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Market movers today

After a hectic day yesterday, today is quieter in terms of data releases.

This morning in the Scandi space we will get Norwegian industrial confidence in Q4 and Swedish retail sales in December.

The German IFO survey for January is also due out, where we see further downside risks. Also, the ECB's Survey of Professional Forecasters is also due out.

Selected market news

Yesterday, markets had a volatile session on the back of the ECB, trade war comments, PMIs etc. Equity markets rose marginally across most jurisdictions while, core bond market yields declined. EURUSD ended the day lower. Overnight, equity markets in Asia are in the green at the time of writing.

At the ECB meeting yesterday, it changed its growth risk assessment in light of continued weaker incoming data and persistent global uncertainties. This has been long overdue in our view and with January PMIs (see below) a balanced risk assessment would clearly have challenged the ECB's claim of being data-dependent. We still expect ECB hiking rates this year in December as Draghi was upbeat on the labour market and wage dynamics. We lower our expectation for a liquidity operation in March after the meeting yesterday to 75-80% for an announcement in March.

Norges Bank (NB) left the sight deposit rate unchanged at 0.75%, in a decision widely expected by both markets and analysts. This was a 'small' meeting, including only a press release and the one-page 'Executive Board's assessment', i.e. there was no monetary policy report, no revised rate path and no press conference. This, alongside the central bank having only one month's worth of data and economic developments to digest, limited how big a change in the policy outlook the central bank could signal. NB clearly clarified that markets should expect a rate hike in March. Our call remains for two rate hikes in 2019 (March and September) but, notably, we see the balance of risk skewed towards three and not one rate hike. We also pencil in two rate hikes for 2020 and 2021.

Swedish unemployment (seasonally adjusted) bounced higher to 6.4% in December, more or less as we expected, while the trend adjusted number stayed flat at 6.2%. Employment growth was still solid at +100k. In all, a fairly strong report, although our impression is that unemployment may be starting to find a bottom.

January euro area PMI fell further in line with our expectation to 50.7. Yesterday's PMI readings signal the euro area economy edging closer to stagnation at the start of 2019 (pointing to just 0.1% q/q growth in Q1), which is in line with that latest signals from Macroscope . Yesterday, Handelsblatt reported that the German government revised down its growth expectations for this year to 1% from 1.8%, which is a sizable cut given the new risk assessment from the ECB.

Daily Pivots: (S1) 1.3018; (P) 1.3057; (R1) 1.3101; More....

GBP/USD's rally continues today and reaches as high as 1.3139 so far. Intraday bias stays on the upside for 1.3149/74 resistance zone (38.2% retracement of 1.4376 to 1.2391 at 1.3149). At this point, we'd still expect strong resistance from there to limit upside, at least on first attempt. On the downside, below 1.3012 minor support will turn intraday bias back to the downside for 1.2814 resistance turned support first. However, firm break of 1.3149/74 will pave the way to 61.8% retracement at 1.3618.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend from 2.1161 (2007 high). And this will remain the preferred case as long as 1.3174 structural resistance holds. GBP/USD should target a test on 1.1946 first. Decisive break there will confirm our bearish view. However, sustained break of 1.3174 will invalidate this case and turn outlook bullish.

Sterling surges broadly today on rumors that Northern Ireland's DUP has privately agreed to conditional support to Prime Minister Theresa May's Brexit deal. The Pound is also the strongest one for the week. While there are still a lot of uncertainties surrounding Brexit outcome, at least, the threat of no-deal Brexit is eased. However, we'd doubt if the rumored condition of time limit on Irish backstop would get agreement from Brexit hardliners and the EU. Canadian Dollar, second strongest for today, follows oil price higher, as US threatens to sanction Venezuela.

Staying in the currency markets, Yen is trading as the weakest one for today, following strong risk appetite in Asia. Tech stocks led the way higher while investors shrug off conflicting comments from the US regarding trade negotiation with China. On the one hand, Commerce Secretary Wilbur Ross said the two countries are "miles and miles" away on a trade deal. But White House economic adviser Larry Kudlow said Trump is optimistic. Dollar follows as the second weakest. Euro is mixed after some knee-jerk actions follow ECB meeting yesterday.

