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The GBP/USD is building a bullish channel and an immediate break above 1.30 could indicate that a bearish correction is not likely to take place. A bullish break could see price move up to 1.3250. But for the moment though a bullish bounce could take place at the 23.6% Fib for a short rally and then a wave down.

The GBP/USD could struggle to break above the Fibonacci retracement levels of wave B vs A (orange). A bearish bounce at the 61.8% Fib level seems the most likely at the moment and could fall down to the 50% Fib of wave B vs A, which could be a bullish bouncing spot.

The GBP/JPY has made a retracement to the POC zone but important news is expected today. UK Prime minister Theresa May is to set out her 'Plan B' for Brexit this afternoon.

Because of that, traders need to pay attention to price action and react quickly. The POC zone is 141.00-141.15. A close above 141.15 should make the price bounce towards 141.60, 141,89 and eventually 142.40.

However a close below 140.60 will pave a way to a deeper retracement towards 140.10-139.95 zone. Watch for any news as the headline risk is big. If you trade the GBP pairs do it with ½ of your normal risk.

WTI oil consolidates under new 2019 high at $54.38, posted earlier today, as bulls face strong headwinds from the base of thick falling daily cloud ($54.19) which was cracked today but so far without clear break.

Friday’s long bullish daily candle, left after nearly 3% daily rally, underpins the action, but the price may hold in extended consolidation under daily cloud as overbought slow stochastic and bearish divergence on 14-d momentum warns.

Converged 10/55SMA’s ($52.14) are attempting to form bulls cross and mark solid support which is expected to contain extended dips and keep bulls in play.

Eventual close within daily cloud would open pivot at $55.55 (Fibo 38.2% of $76.88/$42.36), break of which would generate bullish signal for extension of recovery from $42.36 low (24 Dec).

Chinese data released today showed economic slowdown in line with expectations, having minor impact on oil price for now, as bullish sentiment remains boosted on OPEC output cut and hopes of solution for US-China trade dispute.

Dip-buying remains favored above 10/55SMA’s and only sustained break here would signal recovery stall at daily cloud base and deeper pullback.

Res: 54.19, 54.38, 54.54, 55.55
Sup: 53.54, 52.96, 52.14, 50.97

The Australian Dollar is trading in a narrow ascending channel pattern against the Japanese Yen.

Currently, the currency pair is stranded between SMAs. The 200-hour simple moving average is providing resistance for the rate at 79.25, while the 50– and 100-hour SMAs are providing support at 77.57.

Technical indicators suggest that the currency exchange rate could continue its movement in the narrow ascending channel within this session.

Although, the AUD/JPY exchange rate could reverse from the current price level and aim for the weekly S3 at 76.23.

The British Pound has continued to appreciate in a narrow ascending channel against the Japanese Yen. The currency pair broke out through the upper boundary of a medium-term descending channel during last week's trading session.

The 200-hour simple moving average was providing support for the exchange rate at 140.79 during the morning hours of Monday's trading session.

If support level holds, the currency exchange trade will target a resistance cluster formed by the combination of the weekly and the monthly PPs at 143.29.

However, of the GBP/JPY pair passes the 200-hours SMA, bearish traders could push the price towards the 137.79 mark during the following trading sessions.

Notes/Observations

• Awaiting PM May’s plan B for Brexit; abandoned cross-party talks to fix Brexit
• China 2018 GDP hits a 28-year low; data fuels stimulus hopes

Asia:

• China Q4 GDP data in-line with consensus; Overall 2018 GDP growth of 6.6% being the slowest annual pace since 1990)
• China Dec Industrial Production Y/Y: 5.7% v 5.3%e
• China Dec Retail Sales Y/Y: 8.2% v 8.1%e; 2018 Y/Y: 9.0% v 9.0%e
• China Stats Bureau (NBS) noted that the Govt would cut more taxes and fees, increase social bond quotas. Reiterated that China had ample room for macro policy adjustments. Services sector was still operating at high levels despite Dec PMI slowdown. China-US trade war had affected domestic economy, but the impact was manageable
• China PBoC Gov Yi Gang: top growth risks were Fed policy and the Brexit

Europe:

• UK PM May said to consider amending Good Friday Agreement to get her Brexit deal past MPs. PM said to have abandoned attempts to negotiate a cross-party deal to solve Brexit deadlock. PM would update Parliament on Monday, Jan 21st on her attempts to draw up a so-called "plan B" for Brexit following cross-party talks in Westminster and discussions with other EU leaders
• Ireland said to reject the idea of negotiating a bilateral agreement with the UK as an alternative to the so-called backstop mechanism for avoiding a hard border with Northern Ireland after Brexit. Reports circulated that PM May was planning to seek a bilateral treaty with Irish govt as a way to remove the backstop arrangement from the Brexit divorce deal. Aides believed the plan could win support for her Brexit plan from the DUP and pro Brexit MPs

Americas:

• President Trump: there was a false report about lifting China tariffs; trade talks were going well and a trade deal with China "could very well happen"
• President Trump offered 3 year extension of DACA protections in exchange for $5.7B for border wall funding. wanted $5.7B in wall funding in exchange for the BRIDGE Act, which would provide a 3 year extension of protections for Deferred Action for Childhood Arrivals (DACA), and also a 3 year extension of the legal status of Temporary Protected Status (TPS) holders. The $5.7B would pay for a steel barrier covering 230 miles of the border and proposed adding 2,750 more border agents. Sen majority leader McConnell has agreed to hold a vote on this proposal in the Senate. House Speaker Pelosi said the offer is unacceptable and not a good faith effort.
• Fed's Brainard (voter, dove): negative risks to the US economic outlook have grown; political uncertainty could hurt consumers and business confidence

Energy:

• Weekly Baker Hughes US Rig Count: 1,050 v 1,075 w/w (-2.3% w/w)

Macro

• (CN) China: GDP eased to a 6.4% y/y pace in Q4 from 6.5% y/y in Q3. GDP grew 6.6% for the whole of 2018, the slowest rate since in 28 years. The government has already responded by previously announcing a raft of tax cuts for small business over the next three years. The PBoC has also cut the reserve ratio for banks, and has effectively been in easing mode since the middle of last year. Meanwhile negotiations to end the trade stand-off with the U.S. continue. It seems only an agreement with the U.S. would prompt a mark-up in China's growth expectations at this stage.
• (UK) United Kingdom: According to a US financial press report citing four unnamed U.K. diplomats EU-27 governments disagree over giving the UK more time to negotiate and find consensus at home, possible after another referendum. Some are willing to agree an extension of up to a year, while others reportedly want to keep the pressure on London to come to an agreement as soon as possible and accept the deal that is on the table now.
• (UK) United Kingdom: UK Prime Minister May will present Brexit Plan B to the House of Commons today. It seems most likely there will be a Brexit-lite version, and efforts redoubled to persuade Brussels to renegotiate the Irish border backstop. MPs will also today motion legislative amendments aimed at stopping a no-deal Brexit.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.35% at 355.80, FTSE +0.23% at 6,984.75, DAX -0.54% at 11,144.99, CAC-40 -0.25% at 4,863.24, IBEX-35 -0.12% at 9,058.35, FTSE MIB -0.64% at 9,062.35, SMI -0.15% at 9,003.50, S&P 500 Futures -0.50%]

Market Focal Points/Key Themes:

Equities

• European Indices trade mostly lower with the FTSE outperforming on PM May trying to break Brexit deadlock by more EU concessions.
• On the corporate front, shares of Henkel trades sharply lower after announcing FY18 preliminary earnings and giving weaker than expected initial FY19 guidance. On the earnings front Just Eat trades higher on trading update as Revenue comes stronger than guided and CEO stepping down; William Hill trades 4% lower on trading update; Meggitt trades higher on significant contract award.
• Scout24 trades higher in Germany after it rejected potential takeover offer; Alstom trades slightly lower on reports EU official might finally block deal between company and Siemens. Elsewhere Flybe rises 35% in London as Hosking Partners said to explore legal challenge to bid for company.
• Looking ahead notable earners include Johnson & Johnson, Halliburton Co, The Travelers Companies, Steel Dynamics, Prologis, Allegheny Technologies and another banking name Union Bankshares Corp.
• Consumer discretionary: Just Eat [JE.UK] +1.5% (prelim earnings; CEO steps down), William Hill [WMH.UK] -3.5% (trading update), Casino Guichard-Perrachon [CO.FR] +0.5% (disposal), Scout24 [G24.DE] +1% (rejects takeover offer), Flybe [FLYB.UK] +35% (Hosking Partners said to explore legal challenge to bid for company), easyHotel [EZH.UK] -2.5% (trading update), Ryanair [RYA.UK] +3.5% (analyst action), Flughafen Zuerich [FHZN.CH] -1.5% (analyst action)
• Industrials: Henkel [HEN.DE] -5.5% (prelim earnings; FY19 outlook), Meggitt [MGGT.UK] +2.5% (awarded contract), BMW [BMW.DE] -0.5%, Daimler [DAI.DE] -0.5% (said to explore possibility of extensive alliances)
• Technology: Siemens [SIE.DE] +1%, Alstom [ALO.FR] -0.5% (EU antitrust officials reportedly intend to block Siemens-Alstom rail tie-up)

