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The markets traded shaky grounds on Tuesday amid a host of concerns. Reports from Washington revealed that there was no progress on the critical issues with China. Both the United States and China have been holding trade negotiations to end the trade wars.

China signaled that it would add more stimulus measures in the near term. The trade war with the US was taking a toll on its trade sector risking a sharper slowdown in the economy.

Reports from Germany showed that preliminary GDP estimates for the year came in at 1.5%. This was the weakest pace of growth in over five years and slow compared to 2017's GDP growth rate of 2.2%.

ECB President Mario Draghi signaled dovish comments to add that a Eurozone needs significant amount of stimulus.

In the United States, the producer prices index fell by 0.2% in December after rising 0.1% in November. The decline in the PPI was more than the forecasts of a 0.1% decline. The drops came due to a fall in energy prices.

The New York Empire State manufacturing index showed that activity in the region slowed to the slowest pace in a year in January. The index fell to 3.9 in January after a revised reading of 11.5 in December.

The Brexit parliamentary vote did not go through as widely expected. This raises the prospects of the UK inching closer to no deal along with a possible extension to the March 29 deadline. The Brexit deal received a vote down with a majority of 230 votes.

Earlier in the day, Japan's PPI data showed that producer prices rose 1.5% on the year in December. The median estimates forecast an increase of 1.8%, and in November, Japan's PPI advanced 2.3%.

The final inflation data for Germany is due to come out during the European trading session. Forecasts show that German inflation rose 0.1% on the month as per the flash estimates.

In the UK, the Bank of England Governor, Mark Carney will give to give a speech. The UK's inflation data follow this. Forecasts show that consumer prices eased to 2.1% in December on the year. This marks a slowdown from the peak seen last year and inflation is inching closer to the BoE's inflation target rate.

Core inflation is expected to rise by 1.8%, marking a steady pace of increase.

Sterling was volatile in overnight trading as the UK parliament rejected Theresa May’s Brexit deal by a wider margin than earlier expected. The bill was rejected by 432 to 202, which was the biggest loss by a UK government. In response to the deal, the Prime Minister ignored calls to resign but will face a vote of no confidence later today. She is expected to survive this vote. Still, the country will remain in uncharted territory as the March deadline nears. Later today, traders will receive inflation numbers from the UK.

The price of crude oil rose in overnight trading as investors gained confidence in global growth. This came after China announced plans to stimulate growth by offering a large stimulus package and cutting taxes. Today, the PBOC injected more than $84 billion into the economy after data from the country showed a period of sustained weakness. Data revealed that its exports had declined in December. Previously, data showed a decline in the manufacturing sector. Today, data from the housing sector showed that house prices slowed down in December after a three-month rally.

The Japanese yen was little moved today after mixed economic data from the country. On a positive note, the country’s core machinery orders rose by an annualized rate of 0.8% in November. This was better than the expected 0.4% but still lower than the previously reported 4.5%. On a MoM basis, the orders were unchanged. On a negative note, the PPI rose by an annualized rate of 1.5%, which was weaker than the expected 1.8%. While these are lagging numbers, they continue to make a case that the Japanese economy is softening.

XBR/USD

The price of Brent rose to a high of $60.89. This was higher than yesterday’s low of $58.97. On the hourly chart, the price is above the 42-day and 21-day EMA while the RSI has moved from below 30 to the current 59. The same is true with the MACD, which is currently above the signal line. There is a likelihood that the pair will continue moving higher and if it does, it will likely test the previous high of 62.45.

EUR/USD

The EUR/USD pair rose slightly in overnight trading and reached a high of 1.1416. This was after the sharp decline experienced yesterday when the Brexit vote was going on. The current price of 1.1407 is below the 21-day and 42-day EMA while the RSI has moved closer to the oversold level of 30 while the On Balance Volume (OBV) has eased a bit from this week’s high. The pair will likely remain a bit volatile today as traders digest the news on Brexit.

GBP/USD

The GBP/USD pair pared earlier losses after the British parliament rejected Theresa May’s proposal by a wider margin. This is because the market had already priced in the defeat. As a result, the pair rose from 1.2667 to a high of 1.2890. As it rose, the Average True Range indicator declined sharply while the Money Flow Index rose sharply. Today, the pair will likely decline as the UK continues to face an uncertain future.

Rates: No adverse reaction to brexit-vote defeat

UK PM May’s brexit defeat didn’t came as a surprise with global markets taking it relatively well. Risk sentiment will probably set the tone as the eco calendar is again beheaded by the US government shutdown. We don’t expect technically significant moves on core bond markets. German Bunds tend to outperform US Treasuries this week.

