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Daily Pivots: (S1) 124.15; (P) 124.58; (R1) 124.93; More....

EUR/JPY dips notably today and intraday bias stays neutral with focus back on 123.40 minor support. As noted before, we'd expect strong resistance around 124.61 to complete the rebound from 118.62 low. Larger decline is expected to resume afterwards. Break of 123.40 will affirm our view and turn bias back to the downside for retesting 118.62 low first. However, sustained break of 124.61 will extend the rebound to 127.09 resistance next.

In the bigger picture, medium term rebound from 109.03 (2016 low) has completed at 137.49 already, with corrective structure. Fall from 137.39 is seen as a medium term fall, resuming the decline from 149.76 (2014 high). Such decline should break through 109.03 low next. This will remain the preferred case as long as 124.61 support turned resistance holds. Sustained break of 124.61 will mix up the outlook and we'll reassess on the final structure of the rebound from 118.62.

Yen strengthens broadly today as Asian stocks are weighed down by rather terrible Chinese trade balance data. Trade war with the US is hurting both exports and imports. But judging from the data alone, it's unsure who suffered more. Nevertheless, the situation could change in the months ahead as China has already promised to buy more US goods. And the trade negotiations between the two sides progressed well. There are a lot to look forward to regarding Chines Vice Premier Liu He's visit to Washington later in the month. For now, sentiments has turned a bit weaker.

Following Yen, Sterling is the second strongest one for today. The Pound is being supported by surging chance of a Brexit delay, or even no Brexit at all. Meanwhile, the chance of of no-deal Brexit is somewhat remote as the MPs look determine to prevent it from happening. Staying in the currency markets, Australian Dollar leader other commodity currencies lower. Dollar is mixed getting no special help from risk aversion.

In other markets, Japan is on holiday. Hong Kong HSI is currently down -1.55%. China Shanghai SSE is down -0.71%. Singapore Strait Times is down -0.46%. DOW futures are down -0.76%. WTI crude oil is back below 51 and that may weigh down on Canadian Dollar a little bit.

China Dec trade balance: Massive -35.8% yoy fall in US imports; exports and imports contracted most since 2016

China posted a set of very disappointing trade data today. Exports and imports posted biggest contraction since 2016. More importantly, imports from the US dropped a massive -35.8% yoy in the month. But for the year, trade surplus with the US hit a record high.

In USD terms in December,

• Trade surplus widened to USD 57.1B, above expectation of USD 51.6B.
• However, exports dropped -4.4% yoy to USD 221.3B.
• Imports dropped -7.6% yoy to USD 164.2B.
• Both imports and exports suffered the steepest decline since 2016.

Staying in December,

• With the US, export dropped -3.5% yoy to USD 40.3B, imports dropped a massive -35.8% yoy to USD 10.4B.
• With EU, exports dropped -0.3% yoy to USD 37.6B, imports dropped -2.7% yoy to USD 22.5B.
• With Australia, exports dropped -5.2% yoy to USD 4.0B, imports dropped -3.4% yoy to USD 7.3B.

For the year as a whole,

• With the US, exports rose 11.3% yoy to USD 478.3B, imports rose just 0.7% yoy to USD 155.1B.
• Trade surplus with the US jumped 17.2% yoy to USD 323.2B, highest on record.
• With EU, exports 9.8% yoy to USD 408.6B, imports rose 11.7% yoy to USD 273.4B.
• Trade surplus with EU rose 6.2% yoy to USD 135.1B.
• With Australia, exports rose 14.2% yoy to USD 47.3B, imports rose 11.2% to 105.45B.
• Trade deficit with Australia rose 8.9% yoy to USD 58.1B.

UK PM May: Blocking Brexit will be catastrophic and unforgivable breach of trust in our democracy

Ahead of the Brexit meaningful vote on Tuesday, UK Prime Minister Theresa May said in an articles in Sunday Express that blocking Brexit would be  a catastrophic and unforgivable breach of trust in our democracy". And she urged the Parliament to "forget the games and do what is right for our country."

