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Daily Pivots: (S1) 109.10; (P) 109.40; (R1) 109.65; More...

USD/JPY's rise from 104.69 resumes today by breaching 109.89. Intraday bias is back on the upside for 61.8% retracement of 114.54 to 104.69 at 110.77. We'd look for topping signal above there. On the downside, break of 109.14 minor support will be the first sign of completion of the rebound. Intraday bias will then be turned back to the downside.

In the bigger picture, price actions from 125.85 (2015 high) are seen as a long term corrective pattern, no change in this view. Apparently, such corrective pattern is not completed yet. Fall from 114.54 is seen as part of the falling leg from 118.65 (2016 high). Break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. But in that case, we'd expect strong support from 98.97 to contain downside to bring reversal. Also, this bearish case will remain the preferred one as long as 114.54 resistance holds.

Daily Pivots: (S1) 0.9961; (P) 0.9974; (R1) 0.9987; More....

No change in USD/CHF's outlook. With 0.9932 minor support intact, further rise is still expected despite diminishing upside momentum. Current rise from 0.9716 should target a test on 1.0128 high next. On the downside, below 0.9932 minor support will turn intraday bias neutral again. But near term outlook will remain cautiously bullish as long as 0.9856 minor support holds.

In the bigger picture, current development suggests that rise from 0.9186 has possibly completed with three waves up to 1.0128 already. Decline from 1.0128 could either be correcting this move, or reversing the trend. As long as 0.9541 support holds, we'd slightly favor the former scenario, and expect another rise through 1.0128 at a later stage. However, sustained break of 0.9541 will confirm trend reversal and bring deeper fall back to 0.9186 low.

Daily Pivots: (S1) 1.1339; (P) 1.1356; (R1) 1.1377; More.....

No change in EUR/USD's outlook. With 1.1391 minor resistance intact, further decline is expected to 1.1307 support. The corrective rise from 1.1215 should have completed at 1.1569. Break of 1.1307 should resume larger down trend through 1.1215 low. On the upside, above 1.1391 minor resistance will dampen this bearish case and turn intraday bias back to the upside for stronger rebound.

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.

As widely anticipated, BOJ voted 7-2 to leave left the policy rate unchanged at -0.1% in January. All other policies also remained intact: purchases of JGBs at a pace of 80 trillion yen/ year and maintenance of 10-year JGB yield at 0%, with trading band at +0.2% and – 0.2% (yield curve control). Meanwhile, BOJ has extended the deadline for new applications for lending scheme for a year - to end-March 2024, so as to encourage financial institutions to lend more. While the forward guidance stayed unchanged, it revised lower the GDP growth and inflation forecast. Despite the significant downward revision on inflation, we believe that BOJ is not dovish enough. We find that it has not taken into account the negative impact on upcoming VAT hike. Given the sluggishness in economic growth outlook, both at home and globally, we do not feel surprised if BOJ announce more unconventional stimulus. What is doubtful is the effectiveness of these measures.

On the updated economic forecasts, BOJ’s median inflation (less fresh food) forecast was revised lower to +0.9% for fiscal 2019, from +1.4% projected in October. This marks only mild improvement from +0.8% (Oct’s forecast: +0.9%) from fiscal 2018. CPI would then accelerate to +1.4% in fiscal 2020, compared with October’s estimate of +1.5%.
According to BOJ, the downside revision of CPI for fiscal 2019 is “due primarily to the decline in crude oil prices”. On economic growth, the median real GDP is expected to growth by +0.9% fiscal 2019, up from +0.8% projected in October. Growth would climb slightly higher to +1% (Oct: +0.8%) in fiscal 2020.

As suggested in the economic statement, BOJ noted that the VAT hike would affect the GDP growth rates in the following ways: 1) the front-loaded increase and subsequent decline in demand prior to and after the consumption tax hike and 2) a decline in real income. It added that “the negative impact on the growth rates is expected to be smaller than that on the rate for fiscal 2014, when the last consumption tax hike took place”. The VAT tax will increase from 8% to 10% in October 2019. In order to reduce the impact of the fiscal tightening, the government has planned to add stimulus worth of about 1.8 trillion yen to the market. The economic projections signal that BOJ expect VAT tax would help growth and stimulate inflation.

Theoretically, increase in sales tax should help boost inflation. Back in 2014, when the Japanese government increased the VAT to 8% from 5% in April that year, inflation rallied to 3.2% in the month from +1.3% in March. Inflation, however, peaked in May at +3.3%. Japan’s inflation fell below +0.5% again a year later as the VAT impact dissipated. Apart from the fact that Governor Haruhiko Kuroda expects that the impact this time would be milder, we are concerned that higher selling prices would restrain household spending, eventually forcing retailers to cut prices. This scenario is getting more likely as global economic growth in slowing down.