Technically, GBP/USD is now close to structural resistance at 1.3174, which is close to 1.3149 fibonacci level. We'd expect strong resistance in this zone to complete the rebound from 1.2391. But we'll see how it goes. EUR/GBP breached 0.8620 key support today. For now, we'd also look for strong support at current level to bring rebound. However, sustained break of 0.8620 will resume larger fall from 0.9305 (2017 high).

In other markets, Nikkei closed up 0.97%. Hong Kong HSI is up 1.48%. China Shanghai SSE is up 0.79%. Singapore Strait Times is up 0.57%. Japan 10-year JGB yield is down -0.0082 at 0.002. Overnight, DOW dropped -0.09%. S&P 500 rose 0.14%. Tech stocks shone as NASDAQ rose 0.68%. 10-year yield dropped -0.043 to 2.712. 2.7 is now a level to defend.

Sterling jumps on rumor that DUP offer conditional support to May's Brexit deal

Sterling surges broadly again on hope that UK Prime Minister Theresa May inches closer to getting enough support for an amended Brexit deal. The Sun reported that North Ireland's DUP is having delicate deliberations with May. And it's privately agreed that DUP will support the Brexit plan if there is a time-limit of the Irish backstop. That came on DUP's concern that pro-Remain Tories and Labour are pushing for a significantly softer Brexit.

However, it should first be noted that such a time-limit is likely not enough to win over Brexit hardliners. ERG chair Jacob Rees-Mogg is clear in his demand for complete removal. More importantly, EU's Chief Brexit negotiator Michel Barnier has blunted rejected the idea of time limit already. He said yesterday that "we have to maintain the credibility of this reassurance … it cannot be time-limited… It's not just about Ireland."

Trump requesting down payment for border wall, and preparing declaration of national emergency

Both Trump's and Democrat's proposal to end the historical shutdown in the US were blocked in the Senate yesterday. White House spokeswoman Sarah Huckabee Sanders said afterwards that "the three-week CR would only work if there is a large down payment on the wall." That is, Trump is offering to reopen the government temporarily for three weeks, with certain down-payment for the USD 5.7B border wall.

Senate Minority Leader Chuck Schumer said after meting Senate Majority Leader Mitch McConnell that "Senate Democrats have made clear to Leader McConnell and Republicans that they will not support funding for the wall, prorated or otherwise." House Speaker Nancy Pelosi also criticized that Trump demand for down payment is "not a reasonable agreement". The House Democrats plan to offer a proposal today on border security, without the wall.

Separately, CNN reported that Trump is preparing a draft to declare national emergency And more than USD 7B in potential funds is already identified for the border wall. According to CNN, in the draft, it's said "the massive amount of aliens who unlawfully enter the United States each day is a direct threat to the safety and security of our nation and constitutes a national emergency." And, "Now, therefore, I, Donald J. Trump, by the authority vested in me by the Constitution and the laws of the United States of America, including the National Emergencies Act (50 U.S.C 1601, et seq.), hereby declare that a national emergency exists at the southern border of the United States."

ECB stood pat, noted risks to outlook moved to the downside

The ECB meeting evolved as we had expected: more dovish, downgraded assessment on economy, leaving unchanged the forward guidance on interest rates. the central bank has acknowledged that the uncertainties in the global economy have intensified and can persist for quite an extended time. No change was made in the monetary policy, leaving the main refi rate, the marginal lending rate and the deposit rate unchanged at 0.00%, 0.25% and -0.40% respectively.

CB noted that "the risks surrounding the Euro area growth outlook have moved to the downside". This is the first time since April 2017 that the central bank admitted that risks are to the downside. Over the past 21 months, ECB had been describing risks as "broadly balanced", while suggesting the balance is "moving to the downside". The uncertainties ECB has identified are "geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility". These have been unchanged from previous meetings.