May is also expected to warn in a speech today that "there are some in Westminster who would wish to delay or even stop Brexit and who will use every device available to them to do so". And, based on the evidence she recent saw, it's more likely for MPs to block Brexit than leaving EU with no deal. May will ask MPs to  "consider the consequences of their actions on the faith of the British people in our democracy".

Separately, pro-EU Liberal Democrat leader Vince Cable said on Sunday that the parliament will act to stop no-deal Brexit from happening. Should May's deal be voted down, Cable said MPs would bring forward legislation to revoke Article 50. He added "that is exactly what we should be doing because it would be absolutely outrageous and unforgivable if the chaotic circumstances of a no deal were allowed to happen."

Labour leader Jeremy Corbyn told BBC TV that "my own view is that I would rather get a negotiated deal now, if we can, to stop the danger of a no-deal exit from the EU on the 29th of March which would be catastrophic for industry, catastrophic for trade."

Brexit parliamentary vote to highlight the week

For the week, UK will undoubtedly be the major focus. Prime Minister Theresa May's Brexit deal will very likely be voted down in the Parliament on Tuesday. May's government is expected to lay out a "plan B" within days. A no-deal Brexit, for now, is unlikely as many MPs are joining forces to block it.

The question is, whether a general election or a second referendum would follow. We believe that a second referendum is more likely. But even so, it could be in a binary form, May's deal or Remain. Or it could include no-deal Brexit as an option. In most cases, an extension of Article 50 looks inevitable. In addition, UK will also release CPI and retail sales.

US calendar will remain a bit light thanks to the record government shutdown for Trump's border wall. PPI and Fed's Beige book will catch some attention. Elsewhere, Canada CPI will be something that could move the markets.

Here are some highlights for the week:

• Monday: China trade balance; Eurozone industrial production
• Tuesday: Eurozone trade balance; US PPI, Empire State manufacturing
• Wednesday: Australia Westpac consumer sentiment; Japan machine orders, PPI, tertiary industry index; German CPI final; UK CPI, PPI; US import prices, NAHB housing index, Fed's Beige Book
• Thursday: Australia home loans; UK RICS house price balance; Eurozone CPI final; US Philly Fed survey, jobless claims
• Friday: New Zealand BusinessNZ manufacturing; Japan national CPI core; Swiss PPI; Eurozone current account; UK retail sales; Canada CPI; US industrial production, U of Michigan consumer sentiment

EUR/JPY Daily Outlook

Daily Pivots: (S1) 124.15; (P) 124.58; (R1) 124.93; More....

EUR/JPY dips notably today and intraday bias stays neutral with focus back on 123.40 minor support. As noted before, we'd expect strong resistance around 124.61 to complete the rebound from 118.62 low. Larger decline is expected to resume afterwards. Break of 123.40 will affirm our view and turn bias back to the downside for retesting 118.62 low first. However, sustained break of 124.61 will extend the rebound to 127.09 resistance next.

In the bigger picture, medium term rebound from 109.03 (2016 low) has completed at 137.49 already, with corrective structure. Fall from 137.39 is seen as a medium term fall, resuming the decline from 149.76 (2014 high). Such decline should break through 109.03 low next. This will remain the preferred case as long as 124.61 support turned resistance holds. Sustained break of 124.61 will mix up the outlook and we'll reassess on the final structure of the rebound from 118.62.

Economic Indicators Update

Sterling rose in early trading as investors looked ahead to the important vote in the House of Commons tomorrow. Parliamentarians will make a decision on whether they approve or disapprove the Brexit plan proposed by Theresa May. The consensus among investors is that members will reject the plan. In a speech today, Theresa May will spell out the dangers of going against her strategy. EU’s Jean-Claude Juncker will also try to save the deal struck with May by reassuring members of parliament about the contentious backstop issue.

