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Eurozone PMI manufacturing dropped to 50.5 in January, down from 51.4, missed expectation of 51.3. That's the lowest in 50 months. PMI services dropped to 50.8, down from 51.2, missed expectation of 51.5. That's the lowest in 65 months. PMI composite dropped to 50.7, down from 51.1. That's the lowest in 66 months.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

"The Eurozone economy slipped closer to stall speed in January, with companies reporting the first drop in demand for over four years. The disappointing survey data indicate that GDP is rising at a quarterly rate of just 0.1%.

"Both the manufacturing and service sectors are close to stagnation, highlighting the broad-based nature of the current slowdown. Ongoing auto sector weakness, Brexit worries, trade wars and the protests in France were again widely cited as factors dampening growth, but the survey responses indicate that a deeper malaise has set in at the start of the year. Companies are concerned about a wider economic slowdown gathering momentum, with rising political and economic uncertainty increasingly affecting risk appetite and demand.

"The 'yellow vest' protests led to the steepest downturn in the French economy since November 2014, consistent with GDP falling in the first quarter if these levels continue in coming months. But German businesses are also reporting their toughest spell for four years, led by the manufacturing sector slipping into decline for the first time since 2014, in turn reflecting the largest drop in exports for six years.

"The survey's output and price gauges have both now fallen into territory more associated with the ECB loosening rather than tightening policy, raising pressure on the central bank to acknowledge that downside risks to the outlook now predominate."

Full release here.

NZDUSD has retreated from the 0.6805 resistance level and the 38.2% Fibonacci retracement level of the downleg from 0.7390 to 0.6423, around 0.6794 after the pullback from the double bottom on 0.6705. The short-term bias looks negative as the MACD keeps losing ground with weak momentum above its trigger and zero lines, while the RSI seems to be making its way down towards the 50 neutral mark, risking a move to bearish territory.

The 40- and the 20-simple moving averages (SMAs) at 0.6760 and 0.6750 respectively could be critical levels for steeper bearish actions if the pair continues the negative movement. Also, the 0.6670 could attract some attention, taken from the low on January 4, while a significant leg below this hurdle could open the door for the next support of the 23.6% Fibonacci of 0.6650.

However, if the pair reverses back to the upside and rise above 0.6805, investors could make a pause at the 0.6847 resistance. More increases could send the pair towards the next hurdle of 0.6880, registered on December 18.

Overall, kiwi/dollar has reversed back to the downside in the 4-hour chart, slipping below 0.6805, however, the SMAs are ready to post a bullish crossover, indicating a possible rebound on them.

We see temporary risk-off mode, with lower stocks and also crude oil this week, while dollar is showing some strength against commodity currencies at the moment. But the question is for how long. Notice that on USDCAD we see market in wave C of a corrective advance which is already approaching that resistance around 1.3400 where bulls may slow down and bears may wake up.

USDCAD, 1h

At the same time we see crude oil now in fifth wave of A) so a rally can follow into wave B) soon that may help to limit the upside for USDCAD as well.

Crude oil, 1h

Germany PMI manufacturing dropped to 49.9 in January, down from 51.5 and missed expectation of 51.5. That's the lowest in 50 months. PMI services rose to 53.1, up from 51.8 and beat expectation of 52.2. PMI composite rose to 52.1, up from 51.6.

Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

"The Germany PMI broke its recent run of successive falls in January thanks to a stronger increase in service sector business activity, but the growth performance signalled by the index was still one of the worst over the past four years.

"Worryingly for the outlook, the recent soft patch in demand continued into the New Year. Firms are also showing greater caution towards hiring with job creation at a 25-month low, though in a historic context these are still healthy employment figures.

"Manufacturing fell into contraction in January as the sector's order book situation continued to worsen, showing the steepest decline in incoming new work since 2012. Weakness in the auto industry was once again widely reported, as was a slowdown in demand from China.