Daily Pivots: (S1) 1.2883; (P) 1.2929; (R1) 1.3004; More....

GBP/USD's rebound from 1.2391 resumes today by taking out 1.3001 and reaches as high as 1.3042 so far. Intraday bias is back on the upside for 1.3174 resistance, which is close to 38.2% retracement of 1.4376 to 1.2391 at 1.3149. We'd expect strong resistance from there to limit upside, at least on first attempt. On the downside, break of 1.2830 support is needed to be the first sign of near term reversal. Otherwise, outlook will stays cautiously bullish in case of retreat.

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 is the star performer today as campaign to block no-deal Brexit in the UK gathers momentum. Some upside acceleration is seen after the Pound takes out near term resistance against Dollar, Euro and Yen. New Zealand Dollar is following as the second strongest as boosted by stronger than expected CPI. Though, it handed the top spot to the Pound in early US session. On other hand, as risk sentiments stabilized, Yen is trading as the weakest one, followed by Swiss Franc. Canadian Dollar turns softer after weaker than expected retail sales. But loss in the Loonie is so far limited.

Technically, GBP/USD and GBP/JPY reaches recent rally today. GBP/USD is heading to 1.3174 key resistance. GBP/JPY is targeting 143.93 first and could march towards 150 handle later. EUR/GBP is now targeting 0.8620/55 support zone. USD/JPY also breaks 109.89 resistance to resume recent rebound. Now, it's EUR/JPY's turn to take on 125.09 resistance. One more level to watch is 0.7116 in AUD/USD. Break should confirm near term bearish reversal.

In other markets, FTSE is currently down -0.33%. DAX is up 0.32%, CAC is up 0.46%. German 10-year yield is up 0.010 at 0.248. Earlier in Asia, Nikkei closed down -0.14%. Hong Kong HSI rose 0.01%. China Shanghai SSE rose 0.05%. Singapore Strait Times dropped -0.68%. Japan 10-year JGB yield rose 0.0034 to 0.004, turned positive. US futures point to higher open. There was some jitters on renewed concern over US-China trade negotiations yesterday. But traders were quickly calmed by White House economic advisor Larry Kudlow's comment that "the story was unchanged, We are moving towards negotiations."

Released from Canada, headline retail sales dropped -0.9% mom in November versus expectation of -0.5% mom. Ex-auto sales dropped -0.6% mom versus expectation of -0.4% mom. From US, house price index rose 0.4% mom in November versus expectation of 0.2% mom.

UK Labour highly likely to back amendment to block no-deal Brexit

The campaign to block a no-deal Brexit in the parliament is gaining momentum today. Labour lawmaker Yvette Cooper put an cross-party supported amendment proposal earlier, to try to impose a deadline of February 26 for Prime Minister Theresa May to get the Brexit deal approved by the parliament. Otherwise, there would be a parliamentary vote on delaying Brexit. The second most influential Labour member John McDonnell said today the party is "highly likely" to back Cooper's amendment. He added "Yvette Cooper has put an amendment down which I think is sensible".

However, UK Prime Minister Theresa May criticized that "What we have seen is amendments seeking to engineer a situation where Article 50 is extended - that does not solve the issue, there will always be a point of decision. The decision remains the same: no deal, a deal or no Brexit".

Regarding no-deal Brexit, Moody's senior vice president Sarah Carlson warned that "from a sovereign credit perspective, if you end up with a 'no deal' Brexit that is a sign that something institutionally has really quite profoundly failed." And, that would weigh negatively on UK's creditworthiness.

EU Moscovici: Brexit has to be dealt with in London first

European Commissioner for Economic and Financial Affairs Pierre Moscovici reiterated the EU's stance that regarding Brexit, the ball is in UK's court now. He said "Certainly the EU is there, the EU is waiting, the EU is ready but first we need to know clearly what are the British intentions and we need some clarifications from London".

He added that "Of course the door is always open for discussion but it's not up to us to tell now the British side where it wants to go. The ball clearly is in the British side again. It's not a problem that can be solved by Brussels, maybe in Brussels later, but it has to be first dealt with in London."

Also on the possibility of hard Brexit, Moscovici said "Nobody wants a no-deal (Brexit), that is clear. The British parliament doesn't want a no-deal, the British government doesn't want a no-deal, and the EU is not willing a no-deal, so we need to explore all options which are not a no-deal."

BoJ stands pat, sharp downward revision in fiscal 2019 inflation forecast

BoJ left monetary policies unchanged today as widely expected. New economic projections are also released with upgrade in fiscal 2019 and 2020 GDP forecasts. But inflation forecasts was lowered rather sharply for fiscal 2019.