In the United States, the government shutdown continued over the weekend making it the longest shutdown in history. With no end in sight, investors are starting to worry about its impact on the economy. Just last week, Fitch released a statement saying that it was likely to downgrade US AAA bonds if the shutdown continues.

Asian markets declined in early trading as investors looked forward to earnings from the United States. The same sharp decline was experienced in the US and European futures. In the United States, the Dow futures declined by more than 200 points. In Europe, the DAX and Stoxx futures declined by 80 and 25 points respectively. Today, the earnings season will start with earnings from Citi, Bank of America, JP Morgan, and Well Fargo. In the past year, these banks have been laggards, losing more than $200 billion in value.

EUR/USD

The EUR/USD pair declined sharply in late Friday trading. Today, the pair remained closer to these lows as traders looked ahead to a speech by Jerome Powell later today. It is now trading at 1.1470. On the four-hour chart, the pair’s price is below the 21-day and 42-day EMA while the Average True Range (ATR) moved lower. The RSI too has continued to move lower but is still above the oversold level. Therefore, the pair could continue moving lower today.

XTI/USD

After last week’s gains, the price of crude oil declined as investors started to worry about the magnitude of the supply cuts announced by OPEC. The price of US crude dipped from last week’s high of $53.59 to a low of $51.21. On the hourly chart, the price is below the 21-day and 42-day EMA while the RSI has continued to decline to 33, which is near the oversold level. While the price could decline further, there is a likelihood that this decline is just a correction that will take the price higher.

GBP/USD

The GBP/USD pair remained at higher levels today as traders looked ahead to the Brexit vote, which is scheduled for tomorrow. It is now trading at 1.2840, which is close to the highest level since November last year. This price is along the upper band of the Bollinger Bands while the RSI has continued to move closer to the overbought level. At this point, and with the kind of volatility that is expected, traders will likely wait and see before they make the next moves.

Rocky week in store for UK as Brexit deal goes to parliament

Another very interesting week awaits investors, particularly those in the UK, where parliamentarians will finally get their chance – fingers crossed – on Theresa May’s unpopular Brexit deal.

It could be a very volatile week for UK instruments, particularly the pound, with the vote in parliament unlikely to pass, assuming it even goes ahead. It was very late in the day in December when May pulled the vote, facing certain humiliation, so I don’t think anyone would be too surprised to see similar tactics deployed this time around.

Assuming it does go ahead then defeat looks almost guaranteed - despite her last minute efforts to pressure MPs, warning against a catastrophic and unforgivable breach of trust in democracy – with only the scale unclear.

The days that follow – of which May has only three to come up with a plan B after defeat last week – will then become very interesting with everything from no confidence vote in government to May’s resignation being on the table. Needless to say, the pound is looking very vulnerable, the only upside coming from MPs efforts to block no deal which protects it against the very worst of outcomes.

China trade data to frustrate Trump as longest ever shutdown drags on

As the US enters into its longest ever partial government shutdown – and with the two sides looking no closer to a deal – news over night that it registered is largest trade deficit in a decade with China won’t be the news Trump and his administration will have been hoping for.

China’s surplus with the US rose 17% from a year ago as the two countries continue negotiations in the hope of avoiding further tariffs. While both countries are expected to suffer as a result of the tariffs, China appears to have come off the early exchanges worse off – despite the trade data – with the country reported to be forecasting growth of 6-6.5% this year, down from around 6.5% in 2018.

Gold taking another run at $1,300

Gold is having another run at $1,300 this morning, with the weaker US dollar providing the catalyst for such a move. The greenback continues to look soft despite a pull-back late last week, with a more dovish – or “patient” – Fed and positive trade talks between the US and China – both bearish factors for the currency.

What’s interesting with gold is that each corrective move off $1,300 over the last 10 days has been bought at a higher level that the previous. This is a typically a bullish signal and reflects a market where the buyers are in control. Obviously there’s never a guarantee with these things but it certainly looks as though a break higher could be on the cards in the not too distant future.

