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The euro is attempting to push higher against the US dollar, as sellers struggle to break below the important 1.1400 technical barrier. The recovery in the EURUSD pair is also supported by the rising MACD indicator on the one-hour time frame, as it corrects from oversold trading conditions. The release of the Federal Reserve Beige Book is the main event on the economic calendar for EURUSD traders later today.

The EURUSD pair remains technically bearish while trading below the 1.1460 level, key technical support is found at the 1.1400 and 1.1360 levels.

If the EURUSD pair recovers above the 1.1460 level, buyers may test towards the 1.1486 and 1.1530 resistance levels.

Cable maintains positive tone and returns to 1.29 zone post-vote recovery high in early European trading on Wednesday.

The negative impact from parliamentary defeat of PM May’s Brexit plan, although strong on unexpected margin of defeat (432-202 vote), was short-lived as traders took profit after dip to 1.2668 (two-week low), pushing the price swiftly to pre-vote levels.

As I mentioned in Tuesday’s comment, parliamentary rejection of the plan was widely expected, but negative action was sparked by surprisingly strong defeat and fears of disorderly Brexit.

However, pessimism among traders did not last long as current situation opens new scenarios which range from Brexit delay, new elections and possible new referendum that sidelines immediate concerns about disorderly Brexit.

Technical outlook remains bullishly aligned as Tuesday’s strong downside rejection left daily Doji candle with long tail, suggesting that the downside is protected for now.

Also, formation of 10/55SMA bull cross and strengthening bullish momentum on daily chart, add to positive signals.

Fresh bulls attack again key barriers at 1.2882/94 (daily cloud top / 100SMA, with sustained break here to signal bullish continuation and expose psychological 1.30 barrier.

Res: 1.2882, 1.2894, 1.2930, 1.3000
Sup: 1.2824, 1.2775, 1.2717, 1.2694

Notes/Observations

• UK Parliamentary defeat of PM May's Brexit deal has left all options on the table, from a ‘no-deal' Brexit to ‘no Brexit' at all; PM May's government must now present a plan B by Monday, Jan 21st; extension of the timeline for exit makes sense to markets
• Confidence votes in Europe this session (Greece and UK); both leaders expected to survive the contests
• UK Dec CPI data in-line and edging closer back to BOE target (YoY: 2.1% v 2.1%e)

Asia:

• China injected record amount through OMO operations ahead of Lunar New year holiday cash demands (Note: Injected CNY570B combined in 7-day and 28-day reverse repos) - Bank of Japan (BOJ) said to be planning to cut inflation
• (CPI) forecast due to lower oil costs, expected to keep policy unchanged at next meeting; BoJ outlook report to be released on Jan 23rd with price forecasts

Europe:

• UK Parliament rejected PM May's Brexit Deal proposal in a 432-202 vote (118 Tory members voted against the deal). PM May statement immediately after the vote saying she would 'listen' but will not quit (daring the opposition to call a no-confidence vote)
• Labour Opposition leader Corbyn called for a vote of no confidence in the government in a bid to force an election
• Northern Ireland DUP Party (part of coalition) and Tory rebels have confirmed they will back the PM today making another defeat very unlikely
• EU statement on Brexit vote failure: Risk of disorderly Brexit has risen with UK Parliamentary vote; EU did not want it to happen but would be prepared for it
• Senior EU official: EU will quickly make clear it will not change its position; ball was exclusively in UK's court - Germany govt reportedly planned to extend term of Bundesbank President Weidmann for eight years

Americas:

• Trump administration has told two senators that they will set up exclusion system for goods if next round of proposed tariffs against China go through. USTR says if the duty rate on the $200 billion tariff action is raised to 25 percent (from 10%), USTR will initiate an appropriate exclusion process
• Sen Grassley (R-IA): US Trade Rep Lighthizer told me he saw little progress in last week's talks with China on structural issues and IP protections
• Fed's George (hawk, voter): Past rate hikes have not fully played out yet, which justifies patience on future policy moves. Uncertainty over portfolio runoff effects offers an additional reason to pause rate hikes. Inflation pressures will determine whether additional rate hikes are warranted
• Fed Discount Rate Minutes for Dec: 6 of 12 regional banks voted to leave discount rate unchanged
• President Trump reportedly considering recognizing Venezuela opposition leader as legitimate president

Energy:

• Weekly API Oil Inventories: Crude: -0.6M v -6.1M prior

Macro

• (UK) United Kingdom: The Labour party tabled a confidence vote in Prime Minister May's government, which is expected to be held at 1900GMT, but it's highly likely she will survive as the DUP and the Conservative party have indicated they will back her to stave off a general election. May will then be obliged to return to parliament with an alternative to the Withdrawal Agreement although it's unlikely that members will be capable of finding any common ground.
• (EU) Eurozone: The ECB Draghi's presentation yesterday suggested a shift in stance as he not only highlighted downside risks, but admitted that the Eurozone may be facing not quite a recession but a lengthy downturn. With the ECB still pursuing a very expansionary policy it's unlikely to suggest further policy moves and the guidance on rates may not change significantly at next week's meeting, but it is clear that they will be much more dovish and that the ECB may well have missed their window of opportunity to raise rates.
• (DE) Germany: December HICP inflation was confirmed at 1.7% y/y which left the whole of 2018 at 1.9% y/y, effectively inlne with the ECB's definition of price stability. Energy price inflation remained the overriding factor throughout the year, with prices up 4.9% y/y. Food price inflation also accelerated sharply, with the historically hot summer a impacting prices which will obviously impact comparables throughout this year.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.10% at 349.06, FTSE -0.56% at 6,856.58, DAX +0.04% at 10,896.07, CAC-40 +0.23% at 4,797.25, IBEX-35 +0.22% 8,869.65, FTSE MIB +0.57% at 19,275.50, SMI +0.04% at 8,828.60, S&P 500 Futures +0.22%]

Market Focal Points/Key Themes:

Equities

• European Indices trade mixed this morning with the FTSE notably undperforming on the back of gains in Cable after a 230 vote defeat in parliament for PM May's Brexit withdrawal agreement. Following the defeat attention shifts to the no confidence vote called for by Labour Leader Corbyn which will take place later today. On the corporate front shares of Bovis Home trades higher after the home builder guided full year results slightly ahead of views, while Home24, Finsbury Food Group, Pearsons, Headlam, Per Aarsleff and Cineworld were among the notable decliners after earnings and guidance. Panalpina trades around 30% higher after receiving a proposal from DSV for CHF170/shr, Somero also gains after guiding above consensus and acquiring business assets of Line Dragon. Elsewhere Italian Banks rise as Banco BPM notes it does not forsee material impact on forecasts following new NPL targets set by the ECB. Looking ahead notable earnings include Banking names, Bank of New York Melon, PNC Bank, USB Bancorp, Goldman Sachs and Bank of America as well as Blackrock.
• Consumer discretionary: Pearson Plc [PSON.UK] -6% (trading update; adjusts outlook), Cineworld [CINE.UK] -5.5% (trading update), Bovis Homes Group PLC [BVS.UK] +5% (trading update), Headlam [HEAD.UK] -8% (profit warning)
• Consumer staples: Finsbury Food Group [FIF.UK] -12% (trading update)
• Energy: Tullow Oil [TLW.UK] -0.5% (earnings)
• Financials: Unicredit [UCG.IT] +3% (comments on NPE portfolio)
• Healthcare: Reckitt Benckiser PLC [RB.UK] -2% (CEO to retire), Valneva [VAL.FR] +7.5% (awarded contract; provides guidance), Asit Biotech [ASIT.BE] +4% (comments on restructuring; CFO replacement)
• Industrials: Panalpina Welttransport [PWTN.CH] +28%, DSV [DSV.DK] +4% (Panalpina received cash-stock bid from DSV), Diploma [DPLM.UK] -1% (trading update; appoints CEO)

