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GBP strengthened against the USD yesterday, as trader’s optimism for a soft Brexit grew and that a no-deal Brexit could be avoided, according to analysts. Despite the fact that a number of scenarios are still possible, market analysts believe that chances for a hard Brexit have lessened substantially. There seems to have been an initial push for the pound as Corbyn stated that the Labour party could back a second referendum and also wanted to exclude the possibility of a no-deal Brexit. It should be noted that Theresa May seems currently unwilling to blur her red lines, which seems to result in a political stalemate in the negotiations with the other political parties. We expect volatility to continue to characterize the pound’s course, as new Brexit headlines could tip it to either side. Cable rallied yesterday, breaking consecutively the 1.2880 (S2) and the 1.2960 (S1) resistance lines, now turned to support. It should be noted on the technical side that the pair has reached a two month high that the pair has reached We could see the pair trading in a bullish market should expectations for a soft Brexit linger on, however it should be noted that cable may prove sensitive to any further Brexit headlines and could tip to either direction. Also the UK financial releases today could weaken the GBP side of the pair. Should the pair find fresh buying orders along its path, we could see the pair aiming if not breaking the 1.3070 (R1) resistance line. Should it come under the market’s selling interest we could see the pair breaking the 1.2960 (S1) support line and aim for the 1.2880 (S2) support level.

USD strengthens against the Yen, on US-Sino trade expectations

The USD strengthened against the JPY during yesterday’s American session and today’s Asian session as hopes for the US-Sino negotiations seem to grow and risk appetite seems to have increased. Media reported that US Treasury Secretary Mnuchin, considered easing tariffs imposed on Chinese imports. It should be noted that the positive sentiment was maintained despite a Treasury spokesman denying the report later on. Analysts are expected to focus on the upcoming visit of Chinese Vice Premier Liu He near the end of the month for further developments. It should be noted that unfavourable financial releases for the Yen, early this morning also may have strengthened a bullish sentiment for the pair. USD/JPY rose yesterday and during today’s Asian session, breaking the 109.20 (S1) resistance line, now turned to support. We could see the pair trading with bullish tendencies today, should the risk-on sentiment continue to favour the USD against the JPY, however the pair may prove sensitive to today’s financial releases as well. Should the bullish momentum be maintained, we could see the pair aiming for the 110.15 (R1) resistance line. Should on the other hand the bears take over, we could see the pair breaking the 109.20 (S1) support line and aim for the 108.25 (S2) support barrier.

Today’s other economic highlights

In today’s European session, we get Eurozone’s current account figure for November and the UK retail sales growth rates for December. In the American session, we get Canada’s inflation rates for December and from the US the industrial output growth rate for December, the preliminary Michigan Consumer Sentiment indicator for January and last but not least the Baker Hughes oil rig count. As for speakers, NY Fed President John Williams and Philadelphia Patrick Harker speak.

GBP/USD H4

Support: 1.2960 (S1), 1.2880 (S2), 1.2795 (S3)
Resistance: 1.3070 (R1), 1.3175 (R2), 1.3280 (R3)

USD/JPY H4

Support: 109.20 (S1), 108.25 (S2), 107.40 (S3)
Resistance: 110.15 (R1), 111.40 (R2), 112.55 (R3)

GBPJPY has been advancing considerably for three days in a row, reaching a fresh one-month high of 142.20 during yesterday’s trading session. The price jumped above the strong obstacle of the 50.0% Fibonacci of 141 of the downleg from 149.50 to 132.50, while it also surpassed the 20- and 40-simple moving averages (SMAs) in the 4-hour chart.

Technically, the RSI indicator is trying to enter into the overbought zone, but its momentum is slowing down, while the MACD oscillator holds above trigger line and hovers in the positive territory.

In case of further bullish actions the price could challenge the 61.8% Fibonacci mark of 143.00, which is located near the 143.25 resistance level, taken from the minor peak on December 17. More buying interest could send the price up to the 143.90 resistance, shifting the outlook to a more bullish one.

