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The US dollar is back under pressure against the Japanese yen currency after the Chinese economy released much weaker than expected trade data for the month of December. The USDJPY pair is likely to come under selling pressure while trading below the pivotal 108.10. A break of the 107.75 support level exposes the pair to heavy technical selling toward the 107.00 level.

The USDJPY pair is bearish while trading below the 108.10 level, key technical support is found at the 107.75 and 107.10 levels.

If the USDJPY pair trades above the 108.10 level, buyers may test towards the 108.40 and 109.00 resistance levels.

Unexpected bullish turn

US-Chinese trade talks ended and optimism about the outcome sent the Chinese yuan higher and the US dollar lower yesterday afternoon. The combination of dovishness by the US Federal Reserve and trade harmony is risk-friendly and dollar-negative, even if Asian equities are threatening to run out of steam. While the USD looks to have peaked, equity valuations still look promising. In the near term, higher-level discussion is planned between China and the USA, possibly on 30-31 January. There is growing expectations that the US will suspend tariffs implemented in 2018 to give China time to announce reforms. A temporary settlement will send global sentiment higher. China’s central bank is not looking for a sharp appreciation, however, significant undervaluations in the Shanghai composite is an opportunity for investors.

Fed Chairman Jerome Powell predicts no recession in 2019 and says the Fed will be patient in interest tightening. His dovish tone supported the risk bounce and broad USD weakness. Traders shrugged off the conflict over the US federal government shutdown. As the S&P 500 nears 2600, a bullish break would signal a reversal of the recent correction.

The pound poised to drop

As a vote on the EU Withdrawal Agreement nears, Prime Minister May’s proposal looks likely to lose. Despite her efforts to wring concessions from Brussels, Members of Parliament are overwhelmingly against her Brexit option. A vote against her tomorrow will slap the pound, which recently made gains against the dollar (week-to-date: +0.95%) to 1.28 USD/GBP. We expect a sharp drop in GBP following a losing vote. What happens thereafter depends on what the EU or the UK do. For now, the divorce date of 29 March 2019 remains in place. There are rumblings that this deadline might be extended: chances are that MPs will allow an extension of Article 50, which allows Brexit in the EU Constitution, which would postpone the deadline to end-November 2020! This could allow a new referendum or a newly negotiated trade agreement, perhaps one like Norway’s. For now, it is difficult to estimate the direction of the British pound.

The Australian dollar faces strong headwinds from daily cloud base (0.7207) and eases on Monday after repeated failure to penetrate daily cloud. Bearish divergence on daily slow stochastic and significantly weaker than expected China's trade data add to negative signals. Converged 55/100SMA's (0.7182) which held last Friday's action are under strong pressure, with sustained break lower to generate fresh bearish signal. Deeper pullback could extend towards pivotal supports at 0.7118/10 zone (10/20SMA's which formed bull-cross / Fibo 23.6% of 0.6706/0.7235). Dips should find ground here to keep bullish near-term structure off 0.6706 (03 Jan post flash crash low) for renewed attack at daily cloud base.

Res: 0.7207, 0.7235, 0.7263, 0.7332
Sup: 0.7180, 0.7156, 0.7110, 0.7077

US futures are lower ahead of the start of the week on Wall Street, with stocks further paring last week's gains following the post-Christmas bounce.

We're now seeing a real test of this improved risk appetite, which has been evident over the last few weeks. US stock markets have rebounded back towards levels that were very well supported during the second half of 2018. A break of these levels in mid-December saw the sell-off pick up significant momentum, so it's natural that we're seeing some profit taking when approaching them again from below.

If we can break back above these levels – ≈2,600 in the S&P and 24,000 in the Dow – then it would suggest sentiment has indeed improved and this is more than just a brief correction in a broader downturn. The fundamentals certainly look better which could support it – a more “patient” Fed, positive trade talks between the US and China – but this may be too little too late.

