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EUR/USD topped near the 1.1575 level and later corrected lower sharply. USD/JPY is currently consolidating and it could soon make the next move above 108.75.

Important Takeaways for EUR/USD and USD/JPY

• The Euro declined recently and broke the 1.1460 and 1.1420 support levels.
• There is a major bearish trend line formed with resistance at 1.1445 on the hourly chart of EUR/USD.
• USD/JPY is gaining strength above the 108.00 and 108.20 support levels.
• There is a key contracting triangle formed with resistance at 108.65 on the hourly chart.

EUR/USD Technical Analysis

The Euro traded above the 1.1500 resistance this past week against the US Dollar. The EUR/USD pair traded towards the 1.1580 level and later started a sharp downward move.

The pair traded below the 1.1500, 1.1460 and 1.1420 support levels to move into a bearish zone. There was even a close below the 1.1420 support level and the 50 hourly simple moving average. A low was formed at 1.1382 on FXOpen and the pair is currently correcting higher.

It traded above the 23.6% Fib retracement level of the recent decline from the 1.1489 high to 1.1382 low. However, there are many hurdles for buyers on the upside near the 1.1420, 1.1430 and 1.1440 levels.

There is also a major bearish trend line formed with resistance at 1.1445 on the hourly chart of EUR/USD. The trend line coincides with the 50% Fib retracement level of the recent decline from the 1.1489 high to 1.1382 low.

Therefore, if there is an upside correction, the pair is likely to struggle near the 1.1420, 1.1430 and 1.1440 resistance levels. On the downside, an initial support is at 1.1380, below which the pair may test the 1.1350 support level.

On the flip side, if there is a close above the trend line and the 50 hourly SMA, EUR/USD could move back in a positive zone towards 1.1500.

USD/JPY Technical Analysis

The US Dollar declined below the 108.50 level recently before buyers appeared near 107.80 against the Japanese Yen. The USD/JPY pair started a fresh upward move and traded above the 108.00 and 108.20 resistance levels.

The pair traded as high as 108.74 recently and later started trading in a range. It declined below the 38.2% Fib retracement level of the last wave from the 107.94 low to 108.76 high.

However, the 108.40 level acted as a solid support along with the 50 hourly simple moving average. Moreover, the 50% Fib retracement level of the last wave from the 107.94 low to 108.76 high also acted as a support.

At the moment, the pair is trading in a range above 108.40 and it is likely preparing for the next move. There is also a key contracting triangle formed with resistance at 108.65 on the hourly chart.

If there is an upside break above the 108.65 and 108.70 levels, the pair may climb towards the 109.00 and 109.40 levels. On the other hand, a downside break below 108.40 and 108.20 could start a fresh decline to 108.00 and 107.80.

Overall, the pair remains primed for more gains as long as it is trading above the 108.20 support area in the near term.

Short term Elliott Wave view on FTSE suggests that the decline to 6356.3 on Dec 27, 2018 ended wave (3). Index is now doing wave (4) correction higher. The internal of wave (4) is unfolding as a zigzag Elliott Wave structure where rally to 7001.94 ended wave A. Index then pullback to 6840.13, which we label as wave B. For better confirmation on this view, the Index needs to break above wave A at 7001.94 to suggest wave C has started.

Internal of wave A unfolded as 5 waves Elliott Wave impulse structure. Up from 6356.3, wave ((i)) ended at 6752.54, wave ((ii)) ended at 6599.48, wave ((iii)) ended at 6938.31, wave ((iv)) ended at 6860.82, and wave ((v)) of A ended at 7001.94. Wave B unfolded as a zigzag Elliott Wave structure. Wave ((a)) of B ended at 6902.65, wave ((b)) of B ended at 6927.42, and wave ((c)) of B ended at 6840.13.

Near term, while FTSE stays above 6840.13, the Index should extend higher in wave C as another 5 waves. If the Index breaks below 6840.13, then it’s doing a double correction in wave B. Potential target for wave B in a double correction scenario is approximately 6646 – 6768 (50 – 76.4 Fibonacci retracement from 6356.3) before the Index resumes higher.