General Trend:

• Market participation limited on today’s session due to Japan holiday
• Shares of Geely (denies report is reduced stake in Daimler) and Tencent are among the decliners in Hong Kong
• Telecom and property sectors decline in Shanghai
• Hong Kong officials again defend property measure curbs
• Chinese healthcare companies decline amid reports of expired polio vaccines
• Singapore’s Capitaland to pay $8.0B to acquire property assets from Temasek
• China overall 2018 Trade Balance with US $323.3B, +5.7% y/y (highest level since 2006); Exports +11.3% y/y; Imports +0.7% y/y
• China reports 2018 trade data, warns trade growth may slow in 2019, still worries about external uncertainties and protectionism
• China Dec trade date records decline in exports (1st decline in 8-months and largest decline since Dec 2016); (CN) CHINA DEC TRADE BALANCE: $57.1B V $51.6BE (largest surplus since 2015); Exports YoY: -4.4% v 2.0%e (largest decline since Dec 2016); Imports YoY: -7.6% v 4.5%e (largest decline since July 2016)
• China said to delay approval of domestic licenses for Mastercard and Visa (press)
• PBoC uses 28-day reverse repo for the first time since June 2018
• Yuan rises after stronger fix , but erases gain after Dec trade data
• Commodity currencies weighed down by China data and equity declines
• Record partial US government shutdown entered day 23 as of Sunday; economists start to trim Q1 growth ests (press), while US airports are being impacted
• Trump issued warning to Turkey regarding Syria, Lira (TRY) declines

Headlines/Economic Data

Japan

• Nikkei 225 closed for holiday
• (JP) Nikkei 225 Futures -0.3% at 20,225
• 7201.JP CEO Saikawa said to be having a hard time with leading Nissan as he was always told what to do by former Chairman Ghosn - Nikkei

Korea

• Kospi opened -0.3%
• (KR) President Trump has offered to meet North Korea leader Kim mid-Feb in Vietnam (as speculated) for a second summit – Yonhap
• (KR) Korea Development Institute (KDI) monthly report: economic downturn seems to continue with signs of sluggish domestic demand and a slowing pace of exports
• (KR) North Korea calls for full scale economic cooperation with South Korea; South's economy would be better off now if it had pushed strongly for cross-border exchanges - North Korea propaganda outlet

China/Hong Kong

• Hang Seng opened -0.4%, Shanghai Composite flat
• (CN) CHINA 2018 TRADE BALANCE: $351.8B v $422.5B y/y; Exports Y/Y: 9.9% v 7.9% y/y; Imports Y/Y: 15.8% v 15.9% y/y; Trade Surplus with the US +5.7% y/y
• (CN) China 2018 Trade Balance (CNY): CNY2.33T v 2.87T in 2017; Exports in yuan Y/Y: 7.1% v 10.8% in 2017; Imports in yuan Y/Y: 12.9% v 18.7% in 2017
• (CN) CHINA DEC TRADE BALANCE: $57.1B V $51.6BE; Exports YoY: -4.4% v 2.0%e; Imports YoY: -7.6% v 4.5%e
• (CN) CHINA DEC TRADE BALANCE (CNY-TERMS) 394.9B V 345.0BE; Exports y/y: +0.2% v 6.6%e; Imports y/y: -3.1% v 12.0%e
• (CN) China FX Regulator SAFE: Raises QFII quota to $300B from $150B
• (CN) China Dec Foreign Direct Investment YTD: 3% v -1.3% prior
• HUAWEI.CN Fires sales director, Wang Weijing, who was arrested in Poland on charges of spying on behalf of China, saying he brought the company into disrepute, alleged actions were unrelated to the company – press
• (HK) Hong Kong Exchange said to warn of closer scrutiny for IPOs of small companies - Local Press
• (CN) Analysts expect the China yuan (CNY) to have 'two-way' fluctuation in the future – Xinhua
• (CN) China Banking and Insurance Regulatory Commission (CBIRC) reports 2018 China commercial banks' non-performing loan (NPL) ratio: 1.89% v 1.87% in Q3; Total onshore assets CNY261.4T, +6.4% y/y
• (CN) China Securities Regulatory Commission (CSRC) Deputy Chief Fang Xinghai: Expect that China stock market will see an inflow of foreign capital totaling ~CNY600B – Xinhua
• (CN) China Commerce Min Zhong Shan: Will focus on reducing trade tensions with the US, including conscientiously implementing the trade plan reached by Trump and Xi at the G20 in Argentina in Dec – Xinhua
• (CN) CHINA PBOC SETS YUAN REFERENCE RATE: 6.7560 V 6.7909 PRIOR (strongest setting since July 19, 2018)
• (CN) China PBoC said to be wary of any sharp CNY currency(Yuan) appreciation - press (from Jan 11th)
• (CN) China PBoC Open Market (OMO): Injects CNY100B combined in 7-day and 28-day reverse repos v skips prior; Net: CNY20B injection v CNY110B drain prior
• (HK) Hong Kong Fin Sec Chan: Do not see any need to relax property curbs