Speakers

• ECB Mersch (Luxembourg): Economic slowdown was expected; no need to consider any policy response; ECB to continue accommodation for as long as necessary. Economic slowdown did not mean recession
• ECB's Nowotny (Austria): Reiterates Council view of expectation further economic expansion but at a slower pace
• ECB's Villeroy (France): Recent protests have had a large short-term impact on domestic economy. President Macron's measures in response to yellow-vest protests will add 0.1-0.2% to 2019 GDP growth. Any ECB rate hike would be extremely gradual and depend on the economic situation
• BOE Gov Carney testified in the Treasury Select Committee that continued volatility in markets were to be expected. BOE in talks with Treasury on a no-deal resolution powers. GBP currency (Sterling) rebound showed that the prospect of a no-deal Brexit has diminished. UK banks were well capitalized for extreme events; confident that core UK financial system was resilient to shocks
• Sweden Central Bank (Riksbank) Dep Gov Skingsley: Trade, Brexit and US politics are threats to the rate path
• UK House of Commons Leader Leadsom: Will look for areas of consensus in Brexit deal; to appeal to senior labour MPs for support. PM May Brexit deal is a good one; need to find a way to pass it or part of it or find an alternative to be put to EU
• German Chancellor Merkel: We still have time to discuss Brexit; PM May must now tell us how they will proceed - Sweden Left Party said to likely allow Social Democrats leader Lofven as the new Prime Minister
• Sweden Left Party Leader Sjostedt: to support Social Democrats leader Lofven as the new Prime Minister. However, if Lofven presented anys bill to loosen regulations in labor, rental markets then would call a no-confidence vote
• Russia Central Bank 1st Dep Gov Yudaeva: China CNY currency (Yuan) could become more attractive for its FX Reserves
• Hungary Central Bank's Nagy: reiterated Board stance that rate normalization hinges on inflation outlook
• Indonesia Central Bank Gov Warjiyo: To maintain pre-emptive monetary policy; key rate almost at a peak. IDR currency (Rupiah) movements to be stable in 2019; Forex Reserves were more than enough and would intervene in FX if needed
• Romania govt said to consider more fiscal changes to banking sector provisions
• Russia Foreign Min Lavrov: Still committed to talks on preserving INF agreement
• Various EU officials comment on the Brexit situation
• EU Brexit Chief Negotiator Barnier: Too early to assess the consequences of the UK parliamentary rejection of PM May's Brexit deal. UK Govt must declare what it wants to do. If UK changes red lines then EU was ready to discuss this.
• EU Moscovici: EU was preparing for all scenarios. UK must say what it wants; action was not in Brussels but in the UK
• EU Parliament President Tajani: Goal remained to avoid a no-deal Brexit but must prepare for a no-deal scenario . EU must know how the UK govt plans to proceed
• German Foreign Min Maas: UK vote was regrettable, Germany prepared for hard Brexit . Talks eventually to circle around Northern Ireland backstop. Reiterated view that EU was open to discussions and that the EU wanted a Brexit deal
• German Econ Min Altmaier: Brexit deal was not up for substantial renegotiation; EU was united on this front. Hard Brexit should be avoided at all costs but EU should allow for additional time for Brexit if needed
• Russia said to have reduced oil production by 60K bps in 1st half of January (in-line with Dec OPEC+ cut timeline. Russia stated that it would cut 228K bpd, reduced from the 11.4M bpd level in Oct; but would needed a few months to reach the full production cut level)

Currencies/Fixed Income

• The GBP was steady to slightly firmer around the 1.2875 area as markets awaited more political developments from the UK. Overall dealers cited the recent developments skewed the risks towards a softer, later Brexit — or no Brexit at all. A defeated no-confidence vote later on Wednesday could further reduce the chances of a potentially Sterling negative General Election. The 10-year Gilt yield was higher by over 5bps to test above 1.31% in the session.
• EUR/USD steady just above the 1.14 level as various ECB members stressed that the region was experiencing a growth slowdown but not entering any recession.

