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The British pound has recovered early week losses against the US dollar after UK lawmakers proposed a bill to stop a no-deal Brexit. The GBPUSD pair is probing towards the pivotal 1.2890 level, ahead of the release of important jobs data from the UK economy this morning. Bearish MACD divergence is being created on the four-hour time frame, as price is currently trending higher while the MACD histogram remains neutral.

The GBPUSD pair is intraday bullish while trading above the 1.2890 level, key technical resistance is found at the 1.2930 and 1.3000 levels.

If the GBPUSD pair trades below the 1.2890 level, key support is found at the 1.2810 and 1.2778 levels.

Cryptocurrencies started the year in a bullish manner as investors expected a revival in the industry. The rally led to the price of Bitcoin reaching a high of $4200. However, the upward momentum didn’t last and the price has declined recently. It is now trading at $3,500. Its volatility has also eased.

There are a number of reasons why the price has declined. First, there have been no major news to provide support to the industry. In the past, positive news from influential people led the price to rise sharply. Second, there have been increased concerns about regulations and the impact they might have on the industry. A number of countries have announced that they will initiate stricter regulations. Finally, the sentiment of the industry has been weak, especially after the sharp decline experienced in 2018. As such, most people who invested in the currencies in the previous rallies have tried to avoid them.

The BTC/USD pair is slightly above the 3500 level. In the past few days, the price has remained along these levels, which is a sign of consolidation in the industry. It is also a sign that a breakout in price could happen any time. If it does, the price will likely continue to drop and test the important support level of 3000.

The sterling was little changed after Theresa May outlined her plan B for Brexit. In her speech to parliament, the prime minister said that she was ruling out the probability of postponing the March deadline and having another referendum. Instead, her statement tried to target some members of the labor party by talking about work protections and other social issues. It is unclear whether her plan B will find acceptance in parliament. In a statement, EU’s chief negotiator rebuffed May’s plan to renegotiate the backstop issue. Today, investors will receive the employment numbers from the UK. Investors expect the economy to have added 88K jobs in November. They also expect wages to have grown by an annualized rate of 3.3%.

The euro declined in overnight trading as investors’ concerns grew over European growth. Recent data has continued to confirm that the EU economy is weakening. Today, investors will receive survey data from Germany. The data is expected to show that the ZEW economic sentiment for Germany in January weakened to minus 18.4. For the EU, the ZEW sentiment is expected to have improved slightly to minus 20.1. This data comes two days before the ECB is scheduled to make its first interest rates decision for the year.

Traders will also focus on data from Canada and United States. In Canada, Statistics Canada is expected to release the manufacturing and wholesale sales for November. The wholesale sales are expected to have grown by 0.1%, which will be lower than October’s growth of 1.0%. The manufacturing sales on the other hand are expected to have declined by minus 0.9%. In the United States, the existing home sales for December are expected to have reached 5.25 million.

EUR/USD

The EUR/USD pair declined in overnight trading to a low of 1.1360. On the hourly chart, this was close to the 38.2% Fibonacci Retracement level. It is also below the 21-day and 42-day EMAs while the RSI remains slightly above the oversold level. There is a likelihood that the pair will continue to move lower to test the 1.1300 level, which is slightly above the 23.6% Fibonacci level.

GBP/USD

The GBP/USD pair was little moved after Theresa May’s speech. The pair is now trading along the 1.2880 level, which is closer to the short and medium-term EMAs on the four-hour chart. The RSI remains between the overbought and oversold levels while the Average True Range Indicator has continued to decline. The pair could continue moving lower to test last week’s low of 1.2670.

USD/CHF

The USD/CHF pair continued the upward trend started on Monday last week when the pair hit the 0.9715 level. Since then, the pair has gained almost 3%. Today, it reached a high of 0.9995, which is a few points below the parity level. The pair’s RSI is above the overbought level while the momentum indicator has eased a bit. There is a possibility that the pair will find some resistance near the parity level although the upward momentum could continue.

