Sample Category Title

Pivot (invalidation): 1280.25

Our preference Long positions above 1280.25 with targets at 1286.50 & 1290.00 in extension.

Alternative scenario Below 1280.25 look for further downside with 1276.50 & 1274.00 as targets.

Comment The RSI advocates for further upside.

• Rates: Core bonds eyeing global risk sentiment
  Global core bonds gained ground yesterday as ongoing growth concerns and fading positivism about US-Sino trade talks put a halt to the risk rally of late. With today’s eco calendar uninspiring, investors will start eyeing tomorrow’s ECB meeting and EMU PMI’s. We expect a neutral opening for both UST’s and German Bunds with a cautious tendency downwards.
• Currencies: EUR/USD stabilizes, USD/JPY rebound on soft BOJ inflation outlook
  A risk-off sentiment left EUR/USD trading in a limbo yesterday. Today, the eco calendar is thin. Risk sentiment in Asia is not too bad. EUR/USD shows tentative signs of bottoming. USD/JPY rebounds as the BOJ softens its inflation outlook. Sterling profits as markets see a rising chance of a Brexit delay

The Sunrise Headlines

• Risk off held sway over equities yesterday. US stock indices coloured red and had Nasdaq underperforming (-1.9%). Sentiment during Asian trading hours is fragile as most markets are trading in negative territory
• The Bank of Japan held as expected rates steady at -0.1% and its 10-yr yield target at about 0%. Forward guidance for policy rates was unchanged. 2019 inflation forecasts, however, were slashed from 1.4% to 0.9%. JPY slipped.
• The UK Labour party is likely to support the Cooper-proposal that aims to extend the Brexit deadline until the end of the year if May fails to strike a deal. The proposal is also already backed by several Tory rebels.
• Chinese finance ministry officials said they will “appropriately” step up fiscal spending this year to support the economy, which grew at the slowest pace since 1990, data showed on Monday. The government is also considering to reduce social security fees to alleviate small companies.
• US Senate Majority Leader McConnell is preparing for a vote on Thursday, both on a proposal by Trump and by Dem’s. While unlikely to pass, it could set the stage for necessary negotiations to end the US government shutdown
• White House advisor Larry Kudlow denied rumours that the US cancelled trade talks due to a lack of progress. He added the meeting with China’s VP Liu He, scheduled for next week, will be extremely important and “determinative”.
• Today’s economic calendar is little inspiring. We will be watching the Richmond Fed Man. Index and Q4 earnings in the US, EC consumer confidence in the euro zone and CBI data for the UK. Germany taps the bond market

Currencies: EUR/USD Stabilizes, USD/JPY Rebound On Soft BOJ Inflation Outlook

EUR/USD stabilizes. USD/JPY rebounds after BOJ

EUR/USD touched a minor correction low yesterday. European equities traded with a negative bias. ZEW German investor confidence (current situation) declined more than expected, but a bottoming in the expectations component provided a glimmer of hope. US yields also declined substantially, preventing a real USD rally. Later in US dealings, US equities also suffered substantial losses on rumours that US-Sino trade talks didn’t go that easy. The rumours were later denied by Larry Kudlow. EUR/USD closed a risk-off session little changed at 1.1360 (from 1.1365). USD/JPY finished at 109.37 (from 109.67).
Asian equities show modest losses this morning, but remains limited given yesterday’s US sell-off. Markets apparently are drawing some comfort from the prospect of a stimulating policy from the Chinese government/PBOC. The BOJ left its policy unchanged, as expected, but cut its inflation forecast. USD/JPY rebounded to the 109.80 area. EUR/USD is holding a very narrow range near 1.1365.

Today’s eco calendar is again thin in the US and in EMU. Risk sentiment will again be the main driver for global trading. The political developments with respect to the US government shutdown and headlines on the fate of the China-US trade talks might affect global sentiment. The corporate earnings season is in full swing as well. US yields show tentative sings of bottoming after yesterday’s decline and US equity futures show modest gains. This might be a positive environment for USD/JPY especially as the BOJ cut its inflation outlook. The drivers for EUR/USD trading are less straight-foreward. EUR/USD settled again in the established 1.12/1.15 range after an upside test was rejected. We turned neutral on EUR/USD, looking forward to this week’s EMU sentiment indicators and the ECB policy meeting. Last week, the dollar outperformed, but we look out whether the EUR/USD decline might slow as technical support is lining up from 1.1309 to 1.1270 area.

Sterling resumed its rebound of late, mainly driven by markets seeing a growing chance that Brexit will be delayed. It looks that at least a part of the Labour Party might consider to support this scenario. Sterling was additionally supported by solid UK labour market data. Today, the CBI order data will be published, but the focus remains on Brexit. A delay won’t solve the Brexit chaos, but a least for now it supports a sterling constructive momentum. 0.8665 is next intermediate support.