Economic Data

• (DE) Germany Dec Final CPI M/M: 0.1% v 0.1%e; Y/Y: 1.7% v 1.7%e
• (DE) Germany Dec Final CPI EU Harmonized M/M: 0.3% v 0.3%e; Y/Y: 1.7% v 1.7%e
• (EU) EU27 Dec New Car Registrations: -8.4% v -8.0% prior
• (NO) Norway Q4 House Price Index Q/Q: 0.3% v 0.3% prior
• (CZ) Czech Dec PPI Industrial M/M: -1.1% v -0.3%e; Y/Y: 2.4% v 3.2%e
• (CZ) Czech Nov Export Price Index Y/Y: 4.0% v 3.1% prior; Import Price Index Y/Y: 4.2% v 3.8% prior
• (IT) Italy Nov Industrial Sales M/M: +0.1% v -0.5% prior; Y/Y: 0.6% v 2.0% prior
• (IT) Italy Nov Industrial Orders M/M: -0.2% v -0.5% prior; Y/Y: -2.0% v +1.8% prior
• 04:30 (UK) Dec CPI M/M: 0.2% v 0.2%e; Y/Y: 2.1% v 2.1%e (lowest since Jan 2017); CPI Core Y/Y: 1.9% v 1.8%e;CPIH Y/Y: 2.0% v 2.0%e
• (UK) Dec RPI M/M: 0.4% v 0.5%e; Y/Y: 2.7% v 2.9%e; RPI Ex-mortgage payment (RPIX) Y/Y: 2.7% v 2.8%e; Retail Price Index: 285.6 v 286.0e
• (UK) Dec PPI Input M/M: -1.0% v -1.4%e; Y/Y: 3.7% v 3.7%e
• (UK) Dec PPI Output M/M: -0.3% v 0.0%e; Y/Y: 2.5% v 2.9%e
• (UK) Dec PPI Output Core M/M: 0.2% v 0.1%e; Y/Y: 2.5% v 2.4%e
• (UK) Nov ONS House Price Index Y/Y: 2.8% v 3.0%e
• (BR) Brazil Jan FGV Inflation IGP-10 M/M: -0.3% v -0.1%e
• (IT) Italy Dec Final CPI M/M: -0.1% v -0.1% prelim; Y/Y: 1.1% v 1.1% prelim
• (IT) Italy Dec Final CPI EU Harmonized M/M: -0.3% v -0.3% prelim; Y/Y: % v 1.2%e; CPI Index (Ex-tobacco): # v 102.1e

Fixed Income Issuance

• (IN) India sold total INR90B vs. INR90B in 3-month, 6-month and 12-month bills
• (DK) Denmark sold total DKK6.5B in to sell 3-month and 6-month bills
• (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 3.0% 2024 bonds; Avg Yield: 1.42% v 1.25% prior; Bid-to-cover: 1.53x v 2.02x prior
• (SE) Sweden sold SEK1.5B in 0.75% 2029 bonds; Avg Yield: 0.6118% v 0.6773% prior; Bid-to-cover: 3.25x v 3.49x prior
• (RU) Russia sold RUB15B vs. RUB15B indicated in Feb 2024 OFZ bonds (1st of 3 tranches in session)

Looking Ahead

• (SE) Sweden Parliamentary Speaker Norlen to announce the PM nomination
• 05:30 (DE) Germany to sell €1.5B in 1.5% Aug 2048 Bunds
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 6-month and 12-month bills
• 06:00 (RU) Russia to sell total RUB20.1B in OFZ bonds (2 tranches)
• 06:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: expected to leave the One-Week Repo Rate unchanged at 24.00%
• 06:00 (IE) Ireland Nov Property Prices M/M: No est v 0.3% prior; Y/Y: No est v 8.4% prior
• 06:00 (ZA) South Africa Nov Retail Sales M/M: 2.4%e v 0.6% prior; Y/Y: 2.0%e v 2.2% prior
• 06:00 (RU) Russia Q4 Confidence: No est v -14 prior
• 06:00 (IL) Israel Q3 Final GDP Annualized (3rd reading): No est v 2.1% prelim
• 06:00 (BR) Brazil Nov IBGE Services Sector Volume Y/Y: 1.0%e v 1.5% prior
• 06:45 (US) Daily Libor Fixing
• 07:00 (US) MBA Mortgage Applications w/e Jan 11th: No est v +23.5% prior
• 07:00 (UK) Weekly PM May question time in House of Commons
• 08:00 (PL) Poland Dec CPI Core M/M: 0.0%e v -0.1% prior; Y/Y: 0.7%e v 0.7% prior
• 08:00 (UK) Baltic Dry Bulk Index
• 08:30 (US) Postponed: Dec Advance Retail Sales M/M: 0.1%e v 0.2% prior; Retail Sales (Ex-Auto) M/M: 0.0%e v 0.2% prior; Retail Sales (Ex-Auto/Gas): 0.4%e v 0.5% prior; Retail Sales Control Group: 0.4%e v 0.9% prior
• 08:30 (US) Dec Import Price Index M/M: -1.3%e v -1.6% prior; Y/Y: -0.9%e v +0.7% prior; Import Price Index (ex-Petroleum) M/M: -0.1%e v -0.3% prior
• 08:30 (US) Dec Export Price Index M/M: -0.7%e v -0.9% prior; Y/Y: No est v 1.8% prior
• 10:00 (US) Postponed: Nov Business Inventories: 0.3%e v 0.6% prior
• 10:00 (US) Jan NAHB Housing Market Index: 56e v 56 prior
• 10:30 (US) Weekly DOE Crude Oil Inventories
• 14:00 (US) Federal Reserve Beige Book
• 14:00 (UK) Parliament no-confidence vote on PM May leadership
• 16:00 (US) Postponed: Nov Total Net TIC Flows: No est v $42.0B prior; Net Long-term TIC Flows: No est v $31.3B prior
• 18:30 (US) Fed's Kashkari (non-voter, dove) on Panel about financial crisis