The short term interest rate is held unchanged at -0.1%. And under the yield curve control frame work, BoJ will continue to kept 10-year JGB yield at around 0%, with some upward and downward movements allowed. The annual amount of JGB purchase will be kept at JPY 80T.

Member G. Katakoa dissented as usual, pushing to strengthen monetary easing. Y Harada also dissented again, criticizing that allowing the long-term yields to move upward and downward to some extent was too ambiguous

On economy, BoJ maintained that "Japan's economy is likely to continue on an expanding trend through fiscal 2020." Also, "overseas economies are expected to continue growing firmly on the whole, although various developments of late warrant attention such as the trade friction between the United States and China."

In the new GDP projections, comparing with October forecasts:

• Fiscal 2018 is revised to 0.9% to 1.0% (median 0.9%), down from 1.3% to 1.5% (median 1.4%).
• Fiscal 2019 is revised to 0.7% to 1.0% (median 0.9%), up from 0.8% to 0.9% (median 0.8%).
• Fiscal 2020 is revised to 0.7% to 1.0% (median 1.0%), up from 0.6% to 0.9% (median 0.8%).

The revisions showed that while BoJ is optimistic for 2019, it also sees larger uncertainties.

In new core CPI projections, comparing with October forecasts, and exclude effect of sales tax hike:

• Fiscal 2018 is revised to 0.8% to 0.9% (median 0.8%), down from 0.9% to 1.0% (median 0.9%).
• Fiscal 2019 is revised to 0.8% to 1.1% (median 0.9%), down sharply from 1.3 to 1.5% (median 1.4%).
• Fiscal 2020 is revised to 1.2% to 1.4% (median 1.4%) down from 1.4% to 1.6% (median 1.5%).

The downside revision in fiscal 2019 core CPI is rather steep.

Also from Japan, trade deficit narrowed to JPY -0.18T in December versus expectation of -0.49T. All industry activity index dropped -0.3% mom in November versus expectation of -0.4% mom.

NZD jumps on solid CPI, bets on RBNZ cut recede

New Zealand Dollar is lifted notable today but better than expected consumer inflation data. CPI rose 0.1% qoq in Q4 versus expectation of 0.0% qoq. On annual basis, CPI was unchanged at 1.9% yoy, above expectation of 1.8% yoy. The data eased worries that inflation outlook is worsening and chance for a rate cut by RBNZ is reduced. Majority of economists are still expecting the next move to be a hike. But for now, there is no time frame for that move yet.

Meanwhile, the outlook is still clouded by fading momentum in the economy, as show in recent forward-looking indicators. There is question on whether domestic inflation could sustain. And should data ahead disappoint, there bets on rate cut will re-emerge.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2883; (P) 1.2929; (R1) 1.3004; More....

GBP/USD's rebound from 1.2391 resumes today by taking out 1.3001 and reaches as high as 1.3042 so far. Intraday bias is back on the upside for 1.3174 resistance, which is close to 38.2% retracement of 1.4376 to 1.2391 at 1.3149. We'd expect strong resistance from there to limit upside, at least on first attempt. On the downside, break of 1.2830 support is needed to be the first sign of near term reversal. Otherwise, outlook will stays cautiously bullish in case of retreat.

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

Entering into US session, Sterling is the second strongest one for today, just next to New Zealand Dollar. Markets are seeing UK cross-party politicians' move to block no-deal Brexit as positive to the Pound. In particular, the campaign is gathering momentum today as key Labour member expressed they're highly likely to join. Meanwhile, Kiwi is the strongest one as stronger than expected CPI lowers chance of a RBNZ rate cut.

On the other hand, Yen and Dollar are weakest for today so far. Risk sentiments turned cautious in Asia on renewed worries over US-China trade talk. But White House economic advisor Larry Kudlow was quick to come out yesterday to emphasize that the high-level meeting later this month between USTR Robert Lighthizer and Chinese Vice Premier Liu He was "very, very important" and "determinative." And, We are moving towards negotiations." Risk sentiments in European session turned positive in Europe and US futures point to rebound.

In Europe, currently:

• FTSE is down -0.22% thanks to rally in Sterling.
• DAX is up slightly by 0.28%.
• CAC is up 0.46%.
• German 10-year yield is up 0.009 at 0.246.

Earlier in Asia:

• Nikkei closed down -0.14%.
• Hong Kong HSI rose 0.01%.
• China Shanghai SSE rose 0.05%.
• Singapore Strait Times dropped -0.68%.
• Japan 10-year JGB yield rose 0.0034 to 0.004, turned positive.

The US 500 stock index found strong support level at the 50-day simple moving average (SMA), creating two consecutive red days, after the aggressive upside rally from the 19-month low of 2,332. The short-term technical indicators support this notion as the RSI is marginally pointing upwards in the positive area, while the MACD lies above trigger and zero lines.