These two factors that have contributed to the improvement in sentiment across the markets are also responsible for the slide in the US dollar. The greenback was very well supported throughout the escalation of the trade war and imposition of tariffs as others, most notably China, were seen as standing to lose more economically as a result. With relations improving, the reverse is now true. Add to this a more dovish central bank, which means fewer likely rate hikes, and the dollar is looking vulnerable.

This is good news for gold bulls, with a weaker greenback helping to support prices. The improved risk environment may slow the rise but it still continues to look bullish regardless. A break above $1,300 is still a struggle but with pressure mounting once again, it looks more of a case of when rather than if at this stage.

Notes/Observations

• PM May begins a last-minute attempt to salvage her Brexit deal; warning that a rejection could derail Brexit itself
• Growing fears of a technical recession in Europe with Euro Zone Nov industrial Production data being the latest in a batch of disappointing releases for the region
• US earnings seasons kicks off with Citigroup [C] to report

Asia:

• China register its largest monthly trade surplus with since 2015 (Dec: $57.1B v $51.6Be) and largest annual surplus with US since 2006 at $323.3B. Trade war starts to bit as China’s exports register its 1st decline in 8 months and largest decline since Dec 2016; data adds pressure for settlement with Trump
• Japanese markets closed for public holiday

Europe:

• EU President Juncker and European Council chief Tusk to each send a separate letter on Monday designed to reassure UK MPs over the backstop ahead of Tuesday's parliamentary vote. Letter from Mr Juncker was expected to try and reassure MPs the Irish backstop would keep the UK in a temporary customs union if it needed to be triggered. One option that has been discussed is the possibility of the EU Commission making additional pledges to conclude a trade deal with the UK by the end of 2021 in the hope ease Tory fears the backstop could become a permanent arrangement.
• EU said to be preparing to delay Brexit until at least July as they fear PM May’s deal was doomed to fail in getting through parliament. Expecting a request from London to extend Article 50 in the coming weeks
• UK Labour leader Corbyn (opposition) confirmed he would call a vote of no confidence in the government if the deal failed
• Greece PM Tsipras called for vote of confidence in Govt after a junior coalition partner, Defense Min Kammenos, announced that he would quit in protest of a deal to end a dispute with Macedonia over its name
• Fitch affirmed Spain sovereign rating at A-; outlook Stable
• Canadian ratings agency DBRS affirmed Italy at BBB (high), Stable trend

Americas:

• US President Trump: To 'devastate Turkey economically' if the country targets Kurdish populations in Syria. Starting the long overdue pullout from Syria while hitting the little remaining ISIS territorial caliphate hard, and from many directions. Will attack again from existing nearby base if it reforms
• White House officials said to have warned Republicans not to expect an immediate end to the shutdown even if a national emergency is declared

Energy:

• Saudi Energy Minister Khalid al-Falih: No need for extraordinary OPEC meeting before April, oil market was on 'right track
• OPEC said to be considering launching its first-ever lobbying effort in Washington, DC in order to improve relations with the US

Macro

• (CN) China: December exports fell -4.4% y/y in December, the first such decline since March 2018. It was the largest fall since the -6.2% decline in December 2016. Imports fell -7.6% y/y in December. The trade balance grew to a surplus of $57.1B during the month from $41.9B in November. Continued evidence then of an ongoing slowing in China's domestic economy and the impact of the trade war with the US. It also suggests that exports were likely pre-shipped before tariffs hit, now dropping, & that domestic demand in China is now decelerating rapidly.
• (US) United States: Transcripts from the 2013 FOMC minutes were released last week and revealed that then governor Powell urged the end of bond buying "well before the end of the year" and encouraged "tapering the Fed's balance sheet." Just prior to the taper tantrum he urged "taking the next plausible opportunity" to taper bond purchases. The implication is that he appeared to be significantly more aggressive five years ago than his current message of patience and flexibility.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.73% at 346.64, FTSE -0.79% at 6,863.80, DAX -0.61% 10,820.89, CAC-40 -0.79% 4,743.77, IBEX-35 -1.17% at 8,773.15, FTSE MIB -1.08% at 19,082.50, SMI -1.02% at 8,743.60, S&P 500 Futures -0.85%]