Alternatively, should the price break below the 50.0% Fibonacci, then the way could open towards the 139.45 support. If the latter proves a weak obstacle, then the next stop for investors to have in mind is the 38.2% Fibonacci of 139.00.

Having a look at the bigger structure, GBPJPY has been developing in a descending movement since November 2018 and only a significant close above the 61.8% Fibonacci would change the outlook from bearish to neutral.

Daily Pivots: (S1) 123.89; (P) 124.28; (R1) 124.83; More....

EUR/JPY is staying in range below 125.09 temporary top. But based on overall development in yen crosses, EUR/JPY's rebound from 118.62 will likely turn out to be stronger than expected. On the upside, break of 125.09 will bring further rise to 55 day EMA (now at 126.76) and above. On the downside, break of 123.40 minor support will turn bias back to the downside for retesting 118.62 low first.

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 for 137.49 for 109.03/114.84 support zone instead.

Daily Pivots: (S1) 140.18; (P) 141.20; (R1) 142.89; More...

GBP/JPY's rebound from 131.51 turns out to be stronger than expected and reaches as high as 142.22 so far. Firm break of 139.88 resistance is taken as the first sign of larger reversal. Intraday bias is back on the upside for 143.93 resistance first. Sustained break will pave the way to 149.48 resistance next. On the downside, break of 137.35 support is now needed to confirm completion of the rebound. Otherwise, risk will stay on the upside in case of retreat.

In the bigger picture, corrective medium term rise from 122.36 (2016 low) has completed at 156.69 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 (2018 high) 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) 0.8733; (P) 0.8802; (R1) 0.8841; More...

EUR/GBP drops sharply to as low as 0.8763 so far. Intraday bias remains on the downside as fall from 0.9101 is targeting 0.8655 support. On the upside, break of 0.8927 support turned resistance is needed to confirm short term bottoming. Otherwise, risk will stay on the downside even in case of recovery.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). The medium term range is set between 0.8620 and 0.9101. Downside break out of 0.8620 will pave the way back to 0.8302/12 support zone. Break of 0.9101 will bring retest of 0.9304/5 resistance.

European markets and US futures are trading sharply higher today building on the optimism around the US-China trade talks. We have seen significant increase in the numbers of investors who have added risk assets in their portfolio on the back of this. Just to put things in perspective, the S&P 500 broke its 50-day moving average, a signal that bulls are back in the race and perhaps a bottom is in place as long as we do not move this critical moving average. This all happened after a report which mentioned that the US Treasury secretary Steven Mnuchin has proposed easing Chinese tariffs. Although, the Treasury didn’t confirm this but the market has bought this for now and if this turns out to be a junk, the selloff would be intense.

Another way of looking at the risk on trade is to focus on the global equity market and this shows that the global equities are on track to record four consecutive weeks of gain, something which we have not experienced since July last year. I think investors are also confident because of the recent prints of the US economic data such as the Philadelphia’s factory index which bounced strongly back during the month of January, this is after recording three months of losses. Moreover the upbeat tone from the Chicago’s Fed president also supported the current momentum who has shown no signs of any immediate concern about the US economy.

One of the asset which has taken no time to show the direct reaction because of the possibility of a deal to occur between the US and China is oil. It has extended its third week of gains and the WTI has moved towards the 53 mark. Of course, the move is based on the hopes that improving trade relations between the two biggest economies of the world would only improve the demand for oil because there is no doubt that the Chinese economy has suffered because of the trade war as well as the US economy. The resistance level which we are watching is the high of December, sits at 54.77. The support is at 47.53.

In terms of stocks, it is all about Ryanair and Netflix today and investors are going to keep a close eye on these two stocks which could feel the heat because of the feeble fundamentals. Ryanair has done a downward adjustment to its full year profit guidance, due to the lower winter fares. Given that the earnings are expected to fall to 7 percent which is a lot lower than the previous number of 2 percent, investor are going to react adversely. Adding to their qualm, the company’s has also cut its full year profit to 1 billion euros to 1.1 billion.

