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The pair remains in green for the third straight day and extends recovery after last week’s flash crash, but face headwinds at strong 109.15/20 barriers (50% of 113.70/104.59 / daily Kijun-sen).

Risk of recovery stall exists as daily MA’s are in bearish setup and 20/200SMA death-cross is forming, while indicators hold in negative territory.

Bearish scenario requires confirmation on return and close below daily Tenkan-sen (108.00) that would signal lower top and open way for further weakness.

Conversely, sustained break above daily Kijun-sen (109.20) and falling 10SMA (109.50) would generate bullish signal for extension of recovery leg from 104.59 spike low towards psychological 110.00 barrier (reinforced by converged 20/200SMA’s).

Res: 109.20, 109.50, 110.00, 110.22
Sup: 108.51, 108.00, 107.51, 107.00

The GBP/CHF has formed a T-89 pattern within the POC zone. We can also spot an bullish SHS pattern preceding the T-89.

A bounce from the 1.2495-1.2505 targets 1.2546 and 1.2573. Final target is 1.2610 but it might be achieved only on strong momentum above 1.2675. However, if the price closes below 1.2480 the target will be 1.2442. Generally, the bullish trend is prevailing so a bounce is technically more valid than a drop. ANY Brexit headline might mess up the technicals so pay attention!

US futures are back in the green ahead of the open on Tuesday, as risk appetite continues to gradually improve following Friday's jobs data and Powell comments.

The combination of healthy labour market data and dovish commentary from the Fed Chair has provided relief to stock markets that endured a rough fourth quarter, to put it mildly. It's too early to claim that the worst is behind us but the environment currently looks more favourable than it has for a few months. With the US and China in talks to de-escalate their trade conflict, the central bank showing a willingness to slow its tightening cycle and the economy still performing well, the markets may be looking a little more attractive.

That said, there's still a sense of vulnerability that could quickly unravel any rebound we see. Trump remains unpredictable and talks could take a turn for the worse at any point. The US government remains in partial shutdown. And with Samsung becoming the latest company to deliver a profit warning, not long after rival Apple warned of weaker iPhone sales, there are red flags popping up everywhere. This will likely act as a drag on the markets in the near-term, at least.

Gold is under a little pressure on Wednesday, still struggling to tackle the $1,300 level that has prompted some profit taking following an impressive rally. The dollar is continuing to put up a fight even as it continues to look vulnerable, which would offer support to gold in its bid to break through its resistance. A more dovish Fed has clearly aided this move but still the dollar index continues to hold just above 95.5, although I do wonder for how long. It's not looking good at the moment.

The improved risk environment at the start of the week doesn't help the bullish case for gold at a time when the profit-takers are taking some of the shine off of it. Perhaps in the near-term we'll see a bit of a corrective move, with $1,280 and $1,260 offering possible support, but I do think we'll see a much stronger run at $1,300 soon that will test just how bullish the market really is

Notes/Observations

• Positive signs from the first day of U.S.-China trade negotiations; Hopes of a trade deal boosting risk appetite
• Germany Nov Industrial Production continues string of disappoint European data
• UK and EU officials out in force denying any extension to Article 50

Asia:

• Japan Finance Min Aso: Market volatility has been high since late in 2018; will need to continue watching markets with 'sense of urgency'
• Australia Nov Trade Balance registered its 11th straight surplus (A$1.9B v A$2.2Be)

Europe:

• PM May said to be considering an amendment tabled by Tory and opposition MPs to the Finance Bill that sought to block a no deal Brexit by limiting the Treasury's tax powers. Speaker of the House to decide on Tuesday (Jan 8th) on the amendment
• Business group London First withdrew its support from PM May's Brexit deal; readying to back second referendum
• UK Govt spokesperson: PM May has always said would be willing to leave the EU on March 29, 2019 and would not extend Article 50 (Note: reports circulated that British and EU officials were discussing the possibility of extending Article 50 due to fears a Brexit deal won't be done by March 29th)
• SNB Vice President Zurbruegg reiterated stance that saw no reason to change monetary policy; Central Bank had tools to deal with any new crisis

Americas:

• Fed's Bostic (dove, non-voter in 2019): sees only one interest rate hike in 2019 (*8Note: previously saw two hikes in 2019) - President Trump to make remarks on Tuesday night about southern border issues
• White House Economic Advisor Hassett: There would be 'some' economic impact from partial government shutdown, tax refunds will be issued during shutdown