Market Focal Points/Key Themes:

• European Indices trade lower across the board after disappointing Chinese trade data weighs on sentiment. European Indices track Asian Indices and lower US futures. Auto names are among the decliners following the Chinese data with BMW, Daimler and Fiat trading lower.
• On the corporate front Continental trades slightly lower after preliminary results and guidance, warning on margin contraction for the year ahead; Dialog Semi, PageGroup, JD Sport trade trade higher after positive updates while MDxHealth, Revolution Bars, Goals Soccer Centers and Restore are among the notable decliners. Elsewhere Premier Oil trades lower after reports the company is considering a cash call for ~$1.5B to purchase North Sea fields from Chevron; Orsted is another decliner following reports the Danish Ministry of Finance informed that there is no longer political support for continuing divestment process concerning the Danish power distribution and residential customer businesses.
• Looking ahead Citigroup will kick off earnings season being the first of the major banks to report.

Equities

• Consumer discretionary: Continental [CON.DE] -1% (prelim earnings), Lufthansa [LHA.DE] +2% (outlook comments), PageGroup [PAGE.UK] -7% (trading update), JD Sports [JD.UK] +11.5% (trading update), Next [NXT.UK] -3% (analyst action)
• Energy: Premier Oil [PMO.UK] -8% (statement on press speculation), Orsted [ORSTED.UK] -3% (informed by Danish Ministry of Finance on divestment process)
• Financials: Deutsche Bank [DBK.DE] +0.5%, Commerzbank [CBK.DE] -1.5% (new press speculation on potential merger)
• Healthcare: AstraZeneca [AZN.UK] -1% (Chief Medical Officer said to step down), MDxHealth [MDXH.BE] -28.5% (business update)
• Industrials: BMW [BMW.DE] -1%, Daimler [DAI.DE] -0.5%, Fiat [FCA.IT] -1.5% (China trade and car sales data)
• Technology: Dialog Semiconductor [DLG.DE] +2.5% (prelim earnings), Siemens [SIE.DE] -0.5%, Alstom [ALO.FR] -2.5% (deal said to see doubts from state watchdog)

Speakers

• UK Trade Secretary Fox stated that was unlikely the government would win the upcoming Parliamentary vote on PM May's Brexit deal. He did expect PM May to remain in position after the Brexit vote
• More press reports on the EU letter of reissuances to the UK Parliament on Brexit. The letter to stress that backstop was not the EU's preferred solution to avoiding a hard border and did not undermine the Good Friday agreement and not part of any covert attempt by the EU to annex Northern Ireland . The letter to also insist that there can be no renegotiation of the backstop
• Italy's EU Affairs Minister Savona: EU economic crisis was already underway and could not avoid the opening of dialogue on EU reform. Saw a technocratic error in EU analysis
• Bank of Italy (BOI) official Rossi saw an acute slowdown in Italy. Saw pressure on banks and insurers if domestic economy worsens and spreads are high
• EU's Moscovici confirmed that EU to propose majority principle in votes on tax policy; to be presented on Tuesday, Jan 15th. Change would be realistic and gradual and would not coverall tax issues. Common tax across Europe was an unrealistic dream
• Turkey Foreign Min Cavusoglu: Govt was not afraid of threats; economic threats would not work (**Note: Comments in response to US President Trump weekend tweet that US would 'devastate Turkey economically' if the country targeted Kurdish populations in Syria)
• Saudi Energy Minister Khalid al-Falih to attend OPEC+ meeting in Baku, Azerbaijan (no date set yet for meeting)