FTSE 1 Hour Elliott Wave Chart

Daily Pivots: (S1) 1.2714; (P) 1.2816; (R1) 1.2961; More....

Despite dipping deeply to 1.2668 and breached 1.2709 minor support, GBP/USD quickly recovered, strongly. Intraday bias stays neutral first. For now, further rise is still mildly in favor. On the upside, break of 1.2930 will extend the corrective rebound from 1.2391 to 1.3174 resistance, which is close to 38.2% retracement of 1.4376 to 1.2391 at 1.3149. We'd expect strong resistance from there to limit upside, at least on first attempt. On the downside, break of 1.2668 should now confirm completion of the rebound. In this case, intraday bias will be turned back to the downside for retesting 1.2391 low.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend from 2.1161 (2007 high). And this will now remain the preferred case as long as 1.3174 structural resistance holds. GBP/USD should target a test on 1.1946 first. Decisive break there will confirm our bearish view. However, sustained break of 1.3174 will invalidate this case and turn outlook bullish.

The historic defeat of UK Prime Minister Theresa May over the Brexit deal triggered some volatility in the Pound. But no clear direction is seen in Sterling after all the moves. It's staying bounded in relatively tight range overall, with a bias for further rise. UK CPI is usually a mover in normal circumstances. But traders might only be willing to commit further after the no-confidence vote. For now, Sterling will likely gyrate in established range first.

On the other hand, clear down side bias is seen in Euro. Worries over slowdown in Eurozone economy is deepening. ECB President Mario Draghi also noted that the slowdown might be longer than expected. Weakness in Euro is somewhat dragging down the Swiss Franc too. Overall for the week, Sterling remains the strongest one while Euro is the weakest.

Technically, EUR/USD is heading back towards 1.1307 minor support while USD/CHF is heading to 0.9963 minor resistance. Break of these level will carry near term bearish implication for both Euro and Franc. EUR/JPY is also pressing 123.40 minor support. Firm break there will open up more decline back to 118.62 low.

In other markets, major Asian indices are steady in range. Nikkei is currently down -0.59%. Hong Kong HSI is down -0.22%, Shanghai SSE is down -0.10%, Singapore Strait Times is up 0.28%. Japan 10-year JGB yield is down -0.0051 at 0.009, still staying positive. Overnight, DOW rose 0.65%, S&P 500 rose 1.07%, NASDAQ rose 1.71%. Treasury yields continued to show strength at the long end. 30-year yield rose 0.011 to 3.071. 10-year yield rose 0.001 to 2.711. 5-year yield dropped -0.002 to 2.527.

UK PM May to face no-confidence vote after humiliating defeat over her Brexit deal

UK Prime Minister Theresa May suffered humiliating defeat over her Brexit deal. It's voted down by 432 to 202 in the Commons, the biggest loss in modern UK history. It's uncertain what the path will be exactly like after this point. But what's sure is that opposition Labour Party leader Jeremy Corbyn has swiftly called for a no-confidence vote in the government. And that would be held at 1900GMT on Wednesday, today.

In a well-prepared statement, May said in the parliament after the defeat that "It is clear that the House does not support this deal.  But tonight's vote tells us nothing about what it does support.  Nothing about how - or even if - it intends to honor the decision the British people took in a referendum Parliament decided to hold."

She added that the first thing to do is to "confirm whether this government still enjoys the confidence of the House." Secondly, she will meet with Conservatives, DUP and other  senior parliamentarians from across the house to find "ideas that are genuinely negotiable and have sufficient support in this House." Thirdly, she will go back to EU with those ideas.

Suggested readings:

• PM May's Brexit Deal Rejected. What Next?
• Brexit Monitor: The Waiting Game – Brexit Edition

EU Juncker urged UK to clarify its intentions asap after Brexit deal defeat

Regarding the outcome of the Brexit meaningful vote in the UK Commons, European Commission responded with a quick statement. President Jean-Claude Juncker warned that "time is almost up" and urged the UK to "clarify its intentions as soon as possible". He also noted that "the risk of a disorderly withdrawal of the United Kingdom has increased with this evening's vote. While we do not want this to happen, the European Commission will continue its contingency work to help ensure the EU is fully prepared."