More in ECB Turns Dovish amid Heightened Global Uncertainties

Suggested readings on ECB:

• ECB Stands Still But Draghi Continues To 'Nudge' Markets
• ECB Recap: Economic Risks To The Downside, EUR/USD Risks To The Upside?
• ECB Review: Downside Growth Risks But Rate Hike Still on Track
• ECB President Mario Draghi press conference live stream

On the data front

Japan Tokyo CPI core accelerated to 1.1% yoy in January, beat expectation of 0.9% yoy. German Ifo Business Climate will be the main focus today. UK will release BBA mortgage approvals and CBI reported sales. US calendar is empty.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.3018; (P) 1.3057; (R1) 1.3101; More....

GBP/USD's rally continues today and reaches as high as 1.3139 so far. Intraday bias stays on the upside for 1.3149/74 resistance zone (38.2% retracement of 1.4376 to 1.2391 at 1.3149). At this point, we'd still expect strong resistance from there to limit upside, at least on first attempt. On the downside, below 1.3012 minor support will turn intraday bias back to the downside for 1.2814 resistance turned support first. However, firm break of 1.3149/74 will pave the way to 61.8% retracement at 1.3618.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend from 2.1161 (2007 high). And this will remain the preferred case as long as 1.3174 structural resistance holds. GBP/USD should target a test on 1.1946 first. Decisive break there will confirm our bearish view. However, sustained break of 1.3174 will invalidate this case and turn outlook bullish.

Economic Indicators Update

For the 24 hours to 23:00 GMT, the EUR declined 0.72% against the USD and closed at 1.1301, after the European Central Bank’s (ECB) Chief, Mario Draghi warned of downside risks to the Euro-zone’s economy and cautioned that near term growth would be weaker than expected.

In economic news, Euro-zone’s manufacturing PMI dropped to a level of 50.5 in January, hitting its lowest level in 50 months and more than market expectations for a fall to a level of 51.3. In the prior month, the index had registered a reading of 51.4. Moreover, the region’s Markit services PMI unexpectedly fell to a 65-month low level of 50.8 in January, defying market expectations for a rise to a level of 51.5. The services PMI had recorded a level of 51.2 in the previous month. Separately, in Germany, the Markit manufacturing PMI declined to 49.9 in January, notching its lowest level in 50 months. In the previous month, the index had registered a level of 51.5, while investors had envisaged for a fall to a level of 0.2%. On the contrary, the nation’s services PMI climbed to a level of 53.1 in January, beating market anticipations for a rise to a level of 52.2 and compared to a reading of 51.8 in the previous month.

In major news, the ECB, in latest policy meeting, kept its benchmark interest rate unchanged at 0.0%, as widely expected. Additionally, the central bank signalled that it expects the key interest rates to remain at their present levels at least through the summer of 2019. Nevertheless, some economists expect the central bank to raise interest rates only in 2020, citing weak inflation & growth outlook and persistent geopolitical tensions.

In a statement, following the meeting, ECB President, Mario Draghi, warned of rise in downside risks to the Euro-zone’s economic growth, due to financial market volatility and continuing global trade tensions. Further, he cautioned that near-term growth momentum was likely to be weaker-than-expected.

In the US, data showed that the preliminary Markit manufacturing PMI unexpectedly rose to 54.9 in January, confounding market expectations for a fall to a level of 53.5. In the prior month, the Markit manufacturing PMI had registered a reading of 53.8. Additionally, seasonally adjusted initial jobless claims unexpectedly fell to a 50-year low level of 199.0K in the week ended 19 January 2019. In the prior week, initial jobless claims had registered a revised level of 212.0K, while investors had envisaged for a rise to a level of 218.0K. Meanwhile, the preliminary Markit services PMI dropped less-than-expected to 54.2 in January. The Markit services PMI had registered a level of 54.4 in the previous month. Moreover, the leading index slid 0.1% on a monthly basis in December, at par with market expectations. In the prior month, the index had recorded a rise of 0.2%.