Currencies: Dollar again received the benefit of the doubt.

USD traders adapted positions last week to a softer Fed approach, weighing on the dollar. This week the focus turned to the relative growth performance between the US and Europe. For now the perception is more EMU underperformance weighing on EUR/USD. Sterling is holding gains, despite PM May’s Brexit deal being rejected by a huge majority

The Sunrise Headlines

• US equity markets gained ground yesterday with technology shares outperforming (Nasdaq +1.17%). Asian equities opened mixed this morning with Japanese indices underperforming on a strong yen and disappointing data.
• The UK Parliament rejected PM May’s Brexit deal very decisively (432n/202y). Labour leader Corbyn tabled a vote of no confidence in PM May, held tonight. She is expected to survive, but it remains very unclear what will happen next.
• ECB chair Draghi said the euro-area economy isn’t headed for a recession, as he addressed the EP. He added, however, that the softening momentum could last longer than expected and underscored the need for ECB stimulus.
• Kirsten Gillibrand announced she will join the 2020 race for the US presidency. Gillibrand, a US Senator for New York, is a prominent advocate for women’s rights and an outspoken critic of Donald Trump.
• China’s PBoC made its biggest daily cash injection ($83bn), evidence of further policy easing. However, this is common ahead of the Spring Festival to avoid a credit squeeze as people spend extra and companies need to pay their taxes.
• Japanese producer price inflation decreased in Dec. with -0.3% (M/M) and declines to 1.5% (Y/Y), down from 2.3% in Nov. and below the 1.8% expectations. Machine orders dropped to 0.0% in Nov., down from 7.6%.
• Today’s economic calendar contains US NAHB Housing Market Index and UK & German (final) inflation readings. BoE Carney speaks. The US Federal Reserve Beige Book is released and Germany taps the bond market

Currencies: Dollar Again Received The Benefit Of The Doubt

EUR/USD extends decline on EMU growth doubts

The euro stayed in the defensive yesterday. European equities couldn’t maintain the positive momentum from Asia. This underperformance weighed on the euro. Euro selling accelerated after the publication of mediocre (but as expected) German 2018 growth (1.5%). A poor Empire manufacturing survey weighed temporarily on the dollar, but euro selling resumed soon. ECB’s Draghi said he didn’t see a recession ahead, but acknowledged recent loss of momentum in growth. Ample policy stimulus will still be needed. Brexit-related uncertainty was also no help for the euro. EUR/USD closed at 1.1413. USD/JPY fared better and profited from a US equity rebound to close the session at 108.68. This morning, Asian equities fail to join the risk rebound from the US yesterday evening and are trading mixed. The dollar stabilizes. EUR/USD is changing hands in the low 1.14 area. USD/JPY (108.40) is slightly declining as the risk rebound eases. There are only second tier data in EMU today. The publication of the December US retail sales is postponed (shutdown). The Fed Beige book preparing the Jan 30 meeting might contain some ‘anecdocal evidence’ on the health of the US economy. Last week, the dollar softened as markets adapted positions in line with a more cautious Fed. This week the focus turned to the expected relative performance between the US and EMU economies. For now, markets tends to see more risks to EMU growth than is the case for the US. This balance might tilt again (e.g. due to the shutdown), but for now the dollar gets the benefit of the doubt. We still see no hard case for a sustained USD rally going forward, but for now day day-to-day EUR/USD momentum is again negative. We look for a botomming out process. EUR/USD 1.1309 is first minor support.

EUR/GBP traded quite volatile in the run-up to the ‘meaningful vote’ yesterday. In some kind of erratic trading, sterling came under pressure in the hours just before the vote, but strengthened afterward even as PM May’s deal was rejected by a huge majority. Today, the labour Party will trigger a no-confidence vote against the government, but May might survive it. From a market/sterling point of view, sterling traders assume that a delay of Brexit beyond March 29 is likely. This scenario gives sterling some downside protection short-term. Some further technical sterling gains might be on the cards short-term, but we assume that a sustained sterling rebound will be difficult as long as political visibility remains as low as it is right now.

EUR/USD: dollar again gets the benefit of the doubt, at least for now

Reuters reported, quoting unnamed source that BoJ will likely lower inflation forecasts at next week's meeting. It's noted that oil prices have fallen significantly since the last economic projections back October. And that would have a negative impact on the upcoming projections to be published along with the meeting last week. Though, on growth, BoJ will likely maintain its upbeat assessment.

Back on October, BoJ projects core CPI to hit 1.4% in fiscal 2019 and then 1.5% in fiscal 2020. Such projections would be trimmed to reflect the decline in oil as well as global slowdown.