EUR/USD

Current level - 1.1400

The downtrend is intact below 1.1450 intraday resistance. heading for a test of 1.1310 crucial support.

USD/JPY

Current level - 108.62

The outlook remains neutral due to the lack of trend dynamics and only a break through 108.00 crucial support will signal a reversal of the upmove since 107.75 low.

GBP/USD

Current level - 1.2870

Yesterday's volatility led to an intraday low at 1.2670 and currently a rebound is underway, heading for another test of 1.2930 peak. The latter is able to provoke a downswing for 1.2800 support area.

The UK government suffered a substantial defeat yesterday, as the UK Parliament rejected Theresa May's Brexit plan with a difference of 230 votes, marking the worst parliamentary defeat for a government in over a century. The Labour party moved swiftly tabling a motion for a confidence vote, right after the results came out. The confidence vote is expected to be debated and voted on tonight around 19:00 (GMT). The DUP seems to be backing the government in order to avoid general elections and Theresa May could survive another political battle. Should Theresa May win the confidence vote we could see the UK Labour party backing the scenario of a new referendum, should on the other hand Theresa May loose her position, the UK Parliament will have 14 days to elect a new government or else move on to general elections. Should Theresa May survive the confidence vote today, we expect chances for a new referendum rising, as such a scenario could attract also a number conservative MPs, which favour the UK remaining in the EU. Also, it should be noted that the possibility of an extension for Brexit beyond the end of March seems very likely and the EU seems to be of the same mind. We expect volatility for the pound to continue, albeit not at the same pace as yesterday and UK financial releases as well as Mark Carney's scheduled speech could add further uncertainty for the pound. Cable broke consecutively all support lines yesterday, however recovered most ground lost after the announcement of the voting result, testing the 1.2880 (R1) resistance line. We could see the pair continuing to have substantial volatility today as the confidence vote, today's financial releases and Mark Carney's scheduled testimony could increase uncertainty for the pound. Should the bears dictate the pair's direction, we could see cable breaking the 1.2795 (S1) support line and aim for the 1.2700 (S2) support barrier. Should on the other hand the bulls take over the reins, we could see the pair breaking the 1.2880 (R1) resistance line and aim for the 1.2960 (R2) resistance hurdle.

CBRT's interest rate decision

In Turkey, CBRT is to meet an interest rate decision (11:00, GMT) and is expected to remain on hold at +24.00%, despite the Turkish CPI slowing down recently. The decision gets the attention of TRY traders as Turkey is currently at a pre-election state and pressure from Turkey's President towards the bank to loosen up its monetary policy could be rising. On the other hand, CBRT had promised to provide monetary tightening after TRY's mini crisis in the summer. USD/TRY maintained a sideways movement over the past few sessions, between the 5.400 (S1) and the 5.500 (R1) resistance line. Should the bank decide to remain on hold, we could see the pair dropping somewhat while if the it cuts rates we expect the pair to rise substantially, reflecting a possible weakening of the TRY side of the pair. Should the pair come under the selling interest of the market, we could see it breaking the 5.400 (S1) support line and aim for the 5.310 (S2) support area. Should on the other hand the market favour the pair's long positions, we could see it breaking the 5.500 (R1) resistance line and aim if not break the 5.600 (R2) resistance level. Please be advised that the market may have an asymmetrically wider response to a possible rate cut.

Today's other economic highlights

In today's European session, we get Germany's final HICP reading and UK's headline and core CPI rates, as well as PPI Input growth rate, all for December. In the American session, we get from the US, the Retail sales growth rates for December and the EIA weekly crude oil inventories figure. As for speakers, don't forget Mark Carney's scheduled testimony before UK parliament's Treasury Committee.