Currencies/ Fixed Income

• The main focus remained on the Tuesday Parliamentary vote on Brexit. The GBP/USD was lower by 0.2% at 1.2820 area as traders believed that May's Brexit deal would likely be voted down as the EU assurances would be too little too late. The key focus would be the amount of the loss. PM May would have until Monday, Jan 21st to present a plan B if House of Commons rejected her Brexit deal. Weekend press reports noted that UK govt believed that any defeat in Parliament by fewer than 100 votes would be counted as a good result as could still make changes/ amendment to pass the Brexit deal relatively soon
• EUR/USD little changed after not holding above the 1.15 level from last week as traders expressed concern over growing fears of a technical recession in Europe. Euro Zone Nov industrial Production data was the latest in a batch of disappointing releases for the region
• Swedish annual CPIF inflation rate rose in December and remained above target to help boost the Riksbank normalization plan.
• Commodity-related currencies were lower over concerns on the trade front after china’s Dec exports declined for the 1st time in eight months.

Economic Data

• (SE) Sweden Dec Maklarstatistik Housing Prices Y/Y: 0% (flat) v 0% (flat) prior; Apartments: 0% v -2% y/y prior
• (SE) Sweden Dec PES Unemployment Rate: 3.8% v 3.6% prior
• (IN) India Dec Wholesale Prices Y/Y: 3.8% v 4.6%e
• (DE) Germany Dec Wholesale Price Index M/M: -1.2% v +0.2% prior; Y/Y: 2.5% v 3.5% prior
• (FI) Finland Dec CPI M/M: -0.1% v 0.0% prior; Y/Y: 1.2% v 1.3% prior
• (RO) Romania Dec CPI M/M: 0.2% v 0.3%e; Y/Y: 3.3% v 3.3%e
• (TR) Turkey Nov Industrial Production M/M: -0.3% v +0.2%e; Y/Y: -6.5% v -5.4%e
• (SE) Sweden Dec SEB Housing Price Indicator: 0 (nil) v 10 prior
• (CN) China Dec Foreign Direct Investment (FDI) at CNY92.3B; +24.9% y/y
• (SE) Sweden Dec CPI M/M: 0.4% v 0.4%e; Y/Y: 2.0% v 2.0%e
• (SE) Sweden Dec CPIF M/M: 0.4% v 0.4%e; Y/Y: 2.2% v 2.1%e; CPI Level: 331.87 v 331.80e
• (CZ) Czech Nov Monthly Current Account (CZK): 8.7B v 5.0Be
• (CH) Swiss weekly Total Sight Deposits (CHF): 575.2B v 574.0B prior; Domestic Sight Deposits: 483.0B v 480.0B prior
• (EU) Euro Zone Nov Industrial Production M/M: -1.7% v -1.5%e; Y/Y: -3.3% v -2.1%e

Fixed Income Issuance

• None seen

Looking Ahead

• (SE) Sweden Parliamentary Speaker Norlen to present a final PM candidate
• (VZ) Venezuela Pres Maduro: economic announcements
• 05:30 (DE) Germany to sell €3.0B in 6-month BuBills
• 06:00 (RO) Romania to sell RON400M in 4.25% 2023 Bonds
• 06:00 (IL) Israel to sell Bonds
• 06:45 (US) Daily Libor Fixing
• 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)
• 07:00 (IN) India Dec CPI Y/Y: 2.2%e v 2.3% prior
• 08:00 (PL) Poland Nov Current Account Balance: -€0.5Be v -€0.5B prior; Trade Balance: -€0.4Be v -€0.6B prior; Exports: €19.4Be v €20.1B prior; Imports: €19.6Be v 20.7B prior
• 08:00 (UK) Baltic Dry Bulk Index
• 08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming issuance
• 08:30 (CA) Canada Dec Teranet House Price Index M/M: No est v -0.3% prior; Y/Y: No est v 3.1% prior; House Price Index (HPI): No est v 224.74 prior
• 08:50 (FR) France Debt Agency (AFT) to sell combined €3.9-5.1B in 3-month, 6-month and 12-month BTF Bills
• 09:00 (MX) Mexico Oct Gross Fixed Investment: +3.4%e v -0.9% prior
• 10:30 (UK) PM May Statement to House of Commons
• 11:30 (US) Treasury to sell 3-Month and 6-Month bills