"Manufacturers saw some respite in the form of weaker cost pressures, as the rate of input price inflation in the sector cooled to a 27-month low, partly due to the recent correction in oil prices. Service providers, meanwhile, highlighted the impact of wage pressures which contributed to steeper increases in both their overall costs and selling prices."

Full release here.

The Euro bounced from session low at 1.1339, posted after downbeat French PMI data, underpinned by unexpected jump in German Services PMI (Jan 53.1 vs 52.2 f/c) that offset negative impact from weaker than expected German Manufacturing PMI data (Jan 49.9 vs 51.4 f/c).

Larger bears are taking a breather above cracked key support at 1.1350 (Fibo 61.8% of 1.1215/1.1569 / daily cloud base), awaiting for fresh signal which could be generated from today’s ECB policy meeting.

Clear break below 1.1350 would signal continuation of larger downtrend from 2019 high at 1.1569 (10 Jan) towards targets at 1.1300 (Fibo 76.4% / psychological) and 1.1270 (14 Dec low).

The ECB is expected to keep interest rates unchanged and most of market participants expect the central bank to keep dovish stance and keep monetary policy accommodative, as inflation remains low and signs of slowdown in two biggest EU economies, Germany and France, would further undermine the single currency.

Res: 1.1378, 1.1400, 1.1417, 1.1454
Sup: 1.1350, 1.1336, 1.1300, 1.1270

Cable eased to 1.3027 in early European trading on Thursday after two-day over 1.5% advance failed to clear 200SMA (1.3078) on first attempt.

Traders took some profits on longs from daily cloud top, but bullish bias remains strong and sees scope for renewed attempt through 200SMA after consolidation.

Broken psychological 1.30 barrier (also highs of 17/18 Jan) acts as solid support, where extended downticks are expected to find ground.

Firm break above 200SMA would open way for bullish extension towards 7 Jan high at 1.3174.

Only extension and close below rising 10SMA (1.2926) would sideline bulls.

Res: 1.3078, 1.3094, 1.3149, 1.3174
Sup: 1.3027, 1.3000, 1.2953, 1.2926

France PMI manufacturing recovered back to 51.2 in January, up from 49.7 and beat expectation of 50.0. However, PMI services dropped to 47.5, down from 49.0 and missed expectation of 50.5. That's also the lowest level in 59 months. PMI composite dropped to 47.9, down from 48.7, hitting a 50-month low.

Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

"Private sector firms in France reported a further contraction in output during the opening month of 2019. The latest decline was the fastest for over four years, even quicker than the fall in protest-hit December. The strong service sector that had supported a weak manufacturing sector in the second half 2018 declined at a faster rate in January. Meanwhile, manufacturers recovered to register broadly-unchanged production.

"Despite the continuation of 'gilets jaunes' protests, it is unclear whether the latest weak performance was caused by the resulting disruption, or whether the anticipated global economic slowdown for 2019 is already beginning to take hold.

"Although firms reported higher confidence in January, other forward looking indicators such as new orders fell at the fastest pace for over four years. This suggests further weak performance for France in the coming months."

Full release here.

• ECB decision and Eurozone PMIs will chart euro’s course today
• Pound soars to 10-week highs versus dollar as no-deal Brexit risk fades
• Aussie tumbles on mounting speculation for RBA rate cut
• Stocks inch higher on strong earnings, dollar rebound stalls

ECB meeting & Eurozone PMIs could make-or-break euro/dollar today

It will be a crucial session for European assets and the euro itself today. The European Central Bank (ECB) will announce its policy decision at 1245 GMT, which will be followed by a press conference from President Draghi at 1330 GMT. A few hours ahead of the event, the Eurozone’s preliminary manufacturing and services PMIs for January will be released.

No action is expected, so all eyes will be on whether the ECB will downgrade its language around growth, in light of weakening economic data. It teased as much at the previous meeting and considering that the data pulse has weakened even further since then, a dovish recalibration in the assessment of growth risks seems sensible. While the euro could come under some initial pressure if this is indeed the case, any downside is unlikely to be massive as the move is broadly expected.