GBP/USD H4

Support: 1.2795 (S1), 1.2700 (S2), 1.2630 (S3)
Resistance: 1.2880 (R1), 1.2960 (R2), 1.3070 (R3)

USD/TRY H4

Support: 5.400 (S1), 5.310 (S2), 5.200 (S3)
Resistance: 5.500 (R1), 5.600 (R2), 5.710 (R3)

Bank of America stock price has had one of the best trading sessions over the last three consecutive weeks, following the pullback on the 19-month trough of 22.62. The price touched the 26.75, a one-month high, and the upper Bollinger Band in Tuesday’s trading period.

The technical indicators are still located in bullish area in the daily chart, with the RSI stretching further above its neutral threshold of 50 while the stochastic oscillator posted a bearish crossover within its %K and %D lines. Yet the latter could also be an indication that the rally is overdone, and hence negative corrections should not be a surprise in coming sessions.

Traders would be eagerly looking for a break above yesterday’s top of 26.75 to increase buying orders. The next stop to have in mind is the 50.0% Fibonacci retracement level of the downleg from 33.05 to 22.62 around 27.84. If bullish forces appear stronger, the 61.8% Fibonacci around the 29.00 psychological level could be the next target to look for.

In the alternative scenario, should the price retreat, the 40-day simple moving average (SMA) near 25.78 could be the first pause before heading towards the 23.6% Fibonacci of 25.10. Even lower, the price could slip until the mid-level of the Bollinger Band of 24.84 at the time of writing.

In the longer timeframe, the downfall from 33.05 is still active and hence the outlook remains negative despite the latest upward movement in the short-term.

• Sterling recovers despite May's Brexit defeat; no-confidence vote due today
• Euro inches down as ECB's Draghi adopts an increasingly cautious bias
• Risk appetite stays firm; NAHB housing index today may be crucial

Pound rebounds even as May suffers major defeat; no-confidence vote called

British lawmakers overwhelmingly voted against PM May's Brexit deal yesterday, with 432 rejecting the accord and 202 voting in favor, a much wider margin of defeat than rumored. The loss was so devastating that it led the opposition Labour party to immediately table a motion of no-confidence in the government. That vote will be held today at 1900 GMT, and should it succeed, the UK will head to early elections. Otherwise, the government will have until Monday to present an alternative plan to Parliament.

As for the pound, even though it was under selling pressure prior to the vote, it staged a spectacular rally after the result was known, rising by roughly 2 cents against the dollar to close the session practically unchanged. Some pundits suggest it was a “buy the fact” reaction, perhaps driven by optimism May would survive the no-confidence vote today. That may be true, but it could also be that markets are coming to terms with the fact the only majority that exists in Parliament is against a no-deal exit, which in essence suggests the biggest “tail risk” for the UK currency is dissipating.

Today, sterling will take its cue from how the no-confidence vote plays out. Considering that the DUP has already said it will support the government, the question becomes whether May can rally all her Tory troops behind her in order to command a majority in the Commons. A potential survival for the PM – which seems like the most likely scenario – could help the pound advance somewhat, whereas the uncertainty of early elections may hurt the currency, initially.

UK CPI data for December are also due out, but barring a major surprise, these will likely be overshadowed by political developments.

Cautious Draghi drags euro down, sets stage for dovish tilt next week

The euro underperformed all its major peers on Tuesday, outside of the Swiss franc. The move was fueled by dovish-sounding comments from ECB President Draghi, who speaking before the European Parliament said that recent economic developments have been “weaker than expected”.

Indeed, the continued deterioration in the bloc's data suggests that the ECB could adopt a more dovish tone when it meets next week. If so, that would suggest any near-term euro gains may remain relatively limited. Yet, considering the dovish market pricing around the Fed as well, any major downside in euro/dollar seems unlikely too – implying the pair could stay range-bound for a while.

S&P 500 closes above key level as risk appetite remains buoyant

Market participants remained in a risk-on mood on Tuesday, with US stock markets recording meaningful gains and safe-havens like the Japanese yen inching lower. Sentiment was supported by hopes for another dose of Chinese fiscal stimulus, while a surge in Netflix (+6.52%) after it announced plans to raise its fees also pushed Wall Street higher, particularly the tech-heavy Nasdaq Composite (+1.71%). Some dovish remarks from regional Fed President George, who is typically one of the most hawkish members of the FOMC, likely helped as well.

Meanwhile, the benchmark S&P 500 (+1.07%) closed above the key 2600 handle; the same level whose downside violation in mid-December brought about a prolonged losing streak. The index is now not far below its 50-day simple moving average; if it manages to close above it in the coming sessions, that could turn the medium-term technical outlook to a more neutral one.

Focus today will be on the NAHB housing market index; remember that most of the concerns about the US economy slowing down are predicated on a weakening housing sector and hence, this print could prove crucial for sentiment.

As Brexit dominates headlines, it is not dominating investors. UK 2-year and 10-year gilt yields rose slightly to +0.825% and +1.287% (+2.46% and +2.30% percentage change) while the British pound remained almost untouched, bouncing by +0.46% against the EUR and slightly lower against the greenback (-0.02%). Investors had already priced in the scenario of yesterday’s defeat for the government; they expect Brexit to be postponed. Still, given a negotiating period that has already lasted two years, it is hard to see delay as a GBP positive. Unless the European Union makes a U-turn, unlikely, the only viable solution would be to cancel Brexit.

Industrials, including automakers, remain worried. A disorderly Brexit would have a drastic impact on supply chain and the competitiveness of UK-based production. Border checks would definitely have an impact on the delivery of finished products. Reduction of foreign investment in the country is very likely, which would irreversibly weigh on economic growth and employment data long-term. Currently trading at 1.2875, the cable is expected to bounce back along 1.2920 short-term. We recommend investors to remain cautious: the GBP could easily head south. The next big event will be tonight’s no-confidence vote, which the government is expected to survive.

UK CPI slowed more than expected to 2.1% yoy in December, down from 2.3% yoy, missed consensus of 2.2% yoy. Core CPI, however, accelerated to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. Full CPI release here.

Also from UK, RPI slowed to 2.7% yoy, down from 3.2% yoy and missed expectation of 2.8% yoy. PPI input dropped to 3.7% yoy, down from 5.6% yoy, below expectation of 4.6% yoy. PPI output dropped to 2.5% yoy, down from 3.1% yoy, missed expectation of 2.9% yoy. PPI output core rose to 2.5% yoy, up from 2.4% yoy and beat expectation of 2.4% yoy. House price index rose to accelerated to 2.8% yoy in November, below expectation of 3.0% yoy.

The House of Commons have rejected the Brexit deal by 432 votes to 202. Mays proposition is such a fail, that no one wants to be in her trail. Without any doubt, this was the worst defeat for Theresa May. The question is how stubborn she is going to remain, currency traders are highly sensitive to this. Brexit without no deal is no short of biggest catastrophe in the British history.

Sterling took the U- turn on the back of this vote because investors are clear that there is no choice but to extend the Brexit date to avoid the Armageddon. We don’t believe Brexit is going to happen in March now. The 10-day implied volatility for Sterling-dollar looks overwhelmingly exciting and the option markets shows that the price is going to move higher. Bargain hunters have made their best trade yesterday and took the full advantage of the price drop.

However, we are not fully out of the woods yet, because for that to happen, we need to break the level of 1.2937 (against the dollar), a critical level for the bulls to be convinced that the price is going to move higher. If we fail to break this mark, it is likely that the price is going to test yesterday’s low 1.2668 or even test the 1.2482. However, I do believe that the chances of that are low and the price is going to move higher as long as the major resistance level of 1.30 is broken.

In the U.K’s domestic equity market, the move is extremely interesting. These companies are dealing with the Brexit torture for the past two year and Jeremy Corbyn calling for a “no vote of confidence” in the government is going to extend the time line of this uncertainty. Remember, if he comes into the power, there is a whole list of stocks which is going to underperform because of his policies. Royal Bank Of Scotland and Lloyds TSB could be the top victims. We have seen in the past investors selling these stocks on the possibility of the Labour government coming into the power.

You can never discount the fact that Theresa May has survived against most of the odds and the threat of the UK leaving the EU without any formal deal still remains a possibility. She has refused to leave the government. She needs to reveal a new plan immediately and any delay in this is going to hurt the economy extremely adversely. The main agenda should not be their own part differences. They should do what is best for the country and avoid the coming recession which will create a huge destruction. The question is if May can get something more from Donald Tusk, the European Council president. Of course, May’s hopes are that the EU will not be that resilient now and realistic changes could secure a majority.