A fresh wave of advances may stall initially near the latest highs of 2,675 before increasing chances for a jump towards the 61.8% Fibonacci retracement level of the downleg from 2,940 to 2,332 around 2,708. A significant leg above this region would switch the neutral outlook to a more bullish one, sending the index until the 200-day SMA currently at 2,743.

On the downside, support to further bearish actions may come around the 50-day SMA of 2,612 and then towards the 38.2% Fibonacci mark of 2,565. Even steeper bearish extensions may encounter support around 2,522, taken from the inside swing peak of December 28.

Overall, US 500 index is in progress of a bullish correction and this action would be confirmed in case of a daily close above 61.8% Fibonacci mark.

Conflicting reports over the status of trade talks between the United States and China has contributed to the market gloom with equities across the globe under pressure today.

Investor sentiment was initially punctured by a report from the Financial Times stating that the Trump administration had cancelled trade talks with Chinese officials. Although White House economic advisor Larry Kudlow denied these rumours, this did little to dispel nerves and confusion among market players. With renewed uncertainty over US-China trade talks adding to the horrible cocktail of geopolitical risks sapping risk appetite, this could be a rough and rocky trading week for equities across the globe.

Asian markets ended on a muted note amid the trade confusion while European stocks are trading lower thanks to global growth fears and Brexit uncertainty. With the unfavourable market conditions forcing investors to avoid riskier assets, Wall Street is seen opening on a cautious note this afternoon.

Dollar wobbles near 3-week high

One would have expected the Dollar to sprint higher amid the market caution and general gloom.

But the Greenback’s subdued price action in recent days suggests that the currency is clearly struggling to benefit from safe-haven flows. A logical explanation behind the shaky movement in the Dollar Index could be based around speculation over the Fed taking a pause on rate hikes this year. With the economic calendar for the United States void of Tier 1 economic reports today, the Dollar is likely to influenced by technicals. An intraday breakdown below 96.20 is seen opening a path back towards 96.00 and 95.75. Alternatively, a solid daily close above 96.50 invites further upside towards 96.80.

Sterling jumps on easing ‘no deal’ Brexit fears

Sterling bulls were instilled with a renewed sense of confidence today with the GBPUSD breaking above 1.30 as fears over a ‘no deal’ Brexit continued to ease.
Growing speculation over the government extending article 50 to avoid a nightmare no-deal outcome is likely to continue supporting Sterling in the near term. However, the Pound’s medium- to longer-term outlook remains shrouded by Brexit’s endless uncertainty. Sterling volatility and sensitivity to Brexit headlines are likely to increase ahead of the parliamentary debate on January 29th. One must always expect the unexpected when dealing with Brexit, especially when considering how the outcome of the debate and vote on May’s ‘Plan B’ remains open to question.

Focusing on the technical picture, the GBPUSD turned bullish on the daily charts after prices marched through the psychological 1.3000 level. A solid daily close above this level is seen opening a path higher towards 1.3072.

Commodity spotlight – Oil

WTI Crude edged higher today after slipping towards $52 in the previous session. Although prices seem to be stabilizing, this stability may be short-lived by global growth fears and renewed trade uncertainty. For bears to jump back into the game, WTI Crude needs to secure a daily close below $52. Alternatively, if prices end up pushing above $54.35, the next key point of interest will be found at $55.

The pair eases on Wednesday after two-day advance faced strong headwinds from pivotal Fibo barrier at 1.3365 (38.2% of 1.3664/1.3179 descend) reinforced by falling 20 SMA (currently at 1.3375). Recovery leg from 1.3179 (9 Jan low) maintains momentum but overbought conditions suggest that bulls are looking for consolidation before fresh attempts higher. Rising daily cloud supports the action, with cloud top (currently at 1.3317 and reinforced by north-turning 10SMA at 1.3281) expected to ideally contain consolidation. Canada retail sales are in focus today with negative forecasts (Nov retail sales -0.6% f/c vs 0.3% prev / Nov core -0.4% vs 0.0% prev) warning of loonie's fresh weakness. Thursday's US senate vote over funding the government to end three-week shutdown, could boost the greenback on positive outcome. Sustained break above 1.3365 Fibo barrier and 20SMA is needed for bullish signal for extension of recovery leg towards 1.3402 (30SMA) and 1.3422 (Fibo 50% of 1.3664/1.3179). On the other side, bearish signal could be expected on break and close below 10SMA that would open way for further retracement of 1.3179/1.3358 recovery leg.

Res: 1.3365; 1.3375; 1.3402; 1.3422
Sup: 1.3312; 1.3281; 1.3231; 1.3206