Instead, the more important variable for the euro’s overall path may be Draghi’s tone, and whether or not investors get the sense that a rate hike this year is becoming less and less likely. Separately, any major surprise in the bloc’s PMIs could prove equally – if not more – important for the euro than anything the ECB says. Euro/dollar is hovering just above an uptrend line drawn from the November lows, and today’s events may be the catalyst for either a clear rebound off that area or a break below it, thereby keeping the short-term technical bias positive or turning it neutral, respectively.

Sterling claims new heights as no-deal Brexit risk seen fading

The British currency was by far the best performer in the G10 FX space on Wednesday, surging to clear the $1.30 handle against the dollar. The move followed news that the Labour party will support an amendment that aims to prevent a no-deal Brexit. While that was hardly surprising, since half of Labour MPs support another referendum and the entire party wants to stop a no-deal exit, investors still took the opportunity to buy the pound.

Although uncertainty is still elevated as there is no clear “next step” in the Brexit process, there seems to be a paradigm shift underway, with markets turning increasingly positive on the UK currency as they judge that the worst-case scenario will likely be avoided.

Aussie crumbles as RBA rate-cut speculation picks up

Elsewhere, the aussie is the worst performing major currency today, despite Australia releasing another set of strong employment data overnight. The currency reversed course after a major Australian bank announced it will raise its mortgage rates. Australian households are heavily indebted, so such hikes could constrain consumers further, curbing economic growth. In short, investors interpreted the news as increasing the probability that the RBA could cut its own policy rate soon, to offset the negative impact.

Stocks inch higher, dollar pulls back

Market sentiment remained fragile overall on Wednesday, with US markets trading mostly sideways before rallying towards the end of the session to close modestly higher. The Dow Jones (+0.80%) outperformed, aided by strong earnings from IBM (+8.5%) and Procter and Gamble (+4.9%). The earnings season continues today with Intel, which will report its results after Wall Street’s closing bell.

Meanwhile, the dollar struggled after White House advisor Hassett raised the possibility that economic growth in Q1 may be zero if the government shutdown continues. The move underscores that the longer the shutdown lasts, the more detrimental it becomes to the economy and markets. Today, the Markit manufacturing PMI for January could attract attention.

Daily Pivots: (S1) 142.05; (P) 142.81; (R1) 143.99;  More...

Intraday bias in GBP/JPY remains on the upside. Current rise from 131.51 is in progress for 143.93 resistance. Break will pave the way back to 149.48 key resistance next. On the downside, below 140.62 minor support will turn intraday bias neutral again. But further rally is expected as long as 137.35 minor support holds.

In the bigger picture, corrective medium term rise from 122.36 (2016 low) has completed at 156.69 (2018 high) already. That came after failing to break through 55 month EMA. No change in this view. Strong rebound from 131.51 argues that fall from 156.59 is just the second leg of the corrective pattern from 122.36. Break of 149.38 resistance will confirm the third leg has started to 159.69, and possibly above. Nevertheless, break of 131.51 will pave the way to retest 122.26 low.

Daily Pivots: (S1) 124.30; (P) 124.63; (R1) 125.06; More....

Intraday bias in EUR/JPY remains neutral at this point. On the upside, break of 125.09 resistance will extend the rebound from 118.62 to 55 day EMA (now at 126.45) and above. On the downside, break of 123.40 minor support will turn bias back to the downside for retesting 118.62 low instead.

In the bigger picture, medium term rebound from 109.03 (2016 low) has completed at 137.49 already, with corrective structure. Fall from 137.39 is possibly just the second leg of the corrective pattern from 109.03. Break of 133.12 resistance should start the third leg to 137.49 and above. Nevertheless, break of 118.62 will resume the down trend from 137.49 for 109.03/114.84 support zone instead.