Speakers

• Northern Ireland DUP party official Donaldson (part of May coalition): Need to focus on Brexit solutions; would be good to meet with Ireland PM
• Ireland European Min Mcentee: Would not engage in bilateral talks with UK, DUP; had not changed position on Irish backstop and would not accept time limit on backstop. If UK red-lines shifted then maybe could address concerns
• Germany Dep Foreign Min Roth: Ready for talks on Brexit. Reiterated that UK must give clear signals on Brexit
• Spain Foreign Affairs Min Borrel: EU needed guarantee that PM May had political support; could not negotiate in a blind way
• France Fin Min Le Maire: Domestic growth was solid despite un certainty
• Sweden Central Bank (Riksbank) Jansson (dissenter): Reiterates view that was wrong to raise rate at Dec meeting, CPIF above target largely driven by energy prices
• China President Xi: Current economic situation was good but faced deep and complicated changes. Called for keeping healthy economic development
• China PBoC Dir of Monetary Policy Sun Guofeng: Banks must support real economy to improve supply of credit; PBoC will encourage market-based interest rate reform; changes in forex situation will result in banks facing mid to long-term liquidity constraints
• China PBoC official: To push for rate reform to improve policy transmission. Working to push to merge the benchmark lending rate with the borrowing costs of the 7-day reverse repurchase agreement. Move could guide cheaper funding to the real economy

Currencies/ Fixed Income

• USD was little changed in a quiet session with US markets closed for holiday. Market participants focused on Brexit outcomes as well as US-China trade talks
• GBP/USD continued to move off its recent test of the 1.30 level as high uncertainty was likely to prevail in markets because the current situation regarding the UK's plan to leave the EU did not appear to be any closer to a solution. Pair last at 1.2830 by mid-session.
• EUR/USD was listless at 1.1370 area with markets looking ahead to Thursday’s ECB meeting. The Draghi press conference to be the primary focus given the recent spat of continued weak economic data for the region.
• USD/JPY holding just below the 110 level with recent JPY currency weakness attributed to optimism on the US-China trade front.

Economic Data

• (DE) Germany Dec PPI M/M: -0.3% v -0.1%e; Y/Y: 2.7% v 2.9%e
• (JP) Japan Dec Convenience Store Sales Y/Y: 1.2% v 0.6% prior
• (TW) Taiwan Dec Export Orders Y/Y: -10.5% v -3.6%e
• (CH) Swiss Dec M3 Money Supply Y/Y: 3.1% v 2.9%e
• (CH) Swiss weekly Total Sight Deposits (CHF): 576.3B v 575.2B prior; Domestic Sight Deposits: 482.3B v 483.0B prior
• (SL) Sri Lanka Dec National CPI (NCPI) Y/Y: 0.5% v 1.0% prior

Fixed Income Issuance

• (SK) Slovakia Debt Agency (Ardal) sold total €206.6M in 2028 and 2047 Bonds
• (NO) Norway sold NOK2.0B vs. NOK2.0B indicated in 3-month Bills; Avg Yield: 0.90% v 0.85% prior; Bid-to-cover: 1.51x v 1.89x prior

Looking Ahead

• (UK) PM May to present ‘plan B’ on Brexit (vote scheduled for Jan 29th)
• (IL) Israel Central Bank Jan Minutes
• 05:30 (BR) Brazil Central Bank Weekly Economists Survey
• 06:00 (IL) Israel Nov Manufacturing Production M/M: No est v 0.4% prior
• 06:00 (RO) Romania to sell RON400M in 4.5% 2024 Bonds
• 06:00 (IL) Israel to sell combined ILS1.45B in 2021, 2023, 2026, 2028 and 2047 bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)
• 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming issuance
• 08:00 IMF 2018 global GDP: No est v 3.7% prior
• 08:00 (UK) Baltic Dry Bulk Index
• 08:50 (FR) France Debt Agency (AFT) to sell combined €3.9-5.1B in 3-month, 6-month and 12-month BTF Bills
• To sell €0.9B in 12-month Bills
• 09:00 (BE) Belgium Jan Consumer Confidence Index: No est v -5 prior
• 09:00 (PT) ECB’s Costa (Portugal)

The DAX index has lost ground in the Monday session. Currently, the index is at 11,154, down 0.53% on the day. In economic news, there are no major German or eurozone releases. German PPI declined by 0.4%, the first decline since February 2018. On Tuesday, Germany releases ZEW Economic Sentiment.