European Council President Donald Tusk also tweeted that "If a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?"

ECB Draghi: Eurozone economy weakening more than expected

ECB President Mario Draghi told the European Parliament yesterday that the Eurozone economy is weakening more than expected. Though, he emphasized that "it's a slowdown, which is not heading towards a recession but it could be longer than expected before,"

Hence, Draghi reiterated "a significant amount of monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term," Also, he added that "Our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of assets we have acquired, continues to provide the necessary degree of monetary accommodation."

PBoC injects record cash as liquidity is falling rapidly

The People's Bank of China injected record amount of cash into the market to "maintain "reasonably ample" liquidity in the banking system. The central bank said the act was to provide support for the current peak period for tax payments. And it came at a time when "the banking system's overall liquidity is falling rapidly".

PBoC injected CNY 350B through 7-day reverse bond repurchases and CNY 220B through 28-day reverse bond repurchases. At the same time, CNY 10B reverse repose are set to mature today. The net CNY 560B, or USD 83B, is the largest daily injection on record.

The act is seen as a sign of consensus in the Chinese government for decisive stimulus to the economy, in light of the ugly trade data as released earlier this week.

On the data front

Japan machine orders rose 0.0% mom in November, below expectation of 3.1% mom. Tertiary industry index dropped -0.3% mom versus expectation of -0.5% mom. Domestic CGPI rose 1.5% yoy in December, below expectation of 1.8% yoy.

UK data will take center stage again in European session. CPI, RPI and PPI will be featured. House price index and BBA mortgage approvals will also be released. Germany will also release December CPI final.

Later in the day, US will release import price index, NAHB housing index and Fed's Beige Book. Due to record government shutdown, retail sales and business inventories will miss schedule.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.2714; (P) 1.2816; (R1) 1.2961; More....

Despite dipping deeply to 1.2668 and breached 1.2709 minor support, GBP/USD quickly recovered, strongly. Intraday bias stays neutral first. For now, further rise is still mildly in favor. On the upside, break of 1.2930 will extend the corrective rebound from 1.2391 to 1.3174 resistance, which is close to 38.2% retracement of 1.4376 to 1.2391 at 1.3149. We'd expect strong resistance from there to limit upside, at least on first attempt. On the downside, break of 1.2668 should now confirm completion of the rebound. In this case, intraday bias will be turned back to the downside for retesting 1.2391 low.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend from 2.1161 (2007 high). And this will now remain the preferred case as long as 1.3174 structural resistance holds. GBP/USD should target a test on 1.1946 first. Decisive break there will confirm our bearish view. However, sustained break of 1.3174 will invalidate this case and turn outlook bullish.

Economic Indicators Update

A lot of volatility is seen in Sterling in the past 12 hours. The Pound was sold off on the historical defeat of Prime Minister Theresa May in the Commons. But it found its footing quickly. For now, there is still prospect of extending recent rebound against Dollar and Euro.

Though, at the time of writing, Yen is the strongest one for today. Australian Dollar is the weakest. But all are bounded in yesterday's range after all.

For the week, Sterling remains the strongest followed by Yen, Euro is the worst performing followed by Swiss Franc.

In Asian markets, major indices are staying in tight range:

• Nikkei is down -0.65%
• Hong Kong HSI is down -0.13%
• China Shanghai SSE is down -0.08%
• Singapore Strait Times is up 0.21%
• Japan 10 year JGB yield is down -0.0079 at 0.007, still positive

Overnight:

• DOW rose 0.65%
• S&P 500 rose 1.07%
• NASDAQ rose 1.71%

Treasury yields continued to show strength at the long end

• 30-year yield up 0.011 at 3.071
• 10-year yield up 0.001 at 2.711
• 5-year yield down -0.002 at 2.527

The People's Bank of China injected record amount of cash into the market to "maintain "reasonably ample" liquidity in the banking system. The central bank said the act was to provide support for the current peak period for tax payments. And it came at a time when "the banking system's overall liquidity is falling rapidly".