• Rates: More sentiment-driven trading on the cards
  Risk sentiment soured somewhat overnight as US President Trump intensifies pressure on China to reach a trade deal. Core bonds find a bid. Today’s trading will likely remain sentiment-driven in absence of eco data/events. Thursday’s PMI’s and ECB meetings are this week’s focus.
• Currencies: EUR/USD struggles to prevent further losses
  EUR/USD remained slightly in the defensive yesterday as the IMF downgraded the EMU growth forecasts. The cautious risk sentiment this morning is apparently more negative for the euro than the dollar. EUR/USD is drifting back lower in the 1.13 big figure. Sterling traders continue to assess the likelihood of a Brexit delay, incl. the chances of a new Brexit referendum

The Sunrise Headlines

• US equity markets were closed yesterday in remembrance of Martin Luther King. Asian equities opened with losses this morning, with Chinese indices underperforming. Fading optimism on US-Sino talks is at play.
• US President Trump urged China to stop “playing around” and do a “real trade deal”, as he pointed out China’s weak economy, while China’s President Xi warned top leaders for “sharp and serious dangers of a slackness in spirit.”
• UK PM May isn’t ruling out a delay for Brexit while she repeated that a no-deal scenario is still possible. Opposition Leader Corbyn proposed a series of votes in Parliament, one of which opens the door for a new national referendum.
• The EU is stepping up its efforts to avoid chaos in financial markets if the no-deal Brexit scenario occurs. It announced measures will be taken on the bloc’s level, but reminded national members to take responsibility as well.
• The South Korean economy grew by 1% Q/Q in Q4 2018, beating 0.6% consensus. Growth was mainly driven by a boost in government spending. Exports declined by 2.2% Q/Q, highlighting risks for the open economy.
• Dutch Finance Minister Wopke Hoekstra criticized the agreement between Italy and the European Commission over Italy’s budget proposal. The Dutchman said the EU missed an opportunity and doubts that the numbers add up.
• Today’s economic calendar contains US existing homes sales, UK labour market data and German ZEW investor sentiment. The World Economic Forum in Davos kicks off. Spain launches a new 10yr syndicated benchmark

Currencies: EUR/USD Struggles To Prevent Further Losses

EUR/USD struggles to prevent further losses

USD trading was mostly technical in nature yesterday and developed in thin conditions as US markets were closed. IMF substantially reducing the 2019 economic forecast on Europe didn’t help the euro. The dollar again received wider interest rate support compared to a few weeks ago. For now, this results in a EUR/USD sell-on-upticks pattern. EUR/USD closed little changed at 1.1370. USD/JPY closed a dull session at 109.67.

This morning, Asian equities are ceding ground. Yesterday’s IMF global growth downgrade reinforced uncertainty after recent mediocre China data. President Trump’s most recent tweets on the China-US trade talks also look less positive than was the case recently. The yuan weakens as USD/CNY returns north of 6.80. USD/JPY (109.45 area) is drifting south. EUR/USD still struggles not to fall below the 1.1350 area. The eco calendar is moderately interesting today with the German ZEW sentiment and US existing home sales. We look for signs of stabilization in German investor sentiment. Even so, question is whether it will be enough to improve fortunes for the single currency. (Equity) markets will also keep a close eye on the earnings season and on corporate guidance. Of late, the impact of global risk sentiment on the dollar wasn’t always that straightforward. The jury is still out, but at this stage we have the impression that the euro is again slightly more vulnerable in case of a risk-off sentiment. EUR/USD settled again in the established 1.12/1.15 range after an upside test was rejected. This week, 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 initially remained in the defensive yesterday, extending Friday’s correction. However, the UK currency reversed earlier losses even as UK PM May didn’t offer a clear way out of the Brexit impasse in her address before parliament. The likelihood of a Brexit delay remains a mildly sterling supportive. Today, the UK labour data will be published. Wage data might have some intraday impact on the UK currency. If markets sees a rising chance of the UK Labour Party supporting a second referendum, it might be a ST sterling supportive. Last week’s 0.8763/66 correction area is a first intermediate support for EUR/GBP. We remain cautious on sterling longer term