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.14993
Open: 1.14581
% chg. over the last day: -0.27
Day's range: 1.14650 – 1.14820
52 wk range: 1.1214 – 1.2557

On Friday the EUR/USD currency pair was in a bearish mood. The quotes lowered by more than 80 points. Important economic reports from the US were published, which have proven true the investors` expectations. For example, the basis consumer price index was 0.2% which fit the experts` expectations. Right now the trading instrument is consolidating in the 1.14500-1.14900 range, you should open positions from these levels.

The Economic News Feed for 14.01.2019:

Report on the Volume of Industrial Production in EU – 12:00 (GMT+2:00).

The indicators do not provide precise signals. The price is being traded between 50 MA and 200 MA.

The MACD histogram is in the negative zone but above the signal line which gives a weak signal to sell EUR/USD.

The Stochastic Oscillator is in the negative zone but above the signal line which gives a weak signal to sell EUR/USD.

Trading recommendations

Support levels: 1.14500, 1.14100, 1.13700
Resistance levels: 1.14900, 1.15400, 1.15800

If the price fixes below the local support level of 1.14500, consider selling EUR/USD. The movement will tend toward 1.14100-1.13700.

Alternatively the currency pair can grow toward 1.15400-1.15600.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.27372
Open: 1.28538
% chg. over the last day: +0.74
Day's range: 1.28221 – 1.28315
52 wk range: 1.2438 – 1.4378

On Friday GBP/USD saw an aggressive buy-out after the publication of weak economic reports. The GDP (m/m) grew by 0.2% instead of 0.1%. The production volume in the processing industry lowered by 0.3% instead of growing by 0.4% as expected. The monthly GDP (3m/3m) grew by 0.3% which fits with the investors` expectations. The quotes grew by 100 points. Right now the key support and resistance levels are 1.28000 and 1.28600 respectively. You should open positions from these levels but expect a technical correction soon.

The Economic News Feed for 14.01.2019 is calm.

The indicators point toward the power of the buyers, the price fixed above 50 MA and 200 MA.

The MACD histogram is in the positive zone but below the signal line which gives a weak signal to buy GBP/USD.

The Stochastic Oscillator is in the neutral zone, the %K line is crossing the %D line. There are no precise signals.

Trading recommendations

Support levels: 1.28000, 1.27500, 1.27000
Resistance levels: 1.28600, 1.29000

If the price fixes below the round 1.28000 expect a technical correction of GBP/USD quotes toward 1.27500-1.27000.

Alternatively the currency pair grow toward 1.29000-1.29200.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.32311
Open: 1.32572
% chg. over the last day: +0.23
Day's range: 1.32643 – 1.32742
52 wk range: 1.2248 – 1.3664

On Friday USD/CAD had shown a bullish mood. The trading instrument is moving sideways. The key support and resistance levels are 1.32500 and 1.33000 respectively. Positions should be opened from the key levels, expect further growth.

The Economic News Feed for 14.01.2019 is calm.

The price fixed between 50 MA and 200 MA which act as the dynamic levels of support and resistance.

The MACD histogram is in the positive zone but below the signal line which gives a weak signal to buy USD/CAD.

The Stochastic Oscillator is in the neutral zone, the %K line is below the %D line which gives a weak signal to sell USD/CAD.

Trading recommendations

Support levels: 1.32500, 1.32000
Resistance levels: 1.33000, 1.33400, 1.34000

If the price fixes above the round 1.33000 expect the quotes to grow toward 1.33400-1.33600.

