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The US dollar was seen trading on the back foot on Monday with the US markets closed on account of Columbus Day holiday. The euro and the British pound were seen posting some modest gains as a result. In the UK, data from the ONS showed that the labor costs in the UK were seen rising and higher than previously estimated.

This helped to support the British pound as investors saw this as a positive for the Bank of England. The central bank is expected to hike interest rates in a couple of months. Economic data yesterday was limited to the German industrial production which posted a strong rebound as industrial output rose 2.6% on the month.

The Eurozone Sentix investor confidence data also increased from 28.2 previously to 29.6. Looking ahead, a somewhat busy day today will see the release of the UK's industrial, manufacturing and construction output data. FOMC Member, Kashkari will be speaking today while from the Eurozone, industrial production figures from France are expected.

Sunrise Market Commentary

• Rates: Limited impetus, more consolidation?
  The eco calendar remains uneventful today and won't influence trading. Catalan President Puidgemont's speech after European trading is a wildcard, which warrants some cautiousness as he is rumoured to unilaterally declare independence. We think that core bonds are prone for more consolidation/correction higher.
• Currencies: Dollar rally ran into resistance. Catalonia to weigh on the euro?
  The dollar stabilized yesterday as last week's rally stalled. Today, the eco calendar remains thin. The dollar probably won't receive additional interest rate support. Catalonia remains a wildcard for the euro. Until now there was no negative fall-out on the euro, but his might change if tensions mount after a declaration of independence

The Sunrise Headlines

• European equities ended a calm trading session with minor gains. Spanish equities outperformed on hopes the Catalonian tensions will ease. Asian equities are narrowly mixed overnight, awaiting the return of US traders.
• The ECB should reduce its asset buys from next year with the aim of ending them altogether, ECB Executive Board member Lautenschlaeger said, just weeks before policymakers decide whether to curb stimulus.
• The US's spat with Turkey could drag on, as animosity builds between the NATO allies. U.S. envoy John Bass said a resolution depends on officials explaining why two Turkish employees at American outposts were detained.
• OPEC chief Barkindo said a drop in floating crude storage and the OECD's stock overhang are "strong and positive" signs of rebalancing. The comments drew a muted response from traders, suggesting they don't think the Saudi-led alliance can immediately turn the market around
• Catalan President Puigdemont will make a declaration of gradual independence today (6 PM). The announcement will include a constituent process without a regional assembly vote and will call on negotiations with Madrid
• Theresa May has set out detailed plans for the first time on how Britain would try to keep trade flowing if it fell out of the EU without a deal, as the prime minister prepared for a high-stakes game of brinkmanship with Brussels
• Today, the eco calendar is well filled with US small business confidence and production data from the UK, France and Italy, together with German and UK trade figures. However, these releases usually don't impact trading much

Currencies: Dollar Rally Ran Into Resistance. Catalonia To Weigh On The Euro?

Dollar awaits eco news. Catalonia remains wildcard

Yesterday, the dollar traded listless in a tight ranges following a failed attempt to gain more ground after the payrolls on Friday. A thin calendar and the absence of US traders (Columbus Day) contributed to the dull trading. Tensions between the US and Turkey and ongoing uncertainty about Catalonia didn't affect global currency markets. EUR/USD closed the session little changed at 1.1740. USD/JPY showed a similar developed and finished the day at 112.68.

Overnight, Asian equity markets are trading mixed. The PBOC fixed the yuan strong against the dollar. PBOC officials advocated further financial reforms and a more market-based regime for the yuan. Yuan strength weighs on the dollar. EUR/USD jumped from the 1.1740 area and trades currently around 1.1775. USD/JPY is the exception the dollar rule. BOJ governor Kuroda indicated that the BOJ will keep its ultra-stimulating policy until inflation will reach the 2% target. The Aussie dollar rebounds after the recent decline. USD weakness is one factor. The Aussie dollar is also supported as the AUD/NZD cross rises on the ongoing political uncertainty in the New-Zealand. AUD/USD trades around 0.7785.

In the US, the NIFB small business confidence is expected to have stabilized in September near multi-year highs (105 vs. 105.3). We see upside risks as other business indicators surprised on the upside in September but the report has usually only a limited impact on the dollar. In EMU, there are only national data. The main market event may be the potential unilateral declaration of independence of the Catalonian government (after market closure). Until now, tensions on Catalonia hardly affected to euro. However, if the situation escalates, there could be negative fall-out on other European markets and maybe on the euro.

