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German Ifo Business Climate dropped to 99.1 in January, down from 101.0 and missed expectation of 100.6. It's also the lowest level since February 2016. Current situation gauge dropped to 104.3, down from 104.9, slightly above expectation of 104.2. Expectations gauge dropped to 99.4, down from 97.3 and missed expectation of 97.0.

Ifo President Clemens Fuest noted "disquiet is growing among German businesses", and "the German economy is experiencing a downturn."

Full release here.

EURGPB plummeted to a fresh 20-month low earlier today, and currently is trying to pare some of the losses. 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.

From the technical point of view, the RSI has plunged into the oversold level and the MACD oscillator is down sharply too, holding below the zero and trigger lines with stronger momentum than before. Also, the 20- and 40-simple moving averages (SMAs) in the near term, posted a bearish crossover in the preceding sessions, confirming the recent movement.

More losses could drive the pair towards the next support level of 0.8530, identified by the high on April 2017. Beneath the latter, the 0.8380 support could be another level for investors to focus on, taken from the low on May 2017.

In case the pair changes its direction to the upside, the bulls will probably jump above the previous bottom of 0.8655. A break higher, could last until the 0.8760 barrier, registered by the bottom on January 18.

To sum up, in the longer timeframe, EURGBP has been trading in a sideways channel over the last 16 months.

ECB remained on hold at 0.0% as was widely expected, however a number of dovish comments weakened the EUR substantially in the following hours. The decision per se along with the accompanying statement produced little volatility as main points included were expected, however the comment included mentioning that the bank will maintain current rates as long as needed for inflation to converge towards ECB’s target was considered as quite dovish. Despite ECB leaving a possible rate hike in late 2019 on the table, a number of Mario Draghi’s comments in the press conference caused the EUR to weaken. Of special importance would be the acknowledgement by the ECB president that the risks surrounding the euro area growth outlook have moved to the downside, on account of a persistence of uncertainties. The bank sounded quite dovish yesterday maybe even a bit surprised by the recent weak results and despite Germany’s GDP slowdown for 2018 preparing the market, the prementioned acknowledgement weighed significantly on the EUR. We expect the EUR to show some upward correction in the short term, however the bearish sentiment could weigh on the common currency, especially should financial releases confirm it. EUR/USD dropped heavily yesterday, breaking the 1.1350 (R1) support line (now turned to resistance) and the 1.1305 (S1) support level for a short period of time, before correcting above it during the Asian session today. We see the case for the pair to rise a bit further today, however it may prove sensitive to the financial releases from the Euro area and the US. Also the pair’s direction could start be influencing by expectations of next weeks Fed meeting. Technically please note that the 100 moving average clearly crossed below the 200 moving average in the 4 hour chart, marking yesterday’s bearish market. Should the pair find fresh buying orders along its path, after today’s Asian session, we could see it breaking the 1.1350 (R1) resistance line. Should on the other hand, the pair come under the market’s selling interest once again, we could see it breaking the 1.1305 (S1) support line and aim if not break the 1.1265 (S2) support level.

GBP jumps on Brexit hopes

The pound yesterday, reached one of its highest levels against the USD for the past two months. The bullish market for the pound was fueled by expectations for an agreed Brexit, as media reported that the DUP would be willing to provide support to Theresa May’s plan under certain conditions. Analysts point out that should the reports be true, chances of avoiding a hard Brexit have increased and the pound could continue to rally. We see the case for the pound to maintain a bullish momentum, as long as positive Brexit headlines continue to reel in, however we also note that the market seems to be swinging between the two extreme cases, hence increasing volatility. Cable after some hesitation, rose even further yesterday, clearly breaking the 1.3070 (S1) resistance line (now turned to support). We maintain a bullish outlook for the pair and for our opinion to change, we would require the pair’s price action to break the upward trendline incepted since the 15th of January. Please note that the RSI indicator in the 4 hour chart is near the reading of 70, implying that the pair’s long position might be overcrowded. Should the bulls continue to dictate the pair’s direction, we could see it breaking the 1.3175 (R1) resistance line. Should the bears take over, the pair could break the 1.3070 (S1) support line and aim for the 1.2960 (S2) support level.

