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Sunrise Market Commentary

• Rates: Consolidation ahead of the weekend?
  Core bonds corrected somewhat higher yesterday. A thin eco calendar, the end of the US’s supply operation and the weekend ahead suggest more consolidation today. The very long end of the US yield curve underperforms. The US 30-yr yield is testing 3.22% resistance, the neckline of a huge triple bottom.
• Currencies: USD rebound slows amid lack of data
  The USD rebound slowed yesterday in line with US yields. The eco calendar is thin today, but several Fed members speak. The dollar nears first intermediate resistance. It needs some high profile news to trigger a test, but this news probably won’t be available today. EUR/GBP is holding a sideways range as the UK government tries to bridge division on Brexit

The Sunrise Headlines

• US markets ended close to unchanged with the Dow Jones outperforming (+0.66%). Risk sentiment turned positive overnight with China (flat) underperforming.
• China’s insurance regulatory agency took control of hard-charging, acquisitive Anbang Insurance Group, saying it is needed to avoid a collapse of the firm following suspected illegal activity and the downfall of its chairman.
• The Trump administration’s policies will raise US wages without causing broader inflation, Treasury Secretary Mnuchin said in an interview, brushing aside signs that investors are growing nervous about rising prices.
• Theresa May's senior ministry agreed their demands for a trade deal but the EC pre-empted their decision by deriding what had already leaked out as "not compatible" with European Council guidelines.
• Technical work has begun to determine if Greece requires debt relief after its expected exit from a bailout programme later this year, ESM Regling said.
• Japan's core consumer inflation was steady in January (0.9% Y/Y) in a sign a strengthening economy has yet to prompt companies to raise prices, a challenge policy makers have yet to overcome despite years of massive stimulus.
• Today’s eco calendar contains final EMU inflation data. ECB Coeuré, Fed Mester and Fed Dudley are scheduled to speak. The Riksbank releases Minutes of the previous meeting.

Currencies: USD Rebound Slows Amid Lack Of Data

USD rebound slows amid lack of data

The recent rise of US yields and of the dollar petered out yesterday. Ifo Business Climate eased more than expected, but still indicated strong growth at the start of 2018. German yields declined after the release, but so did US ones. The reaction of the euro was negligible. US jobless claims printed near the cycle low, but didn’t help the dollar. US equities also failed to provide a clear guide for USD trading. Some dollar caution returned to the market. EUR/USD rebounded above 1.23 and finished at 1.2330. USD/JPY dropped back below 107 (close at 106.75).

Asian indices are showing gains of up to 1.0% overnight with mainland China underperforming. Japan January CPI (1.4%% Y/Y )printed slightly higher than expected, but the measure ex fresh food and energy stayed very low (0.4% Y/Y). The yen lost a few ticks after the release, but this was probably due to an overall bid for the USD. US Treasury secretary Mnuchin tried to ease markets’ inflation fears. In an interview, he said that the Trump policy will be able to raise wages without inflation. USD/JPY nears the 107 level. EUR/USD returns to the 1.23 area.

There are few important data today. The details of Q4 German growth are interesting, but a bit outdated and so is the final EMU CPI. Many Fed members will speak as markets are looking forward to the hearing of Fed Chairman Powel before Congress next week. Yesterday, we advocated some ST consolidation on the ST USD rebound. We hold on to that view. LT US yields are near (10y)/testing (30y) key resistance. It needs probably high profile news for a break. In this context, the recent USD rebound might slow. First resistance for the trade-weighted dollar comes in at 90.57. First support in EUR/USD is coming on the radar (1.2206/1.2165). However, it might be too early for a test. US equities area a wildcard for USD trading. Of late there was a tentative inverse correlation between US equities and the dollar.

Sterling declined temporary yesterday after the downward revision to UK Q4 GDP (0.4% Q/Q from 0.5%). However, the move didn’t go far. EUR/GBP basically hovered in the mid 0.88 area as recent BoE hints on a rate hike and political noise on Brexit kept each other in balance. The meeting of UK PM May with her top Ministers resulted in a confirmation of the ‘three basket approach’ which the EU sees as cherry picking. So, for now the stalemate in the negotiations will probably persist. We expect more range trading of EUR/GBP in the 0.88 big figure.

USD trade-weighted (DXY) USD rebound stalls ahead of first resistance

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Daily Pivots: (S1) 148.34; (P) 149.16; (R1) 149.78; More...

In the bigger picture, the case for medium term reversal continues to build up on loss of medium term momentum as seen in 4 hour MACD. Also, firm break of 146.96 will indicate rejection by 55 month EMA and add to that case of reversal. In that case, deeper fall would be seen to 38.2% retracement of 122.36 to 156.59 at 143.51 and then 61.8% retracement at 135.43. Meanwhile, break of 156.59 will extend the rise from 122.36 to 61.8% retracement of 195.86 to 122.36 at 167.78.

Daily Pivots: (S1) 131.15; (P) 131.77; (R1) 132.25; More....

Downside momentum in EUR/JPY is still a bit unconvincing. Nonetheless, near term outlook remains bearish as long as 133.05 resistance holds. Sustained trading below 132.04 cluster support (23.6% retracement of 114.84 to 137.49 at 132.14) will indicate larger trend reversal on bearish divergence condition in daily MACD. In such case, deeper decline would be seen for 38.2% retracement at 128.38 first. However, rebound from 132.04 will retain near term bullishness. Break of 133.05 minor resistance will turn bias back to the upside for 137.49 again.