The DAX has jumped out of gates in 2019, climbing 6.4% in January, as risk appetite remains strong. However, the index has started the trading week with losses, as investors gave a thumbs-down to soft GDP data out of China. The economy grew 6.6% in 2018, marking its lowest level since 1990. GDP for the fourth quarter dipped to 6.4%, compared to 6.5% in the previous quarter. The soft GDP release comes on the heels of soft trade and manufacturing data, as China is experiencing a slowdown due to the ongoing U.S-China trade war. The Trump administration has threatened further tariffs if a deal is not reached by March 1, but the markets are hopeful that the sides will reach an agreement. A second round of negotiations between U.S. and Chinese officials is scheduled for the end of the month in Washington. Chinese officials will be under pressure to show more flexibility in the talks, in order to stem the economic bleeding.

Is the eurozone headed for a recession? Growth forecasts have been revised lower for the three largest economies in the bloc (Germany, France and Italy). The U.S-China trade war, which shows not signs of being resolved anytime soon, has taken a bite out of the eurozone export and manufacturing sectors have slowed. If the trade war worsens or the U.S. economy slows down in 2019, the eurozone could lapse into a recession. Given these weak economic conditions, the ECB, which finally terminated its massive stimulus program last month, is unlikely to raise interest rates before the fourth quarter of 2019. Just a few months ago, analysts were predicting a rate hike in the third quarter. Lower rates should be bullish for the equity markets, which will be more attractive to investors than the bond markets.

Gold dropped to a three-week low of 1,277.66 on Monday after a failed attempt to pierce the strong roof around the 1,298.47 peak last week. But the RSI and the Stochastics in the four-hour chart suggest that the downside is overstretched, and the price could rebound again as both indicators hover near oversold levels; the RSI is attached to 50, while Stochastics have posted a bullish cross below 20 and are heading north.

Moving slightly higher the price may meet resistance around 1,283 which is the 23.6% Fibonacci retracement of the rally from 1,232.79 to 1,298.47. A violation at this point could shift focus towards the 1,288 barrier, while above that the bulls may retry to break the heavy wall around the 1,298.47 top.

On the other hand, if the market continues to deteriorate, a decisive close below the January 4’s low of 1,276.50 could add more sellers into the market. However only a leg below the 50% Fibonacci of 1,265.60 would confirm that the rebound off 1,232.79 is completed and a downtrend is in progress. Prior that the 38.2% Fibonacci of 1,273.35 could also act as support.

Summarizing, gold is neutral in the short-term picture, while in the bigger picture the precious metal remains bullish as long as it holds above 1,265.60 and the 200-period moving average.

The US dollar has extended its recent advance towards the 109.88 level against the Japanese yen, due to rising equity markets and a general bid-tone towards the greenback. The 110.00 level is the major upside area to watch, a break above this area may provoke a rally towards the 110.40 level. To the downside, a sustained loss of the 109.60 level may prompt further weakness in the USDJPY pair towards the 109.00 area.

The USDJPY pair is strongly bullish while trading above the 109.60 level, key technical resistance is found at the 110.00 and 110.40 levels.

If the USDJPY pair trades below the 109.60 level, sellers may test towards the 109.30 and 109.00 levels.

The British pound has remained under continued selling pressure against the US dollar during the European trading session as no-deal Brexit risks increase. The GBPUSD pair is moving closer to the 1.2810 support level, a sustained move below this key area may accelerate downside pressures towards the 1.2760 level. A wedge pattern can clearly be seen on the lower time frames, with the 1.2760 level key trendline support.

The GBPUSD pair is strongly bearish while trading below the 1.2810 level, key technical support is found at the 1.2760 and 1.2700 levels.

If the GBPUSD pair trades above the 1.2890 level, key resistance remains at the 1.2930 and 1.3000 levels.