the 1.1460 and 1.1530 levels.

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

The National Association of Business Economics in the US released its quarterly business condition survey today. Nearly all respondents do not expect a recession in the US in the next 12 months. However, 64% expected growth to expect 2%, sharply lower than 90% in prior survey in October.

Regarding capital spending, 84% said the 2017 Tax Cuts and Job Act has not changed their investment of hiring plans. NABE President Kevin Swift said "the capex story is really a tale of two cities. Fewer firms increased capital spending compared to the October survey responses, but the cutback appeared to be concentrated more in structures than in information and communication technology investments."

77% indicated no impact from trade conflicts on their investment hiring and even pricing plans. However, from the goods-producing panelists, 36% said their raising prices and 27% delaying investments.

Full release here.

Bitcoin is under mild selling pressure as the new trading week begins, as traders await a much needed directional move in the number one cryptocurrency. Technically, the BTCUSD pair is trading within a bullish flag pattern in the short-term, which may indicate that an upside move is likely to occur. To the downside, if sellers can break the former weekly low a test of the $3,300 level seems the most likely scenario.

The BTCUSD pair is only bearish while trading below the $3,415 level, key technical support is found at the $3,300 and $3,100 levels.

If the BTCUSD pair trades above the $3,660 level, key resistance is found at the $3,960 and $4,220 levels.

The Japanese yen strengthened in early trading after the BOJ released minutes from the December meeting. The minutes showed that there were disagreements about the level of the bond yields. A member of the BOJ said that the long-term yields should be allowed to move negative temporarily, a statement that was accepted by another member. The two argued that conducting operations to raise yields would tighten the monetary policy. Another member argued that the bank should strengthen the policy to reach the 2% target. The BOJ is having a difficult time because the global economy is slowing, and the inflation is way below its target. The corporate services index rose by 1.1%, which was lower than the consensus estimate of 1.2%.

The US dollar index weakened slightly as traders looked ahead to key data expected this week. The most important will be the first reading of the US GDP and the interest rates decision by the Federal Reserve. The US GDP numbers will be released on Wednesday and are expected to show that the economy expanded by 2.5% in the fourth quarter. This will be lower than the 3.5% growth in the third quarter and the 4.2% in the fourth quarter. The slowdown of the economy is expected as the effects of Trump’s tax cuts becomes normalized.

In Asia, stocks were largely higher following gains made by Wall Street last week. In Hong Kong, the Hang Seng index was higher by 0.5% while in mainland China, the A50 index rose by 60 basis points. In Japan, the Topix declined by 0.3% as shares in Japan Display declined by more than 6%. Markets in Sydney were closed as Australia celebrated Australia Day. In the US, futures pointed to a higher open with the Dow and S&P 500 gaining by 0.97% and 1.12% respectively.

EUR/USD

The EUR/USD pair was little moved in the Asian session as traders look forward to a statement by Mario Draghi later today. The pair reached a high of 1.1420. On the hourly chart, the current price is closer to the 50% Fibonacci Retracement level and is below the 21-day and 42-day EMAs. There is a likelihood that the pair will reach the 50% Fibonacci level of 1.1430, where it will find some resistance.

GBP/USD

The GBP/USD pair remained closer to last week’s high of 1.3220 as traders wondered whether the sharp upward trend will continue. The pair is now trading at 1.3200, which is above all the major moving averages while the RSI has finally crossed into the overbought levels. The momentum indicator appears to be easing. There is a likelihood that the pair will ease a bit this week. If it does, it will likely test the important support of 1.3000.

USD/JPY

The USD/JPY pair rose slightly but remained near last week’s low of 109.26. It is now trading at 109.34. On the hourly chart, the pair’s price is below the 21-day and 42-day EMA. It is also slightly above the lower band of the Bollinger Bands. The Relative Strength Index has fallen closer to the oversold level of 30. There is a likelihood that the pair will resume the downward trend.

• Rates: US supply and Caterpillar earnings to guide trading today?
  Heavy US supply and the Budget office’s budget and economic outlook could cause underperformance of US Treasuries vs German Bunds today. The eco calendar is empty, but Q4 earnings from industrial bellwether Caterpillar could impact risks sentiment. Wednesday’s Fed meeting and US-Sino trade talks are this week’s key talking points.
• Currencies: Dollar to stay in the defensive going into Fed meeting.
  The EUR/USD decline halted on Friday even as EMU data remained weak. Dollar softness prevails as markets look forward to the Fed communication on the pace of policy normalization. Last week’s impressive sterling rally slows as markets look forward to a series of key votes in the UK Parliament that might determine the next steps in the Brexit process.