Macro

• (EU) Eurozone: With the December climate indicator coming in below expectations sentiment indicators are increasingly providing evidence of the the impact of negative headline PMI and national confidence numbers. The protests in France, have even showed up as a reason in German orders number weakness,but overall the deceleration suggests that the Eurozone recovery is running out of steam and the balance of risks tilting to further releases here is to the downside.
• (DE) Germany: November industrial production numbers were much weaker than expected with the -1.8% m/m drop in manufacturing is particularly concerning and overall industrial production fell -4.7% y/y. With Germany having already posted a negative GDP rate in Q3, the data will heighten fears of a recession.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.48% at 344.52, FTSE +0.55% at 6,848.12, DAX +0.10% at 10,759.35, CAC-40 +0.50% at 4,743.00, IBEX-35 +0.34% at 8,806.35, FTSE MIB -0.01% at 18,950.50, SMI +0.55% at 8,584.80, S&P 500 Futures +0.42%]
• Market Focal Points/Key Themes: European Indices trade higher across the board following gains in the US overnight and mainly higher Asian Indices. Macro Economic developments continue to be in the forefront. On the corporate front UK Supermarket retailer Morrisons trades lower after seeing slower sales growth over the Christmas period; Green King on the other hand gains on strong Christmas LFL sales, with Joules also trading higher on Christmas trading figures. Bang & Olufsen is another notable riser after earnings and affirmed outlook; Sika Group trades lower after in line Revenue for the full year and announcing the acquisition of Parex for CHF2.5B, Brunello Cucinelli also trades lower after a slight Revenue miss. In other news Italian Banks were in focus after the Italian Government layed out an action plan on Bank Carige's future. Looking ahead notable earnings include AZZ Inc, Helen of Troy, Motorcar Parts of America and Lindsey Manufacturing.
• Consumer discretionary: WM Morrison Supermarkets plc [MRW.UK] -4% (trading update), Greene King plc [GNK.UK] +4% (trading update), Kid ASA [KID.NO] -2% (prelim earnings), Bang & Olufsen A/S [BO.DK] +5% (earnings), Tesco plc [TSCO.UK] +3% (Kantar figures)
• Healthcare: Bayer [BAYN.DE] +2.5% (court decision on patent), Evotec [EVT.DE] +2.5% (milestone payment)
• Industrials: Sika [SIK.CH] -3.5% (acquisition), Kion Group [KGX.DE] -7% (analyst action)
• Technology: Tobii AB [TOBII.SE] +9% (agreement with HTC), Euskaltel SA [EU4.DE] +6% (reportedly Orange targeting company for potential acquistion), Signify [LIGHT.NL] -6.5% (analyst action)

Speakers

• German Econ Min Altmaier stated that he expect the domestic economic upswing to continue
• Ireland PM Varadkar: EU willing to give fresh written assurances on backstop ahead of UK parliamentary vote
• UK Brexit Min Barclay: Parliament vote on PM May's Brexit deal will go ahead during week of Jan 14th
• UK junior Brexit Min Callanan: Article 50 would not be extended
• French Europe Minister: No Discussion between France President Macron and UK PM May on extending Article 50

Currencies/Fixed Income

• USD trying to recoup some lost ground in the session. Dealers noted some positive signs from the first day of U.S.-China trade negotiations and this helped to boost hope of a trade deal thus raising risk appetite.
• EUR/USD still unable to break above the 1.15 level. Germany Nov Industrial Production continued a string of disappoint European data and presented more headwinds for the pair.
• GBP/USD little changed at 1.2775 area as various UK and EU officials were out in force denying any extension to Article 50.