Look if you want to keep your investors happy, you need to make sure that you are running your affairs correctly. You cannot just afford battles with unions, or strikes as both of these effect company’s growth number and most importantly you want to show that your customer service policies and the image is friendly and Ryanair really needs to get a good grip on this.

The company which made the headline in terms of burning daily cash is Netflix and investors didn’t like their earning numbers at all. After hour trading session was rough, the company stock sank over 5 percent. Having said this, the volatility which we have experienced last night for the Netflix stock was still relatively on the low side because usually it has the tendency to move 15% in either side.

The company is looking to increase its membership by $1 to 2 (depending what package you have), just to show how the company’s outlook for the coming quarter could be improved. It added 8.84 million new subscriber in Q4 2019 which missed the estimate of 9.4 million and the increase in the subscription fee has added more doubts for its growth in the subscription number especially when the competition is extremely fierce in this space and everyone is fighting for the market growth. It also missed revenue forecast, reported $4.49 billion versus the expectations of $4.60 billion but we don’t think that is such a big deal because the firm is certainly adding mammoth amount of original content.

Daily Pivots: (S1) 1.5767; (P) 1.5845; (R1) 1.5911; More....

EUR/AUD dips to 1.5783 but due to weak downside momentum, it quickly recovers. Intraday bias stays neutral first. Further decline is expected as long as 1.6154 resistance holds. Break of 1.5783 will extend the fall from 1.6765 to 1.5346 key support next.

In the bigger picture, the failure to sustain above 1.6587 key resistance (2015 high), argues that up trend from 1.1602 (2012 low), is not ready to resume yet. But still, as long as 1.5346 support holds, outlook will remain bullish. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next. However, firm break of 1.5346 key support will indicate trend reversal, with bearish divergence condition in weekly MACD, and turn outlook bearish.

The US stock market ended the day higher after a report said that Trump officials are thinking to reduce tariffs on Chinese imported goods. The new strategy aims at pressuring China to offer broad concessions during the current trade negotiations. Such a move will increase the chances of a deal being made between the US and China before the March deadline. As a result, the market turned positive with the Dow gaining by more than 160 points. In Asia, the Hang Seng and the Shanghai Composite Index rose by 260 and 20 points respectively. In the US, Dow and Nasdaq futures gained by 70 and 17 points respectively.

The Japanese yen declined in overnight trading as data from Japan showed weaker inflation. The numbers from the Japanese statistics office showed that national inflation rose by 0.7% in December. This was lower than the consensus estimate of 0.8% and November’s 0.9%. The country’s low inflation rate has been a major concern for the BOJ. With inflation well below the target of 2%, there is a possibility that the period of low interest rates will continue.

Today, traders will receive important numbers from the United Kingdom and Canada. In the UK, traders will receive the retail sales numbers. On a YoY basis, the retail sales are expected to have risen by 3.6% in December. The core retail sales are expected to rise by 3.9%, which will be higher than the previously-released 3.8%. In Canada, the headline CPI is expected to rise by an annualized rate of 1.7% while the core CPI is expected to rise by 1.5%.

EUR/USD

The EUR/USD pair was relatively unchanged as volatility slumped. The pair is now trading at 1.1395, which is still lower than the YTD high of 1.1570. On the hourly chart, the Average True Range (ATR) indicator has continued to decline while the moving averages are along the price. The current consolidation could lead to major movements in days to come.

USD/JPY

The USD/JPY pair continued the slow climb that was started on the first trading day of the year. Since then, the pair has moved from a low of 106.4 to the current high of 109.4. The gains accelerated after the weaker CPI numbers. On the hourly chart, the current price is above the 42-day and 21-day EMAs even as the RSI has continued to move up while the momentum indicator remains above the important level of 100. The pair will likely continue moving up and if it does, it could reach the 110 level.