Australia/New Zealand

• ASX 200 opened flat
• (AU) Australia's big 4 banks working to convince APRA to reconsider its proposal for too big to fail capital requirements – AFR
• WES.AU Guides H1 retail units trading in line with expectations except department stores; expect to record gain of A$670-680M on sale of Bengalla, $98M on disposal of Quadrant Energy
• (AU) Australia Dec Melbourne Institute Inflation m/m: 0.4% v 0.0% prior; y/y: 1.9% v 1.6% prior
• FMS.AU Notes lodgement of additional Takeovers Panel application [+22%]
• (AU) Australia PM Morrison rules out early election, Govt will hand down budget on April 2nd - Australian

Other Asia

• ASCHT.SG Capitaland to acquire Ascendas Pte and Singbridge Pte in S$11B cash and share deal, to create Asia’s largest diversified real estate group

North America

• PCG Said to be in talks with banks about multi-billion dollar bankruptcy financing; may announce Monday to employees that it is preparing a bankruptcy filing - US financial press
• GCI MNG Enterprises (or Digital First) said to offer $12/share, disclosed 7.5% stake - US financial press
• (TR) US President Trump: To 'devastate Turkey economically' if they hit Kurds – tweet
• (US) Economists have trimmed their estimate for Q1 US GDP growth to 2.2%, down slightly vs estimates before start of government shutdown; larger impact on growth seen if shutdown continues
• (US) White House officials have warned Republicans not to expect an immediate end to the shutdown even if a national emergency is declared – Politico
• (US) US Senator Graham (R-SC) said President Trump is ready to end shutdown; 3 recent polls show Americans blame President Trump for the continued shutdown - DailyMail

Europe

• (UK) PM May: Time to forget games and do what is right; Failure to back deal will put at risk for a no deal Brexit - UK press Op Ed
• (UK) UK govt comments on Brexit vote (Tuesday): any defeat by fewer than 100 votes would be counted as a good result - UK press
• (GR) Greece PM Tsipras calls 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 - press
• (SA) Saudi Energy Minister Khalid al-Falih said there is no need for extraordinary OPEC meeting before April, oil market is on 'right track' - financial press
• (IR) US Special Representative for Iran Brain Hook said the US is not looking to issue additional waivers for Iran oil imports - financial press

Levels as of 12:50ET

• Hang Seng -1.7%; Shanghai Composite -0.7%; Kospi -0.7%; Nikkei225 +1.0%; ASX 200 -0.0%
• Equity Futures: S&P500 -0.8%; Nasdaq100 -1.1%, Dax -0.7%; FTSE100 -0.5%
• EUR 1.1478-1.1442; JPY 108.56-108.06; AUD 0.7218-0.7179; NZD 0.6832-0.6802
• Feb Gold +0.1% at $1,291/oz; Feb Crude Oil -1.0% at $51.07/brl; Mar Copper -0.9% at $2.63/lb

For the 24 hours to 23:00 GMT, the EUR declined 0.49% against the USD and closed at 1.1465 on Friday.