The dollar started with a negative bias in Asia this morning, due to local/regional factors (CNY strength). It is unsure that European markets will join this trading dynamics. With little guidance from the eco data, we expect more technical trading ahead of the statement in the Catalonian Parliament late today. The rise in core yields has taken a breather. For now, the US currency doesn't receive additional interest rate support, preventing further gains. Still, EUR/USD 1.1823 (previous range bottom) might continue to cap the topside in EUR/USD. US CPI and retail sales on Friday are the next milestones for USD trading

From a technical point of view, EUR/USD dropped below the 1.1823/ 1.2070 consolidation pattern. The USD rebound develops very slowly, keeping below the 1.1823 previous range bottom. Higher US yields are needed to support additional USD gains. Next support in EUR/USD comes in at 1.1662, while 1.1423 marks the 38% retracement from the 2017 rally. EUR/USD is captured in a cautious sell-onupticks pattern. The USD/JPY momentum was constructive of late, but for an important part due to yen weakness. USD sentiment recently improved though. USD/JPY regained 110.67/95 (previous resistance), a short-term positive. The 114.49 correction top is the next important resistance. The rally lost momentum last week. So a break beyond 114.49 is difficult.

EUR/USD rebounds as 1.1662 support stayed out of reach

EUR/GBP

Sterling decline takes a breather

Yesterday, sterling rebounded following a 6 days losing streak as the the political future of PM May became again a bit more secure. The political situation in the UK remains fragile, but for now this relative stability was enough to ease recent sterling selling. EUR/GBP was already downwardly oriented in late Asian trading and continued to slide lower in the European session. The correction petered out later in the session. EUR/GBP finished the day at 0.8935 (from 0.8981). Cable closed the session at 1.3142, up from 1.3066 on Friday.

Overnight, BRC like for-like sales rebounded in September from 1.3% Y/Y to 1.9% Y/Y. BRC indicated that most of the rise was due to price rises. If confirmed by other data evidence, it might reinforce the case for BoE tightening. Later today, the UK eco calendar is well filled with production data, the trade balance and the NIESR GDP estimate. Production is expected to growth modestly. The trade deficit to remain wide. Sterling trades marginally stronger against the dollar and flat against the euro. However, we don't expect this “countermove” to go very far. We maintain a buy-on-upticks approach for EUR/GBP.

EUR/GBP staged a strong uptrend since April to set a top at 0.9307 late August. UK price data amended the dynamics and hawkish BoE comments reinforced a sterling rebound. Medium term, we maintain a EUR/GBP buy-on-dips approach as we expect the mix of euro strength and sterling softness to persist. The prospect of (limited) withdrawal of BOE stimulus triggered a good sterling countermove but this rebound has run its course. EUR/GBP supports at 0.8743 and 0.8652 are difficult to break. We look to buy EUR/GBP on dips. Last week's rebound above the 0.89 area improved the ST technical picture of EUR/GBP. EUR/GBP 0.9026 is the 50% retracement of the recent countermove

EUR/GBP rebound slows, but holds north of 0.89

Download entire Sunrise Market Commentary

Asia Summary

Asian equity markets opened mixed, with the Kospi coming back from holiday break rising 1.3% at the open (Samsung especially strong ahead of Friday earnings) and Chinese markets lower after a strong day yesterday. Currencies were muted in the first part of the session before broad dollar weakness took hold. North Korea continues to be cautiously eyed for its next provocation with top possibilities being sometime today, on its Party Founding Day or on Oct 18th when China holds it 19th National Congress of the Communist Party.

China and South Korea are in negotiations to extend their FX swap agreement with talks taking place today. Japan name, Kobe Steel, under pressure, after admitting to falsifying reports related to materials. So far it seems to only impact domestic product for Japan carmakers. BOJ Gov Kuroda affirmed that he expects CPI to pick up pace towards 2% target; Will maintain QQE with YCC for as long as needed to reach 2% inflation in stable manner. USD/JPY remained little changed throughout the session. In New Zealand parties continue to negotiate with NZ First to form a government.

Key economic data

(NZ) NEW ZEALAND SEPT CARD SPENDING RETAIL M/M: 0.1% V 0.7%E; TOTAL M/M: -0.1% V 0.6% PRIOR

(JP) JAPAN AUG BOP CURRENT ACCOUNT ADJ ¥2.27T V ¥1.98TE; CURRENT ACCOUNT BALANCE: ¥2.38T V ¥2.22TE

(AU) Australia Sept NAB Business Conditions: 14 v 14 prior; Confidence: 7 v 5 prior

Speakers and Press

Korea

(KR) North Korea last year hacked top secret military documents including detailed plans between US/South Korea if a N. Korea war breaks out - Korean press

(CN) China and South Korea officials agree to extend FX swap agreement - Korean press

China

(CN) PBOC Gov Zhou: China must press on with a "trinity" of reforms to fully realize an open economy – Caijing

(CN) China Stats Bureau Chief: China has no problem meeting 2017 GDP growth target of ~6.5%, may beat target

(CN