EUR/USD holding tight range north of the 1.1309 support area

XAUUSD (1283.81): Gold prices tested the 1280 handle which looks to act as support. As long as this support holds, gold could extend the gains back to the 1290.77 level which marked the downside breakout from the triangle pattern. This could potentially result with the 1280 support being tested once again. A break down below 1280 would test the 1250 support that is pending retest. If the support holds, gold prices could maintain the sideways range as it did over the past few weeks.

AUDUSD (0.7137): The Australian dollar continues to post a modest decline to the downside although the pace of declines is not constant. Due to the failure to break out above 0.7191 resistance, the AUDUSD should push lower targeting 0.7022 where support is most likely to happen. In the event that price action posts a reversal, we expect the resistance level to hold the gains in the near term.

EURUSD (1.1365): The EURUSD currency pair was seen extending declines earlier on Tuesday with the intraday lows reversing just a few pips off the 1.1334 level of support. In the near term, we expect this support to be tested a bit more firmly, but the bias remains to the upside for the moment. With the ECB meeting due tomorrow, the common currency is expected to trade flat in the near term. The upside could be capped near the highs of 1.1397.

The UK's labor market data showed that average earnings index rose 3.4% for the three months ending November. The unemployment rate fell to 4.0% amid forecasts of an unchanged print at 4.1%. The employment level rose 141,000 to a record high of 32.54 million in the three months ending December.

The GBP posted gains on the day, following the strong employment figures.

Existing home sales report, released by the National Association of Realtors showed a sharper than expected decline. Existing home sales fell 6.4% on an annual basis in December 2018. The decrease was more substantial than forecast and follows November's revised figures of a 2.1% increase.

Compare to the same period from the previous year, existing home sales are down 10.3%.

Canada's factory sales decreased by 1.4% in November compared to the month before. This was bigger than the forecasts of a 1.0% decline. However, on a year over year basis, factory sales were up 2.7%.

The markets look a busy Asian session. The of Japan held its monetary policy meeting earlier today. No changes occurred to the interest rates as they currently stand at -0.10%. The BoJ governor, Kuroda will be holding a press conference shortly.

The Bank of Japan lowered its inflation forecasts at today's meeting as it noted that it expects the core consumer prices to rise to 0.9% in the year ending March 2020.

The European session is quiet with not much going on.

Data from Canada will see the release of the monthly retail sales report. Next is the housing price index data from the U.S. which should show a 0.2% increase. This marks a slower pace of expansion in home prices compared to a 0.3% increase previously.

The Eurozone's consumer confidence report is due later in the evening. The report should show that consumer confidence remained flat at -6, unchanged from the previous period.

Daily Pivots: (S1) 140.93; (P) 141.41; (R1) 142.20; More...

GBP/JPY's breach of 142.22 suggests resumption of rebound from 131.51. Intraday bias is back on the upside for 143.93 resistance first. Break will pave the way to 149.48 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.

AUDUSD started the week on the downside but the 20-day moving average (MA) seems to be keeping the pair under control as the price looks to be reversing higher today after failing to cross below the line yesterday. In the short-term, expectations are for a sideways move as long as the MACD fluctuates around its red signal line and the RSI flirts with its 50 neutral mark.

An extension higher could lead the price up to 0.7210 which is the 50% Fibonacci level of the negative wave from 0.7672 to 0.6746. Breaking that obstacle and surpassing the previous peak of 0.7234, could open the way towards the 200-day MA currently at 0.73 and the 61.8% Fibonacci of 0.7320. Yet, a stronger rally above the 0.7392 top is needed to continue the uptrend started on October 26.

Moving south and below the 20-day MA, the 38.2% Fibonacci of 0.7100 could provide immediate support as it did back in September. Under that level, a stronger barrier is expected to come around 0.7050 where the bears found a floor during October, while significant losses below the 23.6% Fibonacci of 0.6965 would reactivate the nine-month old downleg off 0.8135.

Turning to the medium-term picture, AUDUSD maintains a neutral outlook in the three-month timeframe. Should the 50-day MA remain flat, consolidation may stay in place for longer.

The euro currency is once again trading around the technically important 1.1360 level against the US dollar, after a brief dip towards the 1.1335 support level. The ATR indicator on the four-hour time frame has plummeted to historically low levels, as the EURUSD pairs trading range narrows ahead of Thursday’s ECB meeting. The ATR indicator is a key measure of volatility and is typically calculated over a 14 day period.

The EURUSD pair remains bearish while trading below the 1.1410 level, key technical support is now found at the 1.1335 and 1.1300 levels.

If the EURUSD pair moves above the 1.1360 level, buyers may test towards the 1.1380 and 1.1410 resistance levels.

Daily Pivots: (S1) 123.94; (P) 124.33; (R1) 124.64; More....

EUR/JPY is staying in consolidation below 125.09 and intraday bias remains neutral first. On the upside, break of 125.09 resistance will extend the rebound from 118.62 to 55 day EMA (now at 126.51) 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.