EUR/USD: first intermediate support at 1.1309 again on the radar

After a positive start to the week, Asian equities fell today amid rising concerns over the global economic outlook. The market is currently being driven by the daily news feed.An example of this, is the caution observedover the latest revised growth estimates from the IMF. The fund lowered its growth expectation for the global economy by 0.2% for 2019 and 0.1% for 2020 to 3.5% and 3.6% respectively. Thiswas the second downturn revision in three months, and we canstill see further downgrades in near future if trade tensions escalate, the UK exits with a no-deal from the EU, or China’s economic growth drops more sharply.

Updates received from U.S.–China trade talks were not encouraging either. According to a Bloomberg report,the negotiations over intellectual property theft havegone nowhere. With only eight days left before China’s Vice Premier Liu He visits Washington to resume trade negotiations, any headlines related to trade talks will be market-moving.

Overall, we think the relief rally in global equity markets will be tested this week especially with earnings season kicking into higher gear with companies like Johnson& Johnson, IBM, United Technologies, and several airlines scheduled to post their Q4 results.

In currency markets,the Australian and New Zealand Dollars are feeling most of the pressure as concerns over the global economy and China’s economic outlook grows. However, it remains to be seen what new measures China will take in order to boost sentiment.

British Prime Minister Theresa May unveiled her Brexit Plan B yesterday, and as expected it looked a lot like Plan A. The fate of her alternative plan seems similar to the previous one and will not likely pass through the parliament. EU leaders also did not show a willingness to negotiate for a new deal. Despite these facts, Sterling held steady against the Dollar. Investors seem like they are still ruling out the possibility of a hard Brexit and believe the current dysfunction in UK politics will lead to at least an extension of Article 50, and possibly a new referendum.

General Trend:

• Markets little changed to slightly weaker in the session, with US markets closed for holiday and no major catalysts in the region.
• Chinese equities decline after gains on Monday’s session
• Shares of Jiayuan International remain volatile, weigh on overall Hang Seng Property Index
• Hang Seng health care index declines amid concerns in China regarding gene-editing
• PetroChina declines after FY guidance
• BHP declines after quarterly production update, weighs on overall ASX 200 index
• Nikkei reverses opening gain, Electric Appliance firms and large banks are among the decliners
• Tokyo Steel rises ahead of earnings report (expected after market close)
• China plays down concerns about job losses in tech sector
• South Korea prelim Q4 GDP comes in stronger than expected but 2018 GDP of 2.7% is a 6-yr low
• UK PM May presented “Plan B’ for Brexit, which did not outwardly appear much different or said to have impressed ministers, later in the day Labour leader Corbyn endorsed plans for a second Brexit referendum, and wants the govt to provide MPs the final approval next week on a second vote. Also saw a separate report that “dozens” of ministers were ready to resign on Brexit
• US think tank releases paper identifying undeclared nuclear missile site in North Korea with a possible 19 others
• Bank of Japan is holding its 2-day policy meeting from Jan 22-23rd
• New Zealand Q4 CPI due for release on Wednesday
• Davos World Economic Forum meeting is being held Jan 22-25th
• US companies expected to report earnings on Tuesday include Fifth Third, Halliburton, IBM, Johnson & Johnson, Travelers (includes after hours)
• Looking ahead: In tomorrow’s session we will see results of BoJ meeting, as well as the quarterly outlook report from Japan

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.2%
• 6752.JP Said to be supplier of batteries for Tesla's made in China - Japan press
• (JP) Japan Fin Min Aso: Important that exchange rates are stable in Golden week holiday, do not expect any crisis situation

Korea

• Kospi opened +0.2%
• (KR) South Korea Dec PPI M/M: -0.5% v -0.7% prior (3rd consecutive decline); Y/Y: 1.0% v 1.5% prior
• (KR) SOUTH KOREA Q4 PRELIM GDP Q/Q: 1.0% V 0.6%E; Y/Y: 3.1% V 2.7%E; 2018 2.7% (slowest growth in 6-yrs)