XBR/USD

The price of Brent crude oil jumped as traders cheered the progress of the ongoing trade talks. It reversed earlier losses that came up after OPEC said that demand will be lower this year. The XBR/USD pair reached a high of 61.80. The hourly chart shows that the pair has struggled to move past the YTD high of 62.50. The current price is above the short and long-term moving averages. There is a possibility that the price will retest the previous highs.

Daily Pivots: (S1) 1.1289; (P) 1.1310; (R1) 1.1345; More...

EUR/CHF is still staying below 1.1340/8 resistance despite the strong rebound. Intraday bias remains neutral first. Outlook is unchanged that we're still slightly favoring the case the choppy decline from 1.1501 has completed at 1.1181 already. On the upside, break of 1.1348 will confirm this bullish case and turn bias to the upside for retesting 1.1501 next. On the downside, in case of another fall, we'd expect strong support from 1.1154/98 support zone to contain downside to bring rebound.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

• Stocks advance, safe-havens tumble on reports US could roll back China tariffs
• In the UK, sterling surged without Brexit news; sentiment is improving
• Today, Canadian inflation figures and Fed speakers may steal the show

Stocks jump, yen softens on reports US may lift China tariffs

Risk appetite firmed during the late US session on Thursday, following a WSJ report that US Treasury Secretary Mnuchin considered whether to lift the tariffs on Chinese products as a gesture of good faith during the negotiations. Trade-sensitive currencies such as the aussie advanced alongside US stocks, with the S&P 500 (+0.76%) closing decisively above its 50-day moving average; a move that shifts the benchmark’s outlook back to neutral from a technical perspective. Meanwhile, haven assets like the Japanese yen and Swiss franc tumbled.

Even though the Treasury quickly denied the report, markets didn’t retrace much, which implies that traders believe the news are credible – or at least that the overall negotiating process is moving in the right direction. Admittedly though, and being skeptical for a moment, Secretary Mnuchin was against the entire tariff ordeal from the very beginning, so it’s questionable whether this story is as significant as the headlines suggest. Going forward, watch for any remarks by Trade Representative Lighthizer, as he is the one handling the negotiations and likely the most important individual on trade matters – outside of Trump himself.

Pound rips higher, even without Brexit news

The British pound outperformed all its major peers on Thursday, touching a fresh two-month high versus the dollar, even in the absence of any material Brexit developments. Sentiment around the UK currency seems to be turning around rapidly, as investors and pundits alike increasingly digest the fact that a no-deal exit is becoming less and less probable the more Parliament gets involved.

That said, there is still no clarity on what the next step is, so while the downside risks for sterling may be dissipating, for the currency to truly explode higher, it may require a clear positive catalyst – for instance an extension of Article 50 or growing consensus for another referendum.

UK retail sales will be in focus today, but as always, any piece of Brexit news will probably eclipse any economic data in driving the pound.

Coming up: Canadian inflation data, U of M sentiment index, and Fed speakers

In terms of economic data, besides the UK retail sales, the highlight today will probably be inflation figures out of Canada. While any surprise in the CPI prints will likely dictate the loonie’s intraday direction, do note that the currency’s broader performance may depend more on how oil prices evolve. After disappearing for most of 2018, the correlation between the two assets – crude and the loonie – has returned “with a vengeance” lately, with the Canadian currency taking its cue from movements in oil.

In the US, industrial production for December could attract attention, though in truth, this is usually not a major market mover. Of greater importance, for the dollar at least, may be the preliminary University of Michigan consumer sentiment index for January, as well as remarks by New York Fed President Williams (1405 GMT) and Philadelphia Fed President Harker (1600 GMT). Both are voting FOMC members, so their take on the US economic outlook could prove crucial not only for the greenback, but for broader risk sentiment as well.