The Sunrise Headlines

• US stock indices closed Friday’s trading session in the green with technology shares outperforming (Nasdaq +1.29%). Asian equities opened mixed this morning with Japanese indices suffering from a stronger yen.
• US President Trump agreed on Friday to re-open the government for 3 weeks in exchange for negotiations on border security but remains pessimistic on a positive result. He again threatened to use emergency powers to build his wall.
• Chinese Vice ministers arrive in Washington today to prepare for high-level trade talks on Wednesday between Vice Premier Liu He and US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
• Venezuelan president Maduro showed the military force in his country is still on his side as he tries to ward off the leadership contest by National Assembly leader Juan Guaido, who’s backed by many other countries (US, Canada,…).
• UK PM May faces a series of votes in Parliament this week. One could force her to delay the exit date to stop the UK from leaving with no deal. Another one could force her to go back to Brussels to negotiate changes to the Irish backstop.
• Japan’s Services producer prices rose 1.1% (Y/Y) in December, down from 1.2% a month before and lower than the 1.2% consensus forecast. China’s industrial profits declined 1.9% (Y/Y) in December, following-1.8% Y/Y in November.
• Today’s economic calendar is empty. The US Treasury holds a 2- and 5-yr note auction and the CBO releases its annual outlook. ECB president Draghi and BoE’s Carney speak. Caterpillar publishes Q4 earnings.

Currencies: Dollar To Stay In The Defensive Going Into Fed Meeting

Dollar caution to prevail ahead of Fed meeting?

Most of last week’s EUR/USD slide was reversed on Friday. German IFO business climate was weak in line with recent EMU data, but the euro didn’t decline further. EUR/USD even profited from a continuation of the global risk rebound. US Congress and president Trump reaching a cease-fire on the government shutdown didn’t help the dollar. Rumours that the Fed is considering to amend the roll-off of its balance sheet was a possible USD negative, too. EUR/USD finished at 1.1406 (from 1.1304). USD/JPY struggled and closed the day slightly softer at 109.55 (from 109.64), despite the equity rally. This morning in Asia, the risk rebound is taking a breather. Investors are looking forward to next steps in the US-China trade talks, the Fed policy decision and plenty of corporate earnings. The (trade weighted) dollar is stabilizing (95.75 area). EUR/USD is currently holding just north of 1.14. USD/JPY (109.30 area) is losing some ground in line with global equity sentiment. Today, EMU and US eco data will only be of second tier importance. ECB’s Draghi will speak before the EU Parliament. We also keep an eye at the Congressional Budget Office’s annual budget and economic outlook and at the auction of 2 and 5y Treasuries. A higher funding need in theory might put upward pressure on US yields, but we don’t expect it to be USD supportive. USD traders probably will mainly look forward to the Fed policy decision/press conference (Wednesday). The dollar might trade cautiously as markets are pondering the Fed communication on a (further) slowdown in the pace of policy normalisation. EUR/USD is still holding in the 1.12/1.15 trading range. Last week’s drift lower was halted on Friday. The EUR/USD downside looks again better protected. We assume the pair to remain rather well bid going into the Fed meeting. Positive headlines on the US-China trade talks (if they were to occur) might be at least as supportive for the euro as for the dollar.

The impressive GBP-rally slowed on Friday. EUR/GBP hovered in the 0.86 area, but in the end sterling maintained its weekly gain. This week, the UK Parliament will vote on several amendments that might determine the Brexit process going forward. Sterling might hold recent gains as long as markets are convinced that a no deal Brexit can be avoided and/or that the March 29 Brexit deadline might be delayed. We start the week with a neutral bias on EUR/GBP. The pair tested the 0.8620 support area. For now, we stay cautious on sterling as the visibility on the outcome of the political process remains low.

EUR/USD rebounds as test of intermediate support was rejected

Daily Pivots: (S1) 1.1332; (P) 1.1375; (R1) 1.1448; More.....

Intraday bias in EUR/USD remains on the upside at this point. The current development suggests that corrective pattern from 1.1215 is still extending, with rise from 1.1289 as another leg. Further rally would be seen to 1.1569 resistance and above. On the downside, break of 1.1289 is needed to confirm resumption of fall from 1.1569. Otherwise, risk will stay on the upside in case of retreat.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.