China/Hong Kong

• Hang Seng opened flat, Shanghai Composite flat
• 2269.HK CEO: In talks with three separate vaccine developers to manufacture their products in China - SCMP
• (CN) China Securities Regulatory Commission (CSRC) asked banks to to extend agreements on loans in which shares have been pledged up as collateral in order to stabilize the market; as of Jan 21 CNY4.4T worth of shares were on the line (9.75% of total market cap) - FT
• (CN) China military has significantly boosted its navy, air force and new strategic units; downsized land based army as part of a strategic shift designed to transform the People’s Liberation Army into a comprehensive modern force – Xinhua
• (CN) China PBoC Open Market Operation (OMO): Skips reverse repo operations for the 2nd consecutive session; Net: CNY80B drain v CNY80B drained prior
• (CN) China PBoC sets Yuan Reference Rate: 6.7854 v 6.7774 prior
• (CN) China National Development and Reform Commission (NDRC): China has the ability to keep economy growing within a reasonable range
• (CN) China President Xi: Current economic situation is good but faces deep and complicated changes; Must be on guard against 'black swan' risks while fending off 'gray rhino' events (overnight)
• (CN) China regulators approve 93 video game titles Jan 7th v 80 reported on Dec 30th
• HUAWEI.CN US to seek extradition of CFO Meng - Canada press
• (CN) China National Bureau of Statistics (NBS) reports 2018 births at 15.23M, lowest rate since 1961 (the last year of China's great famine), also lowest since easing one child policy in 2014

Australia/New Zealand

• ASX 200 opened -0.1%
• BHP.AU Reports Q2 iron ore production: 66 MT v 72MT y/y, attributable iron ore production 57.8M tons v 59.0Mte; Affirms FY19 Iron ore production, raises copper guidance
• OSH.AU Reports Q4 (A$) Rev 503.1M v 475M q/q; production 7.4 MMBOE v 7.5 q/q

North America

• IMF updates its World economic Outlook (WEO): Cuts Global GDP growth forecast from 3.7% to 3.5% citing no-deal Brexit and trade concerns (three-year low)
• (US) US President Trump: China's latest economic numbers show need for trade
• LOGI Reports Q3 $0.79 v $0.67e, Rev $864.4M v $863Me; Raises FY19 op income $340-345M (prior op income $325-335M); Affirms Rev 9-11% y/y

Europe

• (UK) Prime Minister May: Presents ‘plan B’ on Brexit with a “new” approach, Ireland backstop remains sticking point, Parliament remains underwhelmed
• (UK) Labour leader Corbyn endorsed plans for a second Brexit referendum, and wants the govt to provide MPs the final approval next week on a second vote - Telegraph
• (UK) Labour Party appears to be supporting the Cooper amendment – tweet
• (UK) "Dozens" of UK ministers said to be close to resigning over Brexit - Times

Levels as of 12:50ET

• Hang Seng -1.2%; Shanghai Composite -1.2%; Kospi -0.4%; Nikkei225 -0.6%; ASX 200 -0.5%
• Equity Futures: S&P500 -0.7%; Nasdaq100 -1.0%, Dax -0.5%; FTSE100 -0.4%
• EUR 1.1355-1.1386; JPY 109.39-109.69; AUD 0.7134-0.7161;NZD 0.6721-0.6735
• Feb Gold -0.3% at $1,278/oz; Mar Crude Oil -1.1% at $53.22/brl; Mar Copper -0.3% at $2.66/lb

Short term Elliott Wave outlook in Oil (CL_F) is calling for the move lower to $50.38 as ending wave ((X)). Internal of wave ((X)) unfolded as an Expanded Flat Elliott Wave structure. Wave (A) ended at $51.37, wave (B) ended at $53.31, and wave (C) of ((X)) ended at $50.38. Oil has since extended higher above $53.31, suggesting the next leg higher wave ((Y)) has started.