In the Asian session, at GMT0400, the pair is trading at 1.1320, with the EUR trading 0.17% higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1277, and a fall through could take it to the next support level of 1.1233. The pair is expected to find its first resistance at 1.1377, and a rise through could take it to the next resistance level of 1.1433.

Moving ahead, investors would look forward to Germany’s Ifo survey indices for January, scheduled to release in a few hours. Moreover, the US monthly budget statement for December, set to release later in the day, will be on investors’ radar.

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

For the 24 hours to 23:00 GMT, the GBP declined 0.10% against the USD and closed at 1.3065.

In the Asian session, at GMT0400, the pair is trading at 1.3118, with the GBP trading 0.41% higher against the USD from yesterday’s close, amid reports that the Northern Irish Democratic Unionist Party has decided to privately agree to back UK Prime Minister, Theresa May’s ‘Plan B’ Brexit deal.

The pair is expected to find support at 1.3044, and a fall through could take it to the next support level of 1.2969. The pair is expected to find its first resistance at 1.3161, and a rise through could take it to the next resistance level of 1.3203.

Trading trend in the Pound today is expected to be determined by UK’s BBA loans for house purchases for December, slated to release in a few hours. Also, positive news flow emanating from the Brexit front will push the cable higher.

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

For the 24 hours to 23:00 GMT, the USD is trading flat against the JPY and closed at 109.57.

In the Asian session, at GMT0400, the pair is trading at 109.84, with the USD trading 0.25% higher against the JPY from yesterday’s close.

Overnight data showed that, in Japan, the Tokyo consumer price index rose 0.4% on an annual basis in January, compared to a rise of 0.3% in the prior month.

The pair is expected to find support at 109.55, and a fall through could take it to the next support level of 109.26. The pair is expected to find its first resistance at 110.00, and a rise through could take it to the next resistance level of 110.16.

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 0.19% against the CHF and closed at 0.9965.

In the Asian session, at GMT0400, the pair is trading at 0.9956, with the USD trading 0.09% lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9935, and a fall through could take it to the next support level of 0.9914. The pair is expected to find its first resistance at 0.9977, and a rise through could take it to the next resistance level of 0.9998.

Amid no macroeconomic releases in Switzerland today, investor sentiment would be determined by global macroeconomic factors.

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 0.10% against the CAD and closed at 1.3358.

In the Asian session, at GMT0400, the pair is trading at 1.3315, with the USD trading 0.32% lower against the CAD from yesterday’s close.

The pair is expected to find support at 1.3293, and a fall through could take it to the next support level of 1.3271. The pair is expected to find its first resistance at 1.3356, and a rise through could take it to the next resistance level of 1.3397.

In absence of any macroeconomic releases in Canada today, investor sentiment would be governed by global macroeconomic factors.

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

For the 24 hours to 23:00 GMT, the AUD declined 0.83% against the USD and closed at 0.7085.

LME Copper prices fell 0.6% or $35.5/MT to $5885.0/MT. Aluminium prices declined 1.4% or $26.5/MT to $1851/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7105, with the AUD trading 0.28% higher against the USD from yesterday’s close.

The pair is expected to find support at 0.7077, and a fall through could take it to the next support level of 0.7049. The pair is expected to find its first resistance at 0.7132, and a rise through could take it to the next resistance level of 0.7159.

Moving ahead, Australia’s NAB business confidence index, the consumer price index, the AIG performance of manufacturing index and the producer price index, all slated to release next week, would keep investors on their toes.

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

For the 24 hours to 23:00 GMT, Gold declined 0.16% against the USD and closed at USD1286.10 per ounce, amid a stronger US dollar.

In the Asian session, at GMT0400, the pair is trading at 1286.8, with gold trading 0.05% higher against the USD from yesterday’s close, on global growth concerns and persistent fears over US government shutdown.

The pair is expected to find support at 1282.53, and a fall through could take it to the next support level of 1278.27. The pair is expected to find its first resistance at 1290.03, and a rise through could take it to the next resistance level of 1293.27.

The yellow metal is showing convergence with its 20 Hr and 50 Hr moving averages.