In the US, data showed that the US consumer price index (CPI) advanced 1.9% on an annual basis in December, at par with market expectations and compared to a rise of 2.2% in the prior month.

In the Asian session, at GMT0400, the pair is trading at 1.1470, with the EUR trading slightly higher against the USD from Friday’s close.

The pair is expected to find support at 1.1439, and a fall through could take it to the next support level of 1.1407. The pair is expected to find its first resistance at 1.1521, and a rise through could take it to the next resistance level of 1.1571.

Trading trend in the Euro today is expected to be determined by the Euro-zone’s industrial production for November, slated to release in a few hours.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 0.70% against the USD and closed at 1.2845 on Friday, amid reports of a possible delay in Brexit vote.

Macroeconomic data indicated that UK's gross domestic product slowed to a six-month low level of 0.3% in the three-months ended November, dragged down by uncertainty over global trade and Brexit and in line with market consensus. The GDP had advanced 0.4% in the three-months ended October. Additionally, the nation's total trade deficit narrowed to £2.9 billion in November, compared to a revised deficit of £3.0 billion in the previous month. Market participants had expected the nation to record a deficit of £2.8 billion. Furthermore, Britain's industrial production dropped 1.5% on an annual basis in November, higher than market consensus for a fall of 0.7%. In the preceding month, industrial production had recorded a revised decline of 0.9%. Moreover, manufacturing production unexpectedly eased 0.3% on a monthly basis in November, defying market expectations for an advance of 0.4%. Manufacturing production had registered a revised drop of 0.6% in the previous month.

Meanwhile, construction output rebounded 0.6% on a monthly basis in November, beating market expectations for a rise of 0.2% and compared to a drop of 0.2% in the previous month.

In the Asian session, at GMT0400, the pair is trading at 1.2846, with the GBP trading a tad higher against the USD from Friday's close.

The pair is expected to find support at 1.2749, and a fall through could take it to the next support level of 1.2651. The pair is expected to find its first resistance at 1.2905, and a rise through could take it to the next resistance level of 1.2963.

Amid lack of economic releases in UK today, traders would focus on global macroeconomic events for further direction.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.18% against the JPY and closed at 108.49 on Friday.

In the Asian session, at GMT0400, the pair is trading at 108.14, with the USD trading 0.32% lower against the JPY from Friday’s close.

The pair is expected to find support at 107.93, and a fall through could take it to the next support level of 107.73. The pair is expected to find its first resistance at 108.47, and a rise through could take it to the next resistance level of 108.81.

With no macroeconomic releases in Japan today, investors would look forward to global macroeconomic releases for further directions.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.05% against the CHF and closed at 0.9841 on Friday.

In the Asian session, at GMT0400, the pair is trading at 0.9833, with the USD trading 0.08% lower against the CHF from Friday’s close.

The pair is expected to find support at 0.9813, and a fall through could take it to the next support level of 0.9792. The pair is expected to find its first resistance at 0.9855, and a rise through could take it to the next resistance level of 0.9876.

Moving ahead, traders would await Switzerland’s total sight deposits, scheduled to release in a while.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.42% against the CAD and closed at 1.3272 on Friday.

In the Asian session, at GMT0400, the pair is trading at 1.3278, with the USD trading 0.05% higher against the CAD from Friday’s close.

The pair is expected to find support at 1.3213, and a fall through could take it to the next support level of 1.3148. The pair is expected to find its first resistance at 1.3314, and a rise through could take it to the next resistance level of 1.3350.

In absence of key economic releases in Canada today, investor sentiment would be determined by global macroeconomic events.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.