The British pound has recovered earlier losses against the US dollar after the pair tumbled to the 1.2667 support level, as British PM Theresa May’s Brexit bill was voted down in UK Parliament. The GBPUSD pair retains a strong intraday bullish bias while clearly trading above the pivotal 1.2810 level. Traders now await the outcome of the no-confidence-voted submitted against PM May, following yesterday’s defeat in Parliament.

The GBPUSD pair remains intraday bullish while trading above the 1.2810 level, key technical resistance is found at the 1.2930 and 1.3000 levels.

If the GBPUSD pair trades below the 1.2810 level, key technical support is found at the 1.2750 and 1.2667 levels.

The LTCUSD pair remains under selling pressure on Wednesday, as the eight largest cryptocurrency by market capitalization struggles to rally away from the worst trading levels of the week. Litecoin buyers need to force price back inside the well-defined flag pattern to negate immediate downside pressure. The LTCUSD pair will likely come under further technical selling pressure if the current weekly low, at $29.30, is clearly broken.

The LTCUSD pair is bearish while trading below the $33.00 level, key support is found at the $29.30 and the $24.80 levels.

If the LTCUSD pair moves above the $33.00, buyers may test the $36.60 and $43.00 resistance levels.

The euro currency remains under downside pressure against the US dollar, following a dovish speech from ECB President Mario Draghi. The EURUSD pair is currently probing the 1.1400 support level, a sustained loss of this key area is likely to encourage technical sellers to test the 1.1360 level. If bears fail to break the 1.1400 level, a relief rally back towards the 1.1460 level remains possible.

The EURUSD pair is strongly bearish while trading below the 1.1400 level, key technical support is found at the 1.1360 and 1.1300 levels.

If the EURUSD pair recovers from the 1.1400 level, buyers may test towards the 1.1460 and 1.1486 resistance levels.

AUDUSD is continuing its slightly upside tendency following the rebound on the decade low of 0.6746, recording a one-month high of 0.7235.

The price has successfully surpassed the 20- and 40-simple moving averages (SMAs) confirming another possible upside wave in the market. The short-term bias looks positive as the MACD keeps gaining ground above its red trigger line, while the RSI seems to be making its way up above its 50-neutral level. However, looking at the stochastic oscillator the %K line completed a bearish cross with the %D line indicating an overstretched upside rally in the market.

The 38.2% Fibonacci retracement level of the downleg from 0.8135 to 0.6746, around 0.7275 could be trigger point for steeper bullish actions if the price jumps above the significant obstacle of 0.7235. If the price manages to break this line the 0.7340 – 0.7390 resistance zone should attract some attention.

On the other side, if the pair reverses back to the downside, investors could find strong support at the 40- and then at the 20-SMAs at 0.7177 and 0.7110 respectively. If the price continues to slip, support could next come near the 23.6% Fibonacci region of 0.7070, before the focus turns again at the 0.6825 barrier, registered by the low on January 2016.

In the long-term view, AUDUSD has been retaining its descending movement over the last year. Chances for a strong bullish tendency would come if the pair breaks the 61.8% Fibonacci of 0.7600.

General Trend:

• Shares of big banks and Fast Retailing weigh on Nikkei
• Chinese equities trade generally flat in morning session
• China injects record amount through OMO operations ahead of Lunar New year holiday cash demands
• Little initial impact seen on Shanghai property index from new home price figures
• Tech names decline in Hong Kong: Lenovo drops on convertible offering, Xiaomi shareholder said to place shares
• Taiwan DRAM maker Nanya reports first annual profit decline in 3-years
• FTSE 100 Futures trade flat in Asia after recent Brexit vote
• China Bond Futures rise, PBoC steps up cash injection
• China pledges to ‘actively’ expand imports in 2019
• Australia Jan Westpac consumer confidence has largest m/m decline in over 3-years
• US companies expected to report earnings on Wed, including the afterhours (Alcoa, Bank of America , Bank of New York , BlackRock , CSX, Goldman Sachs, PNC, Charles Schwab, US Bancorp)

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.1%
• (JP) 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 - US press
• (JP) JAPAN DEC PPI (CGPI) M/M: -0.6% V -0.3%E; Y/Y: 1.5% V 1.8%E
• (JP) JAPAN NOV CORE MACHINE ORDERS M/M: 0.0% V 3.0%E; Y/Y: 0.8% V 0.2%E
• (JP) Japan MoF sells ¥2.0T v ¥2.0T prior in 0.10% 5-yr JGB: avg yield: -0.144% v -0.112% prior, bid to cover: 5.15x v 3.84x prior
• (JP) Japan Chief Cabinet Sec Suga: To closely watch movements related to Brexit, will take steps to support Japanese companies impacted by Brexit
• (JP) Japan 2018 domestic beer and beer like shipments -2.5% y/y

Korea

• Kospi opened +0.1%
• (KR) South Korea President Moon: Our top conglomerates and large firms need to increase their local investment and create more jobs – Yonhap
• 005380.KR Analysts expect FY18 Net to be KRW2.3T, -50% y/y, due to slower sales in its major markets – Yonhap (will report on Jan 24th)
• (KR) South Korea Vice Finance Min says to deploy contingency plans to calm FX markets if volatilities widen - South Korean Press
• (KR) North Korea propaganda affirms commitment to denuclearization

China/Hong Kong

• Hang Seng opened -0.5%, Shanghai Composite -0.1%
• (CN) China Vice Premier Liu He (head of trade talks with US) accepts invite to visit Washington to discuss trade war Jan 30th and 31st – SCMP
• (HK) Hong Kong getting a boost from Chinese companies due to US ‘first sale’ rule allows duties to be levied only on the initial sale from the manufacturer to the initial wholesaler – SCMP
• (CN) China PBOC sets Yuan Reference Rate: 6.7615 v 6.7542 prior
• (CN) China PBoC Open Market (OMO): Injects CNY570B combined in 7-day and 28-day reverse repos (record high level for injection) v CNY180B injection of 7-day and 28-day prior; Net: CNY560B injection v CNY180B drain prior
• (CN) China PBoC: Banking system liquidity falls relatively fast, cash injection meant to maintain reasonably ample banking system liquidity

Overnight:

• (CN) CHINA DEC AGGREGATE FINANCING (CNY) 1.59T V 1.300TE
• (CN) CHINA DEC M2 MONEY SUPPLY Y/Y: 8.1% V 8.1%E; M1 Money Supply Y/Y: 1.5% v 1.6%e; M0 Money Supply Y/Y: 3.6% v 3.0%
• (CN) CHINA DEC NEW YUAN LOANS (CNY): 1.08T V 825.0BE; Outstanding Loan Growth y/y: 13.5% v 13.1% prior
• (US) 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
• (CN) 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 - press

Australia/New Zealand

• ASX 200 opened flat
• (NZ) New Zealand Total Card Spending M/M: -1.9% v -0.3% prior; Retail Card Spending M/M: -2.3% v -0.4%e
• (AU) Australia Jan Westpac Consumer Confidence Index: 99.6 v 104.4 prior (first reading below 100 since Nov 2017); M/M: -4.7% v 0.1% prior
• MEL.NZ Reports Dec retail sales volumes -23.9% y/y

North America

• SNAP CFO Tim Stone to resign (8 months after joining); raises Q4 Rev and Adjusted EBITDA midpoint guidance - filing
• UAL Reports Q4 $2.41 v $1.84e, Rev $10.5B v $10.4Be
• (US) Fed's George (hawk, voter): Uncertainty over portfolio runoff effects offers an additional reason to pause rate hikes

Europe

• (UK) PARLIAMENT REJECTS PM MAY'S BREXIT DEAL PROPOSAL BY 432-202 VOTE (LARGER MARGIN THAN EXPECTED)
• (UK) EU urging UK to clarify their intentions on Brexit deal

Levels as of 12:50ET

• Hang Seng +0.1%; Shanghai Composite -0.1%; Kospi +0.3%; Nikkei225 -0.6%; ASX 200 +0.4%
• Equity Futures: S&P500 +0.2%; Nasdaq100 +0.1%, Dax +0.0%; FTSE100 +0.3%
• EUR 1.1396-1.1418; JPY 108.38-108.75; AUD 0.7189-0.7208; NZD 0.6806-0.6827
• Feb Gold +0.2% at $1,290/oz; Feb Crude Oil +0.0% at $52.13/brl; Mar Copper +0.5% at $2.65/lb

Daily Pivots: (S1) 137.95; (P) 139.20; (R1) 141.03; More...

Outlook is GBP/JPY remains unchanged and focus stays on 139.88 resistance. Sustained trading above 139.88 will dampen our bearish view and bring stronger rise to 143.93 resistance next. Nevertheless, reversal from current level, followed by 137.35 support will confirm completion of rebound from 131.51. Intraday bias will be turned back to the downside for retesting 131.51 low.

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. Fall from 156.59 (2018 high) is seen as resuming the long term down trend from 195.86 (2015 high). Below 131.51 will target 122.36 low first. And this will now remain the preferred case as long as 139.88 support turned resistance holds. Sustained break of 139.88 will mix up the outlook and we'll reassess on the final structure of the rebound from 131.51.