US may provide further worries for the markets

With the US expected to be in focus in the next week (Fed interest rate decision, NFP) we would like to share some worries as a side note. As the US partial government shutdown end does not seem to be on the horizon, uncertainty seems to become more intense and possible effects could be felt on both the equities market and the USD’s direction. On the foreign policy front, the recent escalation in Venezuela could provide further uncertainty, in the near future. Especially as the confrontation between China and the US on the issue could have wider implications and overspill in the US-Sino negotiations about trade. Also a possible effect could occur in the oil market, given Venezuela’s oil production potentials.

Today’s other economic highlights

In today’s European session, we get from Germany the Ifo business climate for January and in the American session we get the US durable goods orders growth rates for December and the Baker Hughes number of US oil rigs.

EUR/USD H4

Support: 1.1305 (S1), 1.1265 (S2), 1.1215 (S3)
Resistance: 1.1350 (R1), 1.1387 (R2), 1.1425 (R3)

GBP/USD H4

Support: 1.3070 (S1), 1.2960 (S2), 1.2880 (S3)
Resistance: 1.3175 (R1), 1.3285, (R2), 1.3372 (R3)

Cable rallied to new 10-week high at 1.3138 in Asia on Friday, following newspaper's report that Ireland is preparing to back PM May's plan B.

Revived hopes that UK might avoid no-deal Brexit boosted pound for eventual break above falling 200SMA, which capped the advance in past two sessions.

Fresh bulls require weekly close above 200SMA to neutralize the risk of stall, signaled by Thursday's Doji candle and overbought daily studies.

Bulls pressure immediate barriers at 1.3153 (Fibo 38.2% of larger 1.4376/1.2397 fall) and 1.3174 (7 Nov high) break of which would spark further bullish acceleration towards 1.3368 (Fibo 50%).

Dip-buying remains favored scenario, with broken 1.30 barrier and rising 10 SMA (1.2952) expected to contain dips and maintain bullish bias.

The pair is on track for the biggest weekly gains since mid-March 2018 and also the sixth straight bullish weekly close that supports the notion.

Res: 1.3138, 1.3149, 1.3174, 1.3257
Sup: 1.3070, 1.3058, 1.3000, 1.2953

• Euro closes lower on soft PMIs and ‘vigilant’ Draghi
• Stocks struggle amid conflicting trade signals
• Sterling advances on fresh Brexit reports

Euro caves in after PMIs sink, Draghi ‘keeps his options open’

Euro/dollar had a particularly turbulent session on Thursday, before ultimately closing lower, caving under the weight of disappointing PMIs out of the Eurozone and cautious commentary by the ECB. The preliminary manufacturing PMIs out of both Germany and France signaled contraction, revitalizing euro-area growth concerns, while a few hours later the ECB officially downgraded its assessment of risks to the growth outlook.

Draghi maintained a balanced-to-cautious tone. He acknowledged the weakness in growth but counterbalanced that with optimism around wages. Likewise, although he highlighted the Bank’s readiness to act if need be, he seemed hesitant to signal new measures. The message was that while the slowdown is worrisome and may delay any rate hikes should it persist, it’s still not enough to entirely derail the ECB’s normalization plans. Hence, as far as the euro is concerned, everything hangs on incoming data now, as markets try to decipher whether the Bank will hike rates at all this year. Euro/dollar closed below the uptrend line taken from November’s lows and posted a lower low on the daily chart, which technically suggests the short-term bias has turned neutral.

Stocks undecided as Secretary Ross plays both good and bad cop

US equity markets struggled to make headway yesterday, with the S&P 500 (+0.14%) ticking higher but the Dow Jones (-0.09%) inching lower, as mixed signals on the trade front kept traders cautious. The confusion emanated from US Commerce Secretary Ross, who said that the US and China are still “miles and miles away' from a resolution. Yet, he followed that up by indicating he still thinks there’s a “fair chance we do get to a deal'.

His comments come ahead of a crucial meeting next week between high-level US and Chinese officials. The signals that come out of these talks could be pivotal for market sentiment. Specifically, given recent reports of little progress on key issues such as intellectual property protection, will the US press on for a deal anyway, or use the negotiating leverage it has built up and “wait it out' until China makes concessions on those fronts? Recall that the agreed deadline for the talks runs out in roughly one month, and there’s still little to show in terms of progress.

In the more immediate term, sentiment seems to have rebounded today, as futures tracking the major US stock indices are pointing to a higher open, while the safe-haven Japanese yen is on the back foot. Asian markets were a sea of green as well, with little in the way of fresh catalysts behind this reversal.

Pound lifted further by Brexit reports

The British pound touched a fresh 11-week high against the dollar earlier today, after UK media reported that the DUP will support PM May’s revised Brexit plan next week, assuming the Irish backstop will be time limited. Markets seemingly interpreted this as improving May’s odds of pushing her deal through Parliament.

Yet, considering the dramatic margin of her previous defeat, and how few MPs the DUP has in Parliament, that may be wishful thinking. To be clear, May will need much more than the DUP’s support to get her deal approved. It’s also a long shot that the EU will accept a time-limited backstop, as it has firmly denied such calls so far. As for the pound, while the long-term picture is unquestionably improving, there’s little clarity on what the next Brexit step will be, implying it probably won’t be all smooth sailing higher from here.

EUR/USD

Current level - 1.1318

The downtrend is intact, heading towards 1.1214 low. Crucial on the upside is 1.1392 high.

USD/JPY

Current level - 109.84

The outlook here is positive, for a violation of 110.20 resistance  zone, towards 111.45 hurdle. Minor intraday support lies at 109.40, followed by the major one at 109.10.

GBP/USD

Current level - 1.3105

The uptrend was renewed after the recent dip to 1.3000 support and the pair is approaching 1.3180 resistance area. Initial intraday support is projected at 1.3080 and crucial on the downside is 1.3000, as only a violation of the latter will signal a reversal of the current bias.

UK Chancellor of the Exchequer Philip Hammond repeated his usual warnings today that in case of no-deal Brexit, "there will be very significant disruption in the short term and a very significant hit to our economy in the medium to long term." And, he pledged that "our job is deliver the British people what they believe they were promised in that referendum. To make sure we respect the decision of the referendum but do it in a way that gives them the future prosperity they were promised."

Hammond refused to say if he would step down in no-deal Brexit. He just said "I'm not going to speculate because a lot depends on the circumstances, what happens. The responsibility I have is to manage the economy in what is in the best interests of the British people. Now I clearly do not believe that making a choice to leave without a deal would be a responsible thing to do."

Pivot (invalidation): 53.05

Our preference Long positions above 53.05 with targets at 54.50 & 54.90 in extension.

Alternative scenario Below 53.05 look for further downside with 52.50 & 51.85 as targets.

Comment The RSI is bullish and calls for further advance.

ECB Governing Council member Villeroy de Galhau said today that "We remain committed to maintaining interest rates very low, which is good for the economy:" And, "Progressively we are withdrawing monetary stimulus... but it is very progressive and depends on improvement in the economy. We'll take the time it takes."

Villeroy also noted that uncertainties are the main reason for the slow down in the economy. That also echoed ECB President Mario Draghi's comment. The economic projections to be released during March ECB meeting will be watched closely. And, Villeroy hinted that there may be downgrade in GDP forecasts.

Pivot (invalidation): 15.2700

Our preference Long positions above 15.2700 with targets at 15.4300 & 15.4800 in extension.

Alternative scenario Below 15.2700 look for further downside with 15.2200 & 15.1600 as targets.

Comment The RSI advocates for further advance.