Economic Data

• (NL) Netherlands Dec CPI M/M: -0.1% v -0.2% prior; Y/Y: 2.0% v 2.0% prior
• (NL) Netherlands Dec CPI EU Harmonized M/M: 0.0% v 0.0%e; Y/Y: 1.9% v 1.8%e
• (ZA) South Africa Dec Gross Reserves: $51.5B v $50.7B prior; Net Reserves: $43.1B v $42.6B prior
• (CH) Swiss Dec Unemployment Rate: 2.7% v 2.6%e; Unemployment Rate (Seasonally Adj): 2.4% v 2.4%e
• (DE) Germany Nov Industrial Production M/M: -1.9% v +0.3%e; Y/Y: -4.7% v -0.8%e
• (NO) Norway Nov Industrial Production M/M: -1.5 v +2.3% prior; Y/Y: 2.6 v 4.5% prior
• (NO) Norway Nov Manufacturing Production M/M: 0.0% v -0.3%e; Y/Y: 2.8% v 3.0% prior
• (FI) Finland Nov Preliminary Trade Balance: -€0.1B v -€0.2B prior
• (CH) Swiss Nov Real Retail Sales Y/Y: -0.5% v -0.6%e
• (FR) France Nov Trade Balance: -€5.1B v -€5.0Be
• (FR) France Nov Current Account Balance: -€2.8B v -€0.3B prior
• (TW) Taiwan Dec CPI Y/Y: -0.1% v +0.2%e; CPI Core Y/Y: 0.5% v 0.5%e; WPI Y/Y: 0.8% v 3.0% prior
• (CZ) Czech Nov Industrial Output Y/Y: 4.8% v 5.1%e; Construction Output Y/Y: 0.0% v 10.4% prior
• (HU) Hungary Nov Industrial Production M/M: -1.1% v 2.0% prior; Y/Y: 3.5% v 3.2% prior
• (UK) Dec Halifax House Prices M/M: 2.2% v 0.5%e; 3M/Y: 1.3% v 0.4%e
• (CZ) Czech Dec International Reserves: $142.6B v $141.4B prior
• (IT) Bank of Italy (BOI) Dec Balance sheet aggregates Target2 Liabilities at €482.0T v €491.7B prior
• (EU) Euro Zone Dec Business Climate Indicator: 0.82 v 1.00e; Consumer Confidence (final reading):-6.2 v -6.2e; Economic Confidence: 107.3 v 108.2e; Industrial Confidence: 1.1 v 3.0e; Services Confidence: 12.0 v 12.3e
• (BR) Brazil Dec FGV Inflation IGP-DI M/M: -0.5% v -0.7%e; Y/Y: 7.1% v 6.9%e
• (US) Dec NFIB Small Business Optimism Index: 104.4 v 103.0e (early release)

Fixed Income Issuance

• (BE) Belgium Debt Agency (BDA) opens book to sell Jun 2029 OLO bond via syndicate; guidance seen +11bps to mid-swaps
• (ID) Indonesia sold total IDR8.65T vs. IDR8.0T target in 6-month Islamic Bills, 2-year, 4-year, 7-year and 15-year Project-based Sukuk (PBS)
• (NL) Netherlands Debt Agency (DSTA) sold €1.55B vs. €1.25-1.75B indicated in 1.75% July 2023 DSL bond; Yield: -0.285% v +2.104%
• (ZA) South Africa sold total ZAR2.85B vs. ZAR2.85B indicated in 2023, 2030 and 2048 Bond
• (CH) Switzerland sold CHF149.5M in 3-month Bills; Avg Yield: -0.837% v -0.979% prior

Looking Ahead

• (PT) Bank of Portugal Data on Banks
• (RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to leave Interest Rate unchanged at 2.50%
• 05:30 (UK) Weekly John Lewis LFL Retail Sales data
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (UK) DMO to sell £2.25B in 1.625% Oct 2028 Gilt
• 05:30 Germany to sell 0.5% Apr 2030 Inflation-linked bonds (Bundei)
• 05:30 (BE) Belgium Debt Agency (BDA) to sell €2.2B in 3-month and 6-month bills
• 06:00 (IE) Ireland Nov Retail Sales Volume M/M: No est v 0.0% prior; Y/Y: No est v 5.8% prior
• 06:00 (IE) Ireland Dec Unemployment Rate: No est v 5.3% prior
• 06:00 (BR) Brazil Nov Industrial Production M/M: 0.2%e v 0.2% prior; Y/Y: -0.4%e v 1.1% prior
• 06:00 (CL) Chile Dec CPI M/M: -0.1%e v 0.0% prior; Y/Y: 2.6%e v 2.8% prior
• 06:00 (CL) Chile Dec CPI Ex Food and Energy M/M: 0.2%e v 0.0% prior; Y/Y: No est v 2.2% prior
• 06:00 (ZA) South Africa Nov Electricity Production Y/Y: No est v 0.8% prior; Electricity Consumption Y/Y: No est v 2.2% prior - 06:30 (EU) ESM to sell €2.0B in 3-month Bills; Avg Yield: % v -0.5760% prior; Bid-to-cover: x v 3.5x prior (Dec 4th 2018)
• 06:45 (US) Daily Libor Fixing
• 07:00 (RO) Romania Central Bank gov Isarescu to hold post rate decision press conference
• 07:45 (US) Weekly Chain Store Sales data
• 08:00 (UK) Baltic Dry Bulk Index
• 08:20 (BR) Brazil Dec Vehicle Production: No est v 245.1K prior; Vehicle Sales: No est v 231.0K prior; Vehicle Exports: No est v 34.4K prior
• 08:30 (US) Nov Trade Balance data postponed due to partial govt shutdown
• 08:30 (CA) Canada Nov Int'l Merchandise Trade (CAD): -2.1Be v -1.2B prior
• 08:55 (US) Weekly Redbook Same-Store Sales data
• 09:00 (MX) Mexico Dec Vehicle Domestic Sales: No est v 133.8K prior
• 09:30 (TR) Turkey Dec Cash Budget Balance (TRY): No est v 4.4B prior
• 10:00 (US) Nov JOLTS Job Openings: 7.050Me v 7.079M prior
• 10:00 (MX) Mexico weekly International Reserves data
• 13:00 (US) Treasury to sell 3-Year Notes
• 15:00 (US) Nov Consumer Credit: $17.5Be v $25.4B prior
• 16:00 (NZ) New Zealand Dec ANZ Job Advertisements M/M: No est v -0.1% prior
• 16:30 (AU) Australia Dec AiG Performance of Services Index: No est v 55.1 prior
• 16:30 (US) Weekly API Oil Inventory data
• 19:00 (NZ) New Zealand Jan ANZ Commodity Price: No est v -0.6% prior
• 19:00 (KR) South Korea Dec Unemployment Rate: 3.9%e v 3.8% prior
• 19:00 (JP) Japan Nov Labor Cash Earnings Y/Y: 1.2%e v 1.5% prior; Real Cash Earnings Y/Y: +0.4%e v -0.1% prior
• 19:30 (AU) Australia Nov Building Approvals M/M: -0.3%e v -1.5% prior; Y/Y: =24.8%e v -13.4% prior
• 19:30 (AU) Australia Nov Job vacancies: No est v 0.6% prior
• (US) Georgia general election runoff, federal races only