In the bigger picture, bearish divergence condition in weekly MACD indicates loss of medium term upside momentum. Sustained break of 132.04 will be the early sign of long term reversal and should bring deeper fall back to retest 124.08 key support level. Meanwhile, break of 137.49 will resume the up trend from 109.03 to 141.04/149.76 resistance zone.

USDCAD climbed sharply above the 1.2685 level during Thursday’s trading session and posted a new 2-month high near 1.2755. However, the price ended the day slightly above its opening level and struggled below the 38.2% Fibonacci retracement level of the down-leg with the high of 1.3800 and the low of 1.2060. The technical indicators now support that the short-term bias is bullish.

Looking at the daily timeframe, the 20-simple moving average posted a bullish crossover with the 40-SMA, suggesting a strong buying interest. Moreover, the price rebounded on the 20-SMA and recorded five green days in a row.

From the technical point of view, the MACD oscillator is rising in the positive territory and jumped above its trigger line, while the Relative Strength Index (RSI) is endorsing the scenario for upside movement as it is approaching the overbought zone.

Should the market continue the upside tendency, the 38.2% Fibonacci at 1.2723 could provide nearby resistance before the 1.2910 resistance level come into view.

To the downside, immediate support could come from the 20-SMA at 1.2522 ahead of the 23.6% Fibonacci of 1.2470. Further below, the focus would shift to the 1.2250 key level.

Regarding the medium-term picture, it is worth mentioning that the price successfully surpassed the 40-week SMA, signaling further gains.

USDCAD is trading nicely bullish, after a base was found for corrective wave 2 at the 1.2446 level. Current strong rally can be part of wave 3, the strongest and steepest wave, that is also usually the longest. Wave 3 can so approach levels near the 1.297 region, before a new temporary retracement as wave 4 shows up. At the 1.297 area, the upper base channel line and the Fibonacci ratio of 161.8 can offer resistance.

USDCAD, 4H

Daily Pivots: (S1) 0.8801; (P) 0.8829; (R1) 0.8853; More...

EUR/GBP's sideway trading continues inside 0.8686/8928. Intraday bias remains neutral and deeper fall is mildly in favor with 0.8928 resistance intact. On the downside, firm break of 0.8686 will resume whole decline from 0.9305. As 61.8% retracement of 0.8312 to 0.9305 should then be taken out too, deeper decline would be seen to retest 0.8303/8312 support zone. Nonetheless, on the upside, break of 0.8928 will indicate near term reversal and turn outlook bullish for 0.9304 resistance.

In the bigger picture, there are various ways to interpret price actions from 0.9304 high. But after all, firm break of 0.9304/5 is needed to confirm up trend resumption. Otherwise, range trading will continue with risk of deeper fall. And in that case, EUR/GBP could have a retest on 0.8303. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside.

Daily Pivots: (S1) 1.5676; (P) 1.5715; (R1) 1.5755; More....

EUR/AUD is staying in consolidation from 1.5816 and intraday bias remains neutral. Also, with 1.5606 intact, near term outlook remains bullish. Break of 1.5816 should now confirm resumption of medium term rise from 1.3264. In that case, EUR/AUD should target 1.6587 key long term resistance. Meanwhile, firm break of 1.5606 will argue that a short term top is formed. Intraday bias will be turned back to the downside for 55 day EMA (now at 1.5494)

In the bigger picture, medium term rise from 1.3624 is not completed yet. Sustained break of 1.5770 will extend the rise to retest 1.6587 (2015 high). However, considering bearish divergence condition in daily MACD, break of 1.4949 cluster support (38.2% retracement of 1.3624 to 1.5770 at 1.4950) will indicate medium term reversal. And there is prospect of retesting 1.3624 low in that bearish case.

Daily Pivots: (S1) 1.1486; (P) 1.1515; (R1) 1.1531; More...

Intraday bias in EUR/CHF remains neutral as consolidation from 1.1445 continues. Outlook stays bearish with 1.1639 resistance intact. Break of 1.1445 will resume the corrective fall from 1.1832 and target 1.1355 cluster support (38.2% retracement of 1.0629 to 1.1832 at 1.1372.) At this point, we'd expect strong support from there to contain downside and bring rebound.

In the bigger picture, a medium term top should be in place at 1.1832 on bearish divergence condition in daily MACD. But there is no indication of long term reversal yet. As long as 1.1198 resistance turned support holds, we'd still expect another rise through prior SNB imposed floor at 1.2000.

The British pound has moved higher against the greenback overnight, hitting 1.3988, after sellers failed to gain traction below the 1.3901 level. The GBPUSD pair is currently trading around the 1.3950 region, after traders booked profits from over-extended levels, as buying demand again waned above the key 1.4000 handle. Moving into the European session, sterling traders look towards the pivotal 1.3938 level and the U.S dollar index for directional guidance.

The GBPUSD pair is intraday bullish whilst trading above the 1.3938 level, key upside resistance is found at the 1.4008 and 1.4090 levels.

If GBPUSD price-action moves below the 1.3938 level, sellers may push price-action back toward the key 1.3901 support level.

The U.S dollar has continued to move lower against the Japanese yen, with price-action trading as low as 106.60 as the pair follows longer dated U.S bond-yields lower. The USDJPY now trades around the 106.90 region, with downside pressures likely to remain whilst the pair trades below the pivotal 107.30 technical level. The U.S dollar index and U.S bond-yields are likely to continue to influence the direction of the USDJPY pair during Friday trading.

The USDJPY pair is likely to experience further losses below the 107.30 level, key intraday support is found at the 106.60 and 106.06 levels.

If price-action on the USDJPY pair moves above the key 107.30 level, buyers may test towards 107.61 and 107.91 resistance levels.