PBoC injected CNY 350B through 7-day reverse bond repurchases and CNY 220B through 28-day reverse bond repurchases. At the same time, CNY 10B reverse repose are set to mature today. The net CNY 560B, or USD 83B, is the largest daily injection on record.

The act is seen as a sign of consensus in the Chinese government for decisive stimulus to the economy, in light of the ugly trade data as released earlier this week.

The UK Parliament rejected the Brexit deal (Withdrawal Agreement) proposed by PM Theresa May at 432 to 202 votes. The 230- vote margin marks the biggest defeat in the country’s political history. The government now has three days to work on a new plan, which has to be agreed by Europe and presented to parliament again by the close of business on January 21 (Monday). Meanwhile, opposition Labor Party leader Jeremy Corbyn has tabled a no- confidence vote. With 73 days left before the UK’s exit from the EU on March 29, what the next step is remains highly uncertain. Ironically British pound strengthened amid uncertainty, as the market hopes that an extension of Article 50 and a possible second referendum would greatly reduce the chance of no-deal Brexit while increasing the likelihood of remaining in EU (the most GBP positive scenario).

In this report, we lay down several scenarios that could happen upon rejection of the deal. We agree that an extension of Article 50, follower by a second referendum, is the most likely scenario. Yet, we refrain from overtly optimistic over GBP's outlook, mainly as the risk no- deal Brexit is truly eliminated.

A. Passage of a Modified Deal before March 29

PM May’s administration now has three days to modify her plan. Since the parliament does not sit on Friday, it has by next Monday to present a new proposal to the parliament. Note, that the new proposal has to be agreed unanimously in the European parliament beforehand. We believe this is nearly impossible. A plan that could be accepted by the majority in the UK parliament would require amendments on the Irish backstop, which is unlikely to be compromised by the EU.

B. Extension of Article 50
As time is running short before the official day of leaving the EU arrives, it is likely that PM May would seek to extend Article 50, buying time to implement one or some of the followings:

i) Second referendum

This is what the market generally expects would happen. Sterling’s rally amidst such hopes lies on the assumption that the UK citizens would vote for “remain” or “Brexit with May’s deal”. Both cases would preclude a “no-deal Brexit”.

The trick here is on the question being asked the ballot paper. According to UK’s Institute for Government, most referendums offer voters a binary choice between 2 options. Yet, since there are at least 3 possible outcomes for the case of Brexit: May’s deal, no- deal Brexit, or remaining in the EU, a binary- option referendum (e.g.: deal vs no-deal, or deal vs remain) would be vigorously opposed by those in support of the excluded option.

A problem created by a ternary voting (referendum with three options) is that the most popular option could be implemented without support of a majority of voters. Regarding this, some suggested that voters could rank their choices in order of preference. The least popular first choice would be eliminated, and its votes reallocated based on second preferences. Others propose that the referendum could include two separate questions. Question 1 could ask whether voters wish to Leave or Remain, as in 2016. Question 2 could ask voters to select between the two different models of Brexit, if there is still a pro-Leave majority. In both cases, “no- deal Brexit” would still be a referendum option, meaning that the risk of UK exiting EU without a deal is not truly eliminated.

ii) A New Deal

Similar to the scenario of “passage of a Modified Deal before March 29”, the biggest conflict between UK Parliament and EU is on the Irish backstop. We see remote possibility of eventual compromise on this issue, even after Article 50 is extended.

iii) General Election

The MPs would vote on the no- confidence motion tabled by Labor Party leader Corbyn later this week. We doubt if it would be passed since it requires support of some Tory/ DUP MPs. Should Corbyn’s motion be passed, it might not automatically trigger a general election. Indeed, another election is not practical. The market does not expect a new government could resolve the deadlock currently facing Brexit. Meanwhile, a Labor-led government could be negative for the pound as it takes time to assess a new government from the opposite end of the political spectrum and the market is skeptical over the party’s welfare policy stance

C. No- Deal Brexit

As we can see, the chance of no-deal Brexit is not entirely eliminated unless a modified plan is approved by the UK Parliament by next Monday or the government manages to secure a new deal the extension of Article 50.