Rally from $50.38 low unfolded as a zigzag Elliott Wave structure where wave (A) ended at $54.24 and wave (B) is in progress. A zigzag is a 5-3-5 structure. We can see the internal of wave (A) unfolded as a 5 waves Impulse. Up from $50.38 low, wave 1 ended at $52.52, and pullback to $50.98 ended wave 2. Rally to $54.17 ended wave 3, wave 4 pullback ended at $53.51 and wave 5 of (A) ended at $54.24.

Expect a pullback in wave (B) to correct cycle from 1/15/2019 low ($50.38) in 3, 7, 11 swing before the rally resumes. As far as pivot at $50.38 low stays intact, favor more upside. If pivot at $50.38 gives up, then Oil is likely correcting larger degree cycle from 12/24/2018 low ($42.36) before the rally resumes.

Oil (CL_F) 1 Hour Elliott Wave Chart

Market movers today

US markets are open again today after being closed yesterday due to Martin Luther King Jr. Day.

In the UK, focus is on the amendments to Theresa May's Brexit Plan B and whether the members of parliament can get behind one or more of them. So far, the problem has been that there is no majority for anything in the House of Commons. The UK jobs report for November is also due, where we estimate both the unemployment rate (three-month average) and the annual growth rate in average weekly earnings (three-month average) were unchanged at 4.1% and 3.3% y/y, respectively.

In Germany, focus is on the ZEW survey data for January. The current situation index has been falling over the past three months, which was likely also the case in January.

Selected market news

Yesterday, US President Trump urged China to make a trade deal in order to support the Chinese economy on the back of the weaker Chinese economic data. On top of the comments from Trump, Chinese President Xi Jinping came with an unusual warning to the Chinese leaders about 'sharp and serious dangers of a slackness in spirit'.

Hence, there is little doubt about the seriousness of the slowdown in the Chinese economy. The IMF cut its global economy forecast for 2019 on expectations of the lowest growth in three years, warning about the threat to the global economy from the trade tensions as well as weak demand in the eurozone economy. Hence, growth was revised down from 3.7% to 3.5%.

The Asian equity market has reacted negatively to comments from Trump and Xi Jinping as well the softer growth outlook from IMF this morning. 10Y JGBs are trading at a yield below 0%. Hence, we expect a negative opening in the European equity markets as well as a positive opening in the bond market with lower yields this morning.

As expected, PM Theresa May's Brexit plan B did not really give us any new information or clarification. It seems like May's strategy is to find out how to get her supporting party, Ulster's DUP, on board, as it would mean bigger support also within her own party. Now, focus is on the amendments, where our focus is on these four topics: (1) a customs union or not, (2) a possible extension of Article 50, (3) preparation of a new EU referendum and (4) new deadlines for Theresa May. The main problem with Brexit is that there is no majority for anything, so it is not a given that any of the amendments will get support from the majority of the MPs. Focus is also on the EU, where we no can no longer rule out a long extension of Article 50, giving time to negotiate the future permanent relationship, which would be the best way to avoid ever having to activate the much-hated Irish border backstop.

UK Brexit Minister Stephen Barclay told BBC today that the government is working on what to ask from the EU to get the deal approved in the parliament. He noted that "the EU don't want to be in a situation of having no deal - that would have a big impact not just on the Irish economy but other economies, the Dutch economy - so it's in both sides' interest to have a deal."

Separately, German Minister for European Affairs Michael Roth expressed disappointment on UK Prime Minister Theresa May's statement yesterday. He tweeted "Where is the plan B? Just asking for a friend..." German Justice Minister Katarina Barley also said she was "disappointed" and "that's not the way forward".

Daily Pivots: (S1) 1.1352; (P) 1.1371; (R1) 1.1386; More.....

EUR/USD's fall resumed after brief consolidations. Intraday bias is back on the downside for 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 turn intraday bias neutral again.

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.