The single European currency appreciated about 134 base points against the Japanese Yen on Monday. The currency pair breached the monthly resistance level at 124.34 during the previous trading session.

The exchange rate is trading near the 200-hour simple moving average at 124.88 at the time of this analysis.

If the currency exchange rate passes the 200-hour SMA, the next target for bullish traders will be near a resistance cluster formed by the combination of the monthly and the weekly PPs at 127.04.

However, if the SMA as mentioned above holds, the price will aim for the weekly S2 at 123.12.

The Australian Dollar traded sideways movement against the US Dollar on Monday. The currency pair was trading near the upper band of a descending channel pattern during yesterday's session.

The 50-hour simple moving average provided support for the exchange rate at 0.7114 during the morning hours of Tuesday's trading session.

If this support level holds, the currency exchange rate will target a resistance level formed by the weekly R1 at 0.7246.

On the other hand, if the pair breaks the 50-hour SMA, bearish traders could push the price towards a support cluster formed by the combination of the 100-and 200-hour SMAs at 0.7050.

The US Dollar continued its decline against the Canadian Dollar on Monday. The USD/CAD exchange rate breached the lower boundary of a dominate ascending channel pattern during Monday's trading session.

Everything being equal, it is likely that the Greenback will continue its decline in a descending channel pattern during the following trading session.

The potential target for the bearish traders will be near December 3 swing low of 1.3150.

Furthermore, technical indicators demonstrate that the currency exchange rate will trade with low volatility today.

The New Zealand Dollar continued to trade in a junior ascending channel pattern against the US Dollar on Monday. However, the situation changes during the first half of today's session, as the currency pair breached the bottom border of the channel pattern at 0.6739.

Given that the exchange rate has breached the junior ascending channel, bears could continue to dominate the pair during the following trading session.

The possible downside target will be near a support cluster formed by the combination of the 100– and 200-hour SMAs at 0.6704.

Nevertheless, technical indicators suggest the currency exchange rate could trade sideways today.

EUR/USD

Current level - 1.1436

The reversal at 1.1485 shows a completion of the rise since 1.1345 low, but the major upmove form 1.1310 is still intact, so the attack of 1.1500 resistance remains on track. Only a break below 1.1415 area will signal a major reversal and beginning of a downward move. A violation of 1.1500 will target 1.1630 zone.

USD/JPY

Current level - 108.98

Yesterday's climb above 108.70 resistance signals a positive bias, for a rise towards 110.20 area. Initial intraday support is projected at 108.70, followed by the crucial 108.00.

GBP/USD

Current level - 1.2757

The overall bias is still positive above 1.2710 support area and there is a risk of a rise towards 1.2885 zone. Only a clear break through 1.2710 will signal a reversal and drowning towards 1.2420 lows.

The euro is starting to lose ground against the US dollar currency, after a failed attempt to break above the 1.1500 resistance level. The recent failure to overcome the 1.1500 level has provoked technical selling back towards the 1.1430 support level. A sustained break from the 1.1360 to 1.1470 trading range will likely provide a directional bias for short-term traders.

The EURUSD pair is only intraday bullish while trading above the 1.1470 level, key technical resistance is found at 1.1500 and 1.1550 levels.

If the EURUSD pair trades below the 1.1430 level, sellers may towards the 1.1410 and 1.1360 support levels.