Regarding the outcome of the Brexit meaningful vote in the UK Commons, European Commission responded with a quick statement. President Jean-Claude Juncker warned that "time is almost up". and urged the UK to "clarify its intentions as soon as possible". He also noted that "the risk of a disorderly withdrawal of the United Kingdom has increased with this evening's vote. While we do not want this to happen, the European Commission will continue its contingency work to help ensure the EU is fully prepared."

European Council President Donald Tusk also tweeted that "If a deal is impossible, and no one wants no deal, then who will finally have the courage to say what the only positive solution is?"

https://twitter.com/eucopresident/status/1085260488903090176

Here is European Commission's full statement:

Statement by President Juncker on the outcome of the Meaningful Vote in the United Kingdom House of Commons

I take note with regret of the outcome of the vote in the House of Commons this evening.

On the EU side, the process of ratification of the Withdrawal Agreement continues.

The Withdrawal Agreement is a fair compromise and the best possible deal. It reduces the damage caused by Brexit for citizens and businesses across Europe. It is the only way to ensure an orderly withdrawal of the United Kingdom from the European Union.

The European Commission, and notably our Chief Negotiator Michel Barnier, has invested enormous time and effort to negotiate the Withdrawal Agreement. We have shown creativity and flexibility throughout. I, together with President Tusk, have demonstrated goodwill again by offering additional clarifications and reassurances in an exchange of letters with Prime Minister May earlier this week.

The risk of a disorderly withdrawal of the United Kingdom has increased with this evening's vote. While we do not want this to happen, the European Commission will continue its contingency work to help ensure the EU is fully prepared.

I urge the United Kingdom to clarify its intentions as soon as possible.

Time is almost up.

UK Prime Minister Theresa May suffered humiliating defeat over her Brexit deal. It's voted down by 432 to 202, the biggest loss in modern UK history. It's uncertain what the path will be exactly like after this point. But what's sure is that opposition Labour Party leader Jeremy Corbyn has swiftly called for a no-confidence vote in the government. And that would be held at 1900GMT on Wednesday, today.

In a well-prepared statement, May said in the parliament after the defeat that "It is clear that the House does not support this deal. But tonight's vote tells us nothing about what it does support. Nothing about how - or even if - it intends to honor the decision the British people took in a referendum Parliament decided to hold."

She added that the first thing to do is to "confirm whether this government still enjoys the confidence of the House." Secondly, she will meet with Conservatives, DUP and other senior parliamentarians from across the house to find "ideas that are genuinely negotiable and have sufficient support in this House." Thirdly, she will go back to EU with those ideas.

https://www.facebook.com/cnn/videos/223271985278902/

May's statement below:

“Mr Speaker, the House has spoken and the Government will listen.

It is clear that the House does not support this deal. But tonight’s vote tells us nothing about what it does support. Nothing about how - or even if - it intends to honor the decision the British people took in a referendum Parliament decided to hold.

People, particularly EU citizens who have made their home here and UK citizens living in the EU, deserve clarity on these questions as soon as possible. Those whose jobs rely on our trade with the EU need that clarity. So with your permission Mr Speaker I would like to set out briefly how the Government intends to proceed.

First, we need to confirm whether this government still enjoys the confidence of the House. I believe that it does, but given the scale and importance of tonight’s vote it is right that others have the chance to test that question if they wish to do so.

I can therefore confirm that if the Official Opposition table a confidence motion this evening in the form required by the Fixed Term Parliaments Act, the Government will make time to debate that motion tomorrow. (Wednesday)

And if, as happened before Christmas, the Official Opposition decline to do so, we will – on this occasion - consider making time tomorrow to debate any motion in the form required from the other opposition parties, should they put one forward.

Second, if the House confirms its confidence in this government I will then hold meetings with my colleagues, our Confidence & Supply partner the DUP and senior parliamentarians from across the House to identify what would be required to secure the backing of the House.

The government will approach these meetings in a constructive spirit, but given the urgent need to make progress, we must focus on ideas that are genuinely negotiable and have sufficient support in this House.

Third, if these meetings yield such ideas, the Government will then explore them with the European Union.

Mr Speaker I want to end by offering two reassurances.

The first is to those who fear that the government’s strategy is to run down the clock to 29th March (Britain’s exit date from the EU).

That is not our strategy. I have always believed that the best way forward is to leave in an orderly way with a good deal and have devoted much of the last two years negotiating such a deal.

As you confirmed Mr Speaker, the amendment to the business motion tabled last week by my Right Honorable and Learned Friend the Member for Beaconsfield (Dominic Grieve) is not legally binding, but the government respects the will of the House.

We will therefore make a statement about the way forward and table an amendable motion by Monday.

The second reassurance is to the British people, who voted to leave the European Union in the referendum two and a half years ago.

I became Prime Minister immediately after that referendum. I believe it is my duty to deliver on their instruction and I intend to do so.

Mr Speaker, every day that passes without this issue being resolved means more uncertainty, more bitterness and more rancor.

The government has heard what the House has said tonight, but I ask Members on all sides of the House to listen to the British people, who want this issue settled, and to work with the government to do just that."

As widely expected, PM Theresa May’s Brexit deal failed in the House of Commons. The defeat, however, was bigger than expected, 432 against versus 202 in favour.

The first thing to look out for is the Labour’s motion of no confidence in May’s government tomorrow. As all wings of the Conservative Party including the hard Brexiteers and May’s supporting party DUP from Northern Ireland have said they will vote for confidence in the government, PM Theresa will most likely survive the vote (remember the Conservatives cannot force her to resign as party leader for another year after she won the party confidence vote in December). Vote takes place at 20:00 CET.

The second thing to look out for is PM Theresa May’s discussion with party leaders and other leading politicians on how to proceed with the negotiations. May is right when she says that while the House of Commons has clearly indicated it is against her deal, the Commons has not said what it wants. Right now there is no credible alternative to Theresa May’s Brexit plan, which is why we think we are in uncharted territory (more on that below). After the discussions she will go back to the EU to discuss, however the EU restated tonight that the Withdrawal Agreement is not open for renegotiations (but it could hardly say otherwise at this point when things in the UK have not settled).

The third thing is that PM Theresa May will put forward her Brexit plan B for the House of Commons on Monday 21 January (which is amendable). Uncertain what that motion would include given the limited time frame.

As we outlined in our preview, we still think some outcomes are more likely than others despite us being in uncharted territory (see game tree on page 2). The likelihood of an extension of Article 50 has probably increased, so that is also something we arei set to monitor (officially May still sticks to the plan of leaving the EU on 29 March). A majority in the House of Commons has clearly indicated it is against a no deal Brexit, which would only happen by accident, as it is the default option (15% probability). We continue to believe the probabilities of a soft Norway-style Brexit and snap election are low (10% and 5%, respectively).

The two most likely outcomes are: either May’s deal (or something very similar) passing at a later stage as pressure builds on the politicians or a second EU referendum (40% and 30%, respectively) but British politics need to settle before we find out which way the UK will go.

EUR/GBP declined despite the loss being bigger than expected. As such, price actions resemble a ‘buy the rumour sell the fact’ and thus GBP short covering in the aftermath of the voting. As we are now in unchartered territory, the next days of debate in the parliament and not least the no confidence vote tomorrow will be directional for GBP. We expect EUR/GBP to stay in the 0.88-0.9060 range until further Brexit clarification. As such, an extension of the Article 50 would be positive for GBP as it reduces the risk of a no-deal Brexit, while pressure on the GBP might increase due to rising uncertainty as the 29 March moves closer.

For more details on our Brexit scenarios and GBP forecasts please see Brexit Monitor - May is losing control over the Brexit process but no credible alternative has emerged yet.