US-China Talks Enter Critical Phase, UK Parliament Debates on Brexit

Investors Lock Gaze on US-China High-level Talks

After taking a breather on Tuesday, the dollar rebounded yesterday, outperforming all its G10 peers. The main loser was EUR, with JPY and NOK taking the second and third place respectively. The currencies that underperformed the least were SEK and AUD in that order.

USD/JPY — Technical Outlook

This week, USD/JPY continued to grind higher, breaking above the 110.10 barrier and reaching the 111.00 zone yesterday. Now the big question is, can the pair maintain its gains till the end of the week? The positive aspect of USD/JPY is that it continues to trade above, not only its upside support line taken from the low of January 3rd, but also above a very short-term upside line drawn from the low of January 31st. For now, even if we see a small correction back down, as long as the above-mentioned short-term upside line remains intact, we will continue aiming higher.

Pound Traders Await for UK Parliament’s Debate

For pound traders it’s all about Brexit, and this is proven by the fact that they reacted very little to the UK inflation data. The data showed that headline inflation slowed by more than anticipated, to +1.8% yoy from +2.1%, while the core rate remained unchanged at +1.9% yoy. Under normal circumstances, this would have hurt the pound, as with both rates below the BoE’s 2% objective, the chances for a BoE rate hike in the months to come would have fallen. That said, we repeat that pre-Brexit inflation data do not matter for traders at the moment as everything could change after the UK departs from the EU. A potential no-deal outcome could cause the pound to plummet, something that could push inflation up again.

GBP/CAD — Technical Outlook

GBP/CAD keeps on trading below its tentative short-term downside resistance line taken from the high of January 29th. Yesterday, the bulls made an attempt to drive the pair higher, but failed near the 1.7130 hurdle, from where the bears took control again. We will continue aiming a bit lower, at least for a little while.

As for the Rest of Today’s Events

During the European morning, Eurozone’s second estimate of Q4 GDP is coming out and is expected to confirm its preliminary print of +0.2% qoq. Later in the day, we may get the US retail sales for December, which were delayed due to the government shutdown. The release is expected to show that the headline rate ticked down to +0.1% mom from +0.2% in November, and that core sales stagnated after rising +0.2% as well. The US PPIs for January and initial jobless claims for the week ended on February 8thare also on the agenda. Both the headline and core PPI rates are expected to have declined, to +2.1% yoy and +2.5% yoy from +2.5% and +2.7% respectively, while jobless claims are expected to have decreased to 225k from 234k.

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