Alternatively the currency pair can descend toward 1.32000-1.31700.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 108.425
Open: 108.512
% chg. over the last day: +0.12
Day's range: 108.102 – 108.198
52 wk range: 104.56 – 114.56

The USD/JPY quotes are still showing an ambiguous technical picture. The quotes are consolidating around the 108.000-108.500 range. Investors are waiting for additional drivers. You should open the positions from the key levels.

The Economic News Feed for 14.01.2019 is calm.

The price fixed below 50 MA and 200 MA which indicates a bearish mood.

The MACD histogram is close to 0, there are no signals.

The Stochastic Oscillator is in the neutral zone, the %K line is above the %D line which gives a signal to buy USD/JPY.

Trading recommendations

Support levels: 108.000, 107.500, 107.200
Resistance levels: 108.500, 109.000, 109.500

If the price fixes below the round 108.000 expect thequotes to descend toward 107.500-107.200.

Alternatively the quotes can grow toward 109.000-109.250.

On Friday, the US dollar strengthened slightly against a basket of major currencies. Important economic data were published in the US, which met the expectations of investors. Thus, the core consumer price index counted to 0.2%, which matched the forecasts of experts. The dollar index (#DX) closed in the positive zone (+0.15%).

On Friday, the British pound strengthened against the US dollar despite the ambiguous economic statistics. The GDP indicator (m/m) increased by 0.2% instead of 0.1%. The volume of production in the manufacturing industry decreased by 0.3% in November, while experts expected an increase of 0.4%. Monthly GDP 3m/3m change counted to 0.3%, which matched the investors' forecasts. At the moment, financial market participants expect the Brexit vote, which will be held tomorrow on January 15. Analysts believe that Parliament will not approve the bill.

The "black gold" prices have been declining. At the moment, futures for the WTI crude oil are testing the mark of $51.00 per barrel.

Market Indicators

• On Friday, there was a variety of trends in the US stock market: #SPY (+0.04%), # DIA (-0.05%), #QQQ (-0.37%).
• The 10-year US government bonds yield has been declining again. Currently, the indicator is at the level of 2.67-2.68%.

The news feed on 14.01.2019:

• Industrial production in the Eurozone at 12:00 (GMT+2:00).

Recovery after flash crash low at 104.59 (03 Jan) showed strong signs of stall and capped by falling 10SMA (currently at 108.53), with Monday's action holding in red and helped by bearish daily techs. Fresh weakness pressures near-term base, formed at 108 zone, also double Fibo support (broken 38.2% of 113.70/104.59/23.6% of 104.59/109.08) clear break of which would generate initial reversal signal, which requires confirmation on extension and close below 107.37 (Fibo 38.2% of 104.59/109.08). Alternatively, bullish signal for extension of recovery from 104.59 low could be expected on break and close above daily Kijun-sen (109.15).

Res: 108.59, 109.08, 109.15, 110.00
Sup: 108.00, 107.76, 107.37, 107.00

The single European currency depreciated about 76 base points against the Japanese Yen on Friday. The currency pair breached a support cluster formed by the combination of the weekly and the monthly PPs at 124.34 during Friday's trading session.

Today's session began with a bearish momentum, and by the middle of the European trading session, the exchange rate has dashed through the 200-hour SMA at 124.10.

By and large, it is likely that the currency exchange rate continues to edge lower and potentially aim for a support level at 123.62 during the following trading hours.

The Australian Dollar depreciated about 50 base points against the US Dollar on Friday. The decline was stopped by a traditional weekly pivot point near 0.7187 at the end of the previous trading session.

The exchange rate tested the 100-hour simple moving average at 0.7177 during the first half of today's session.

If this support level holds, the currency exchange rate will aim at last week's swing high of 0.7235.

On the other hand, if the price passes the 100-hour SMA, the next target for bearish traders will be near a support cluster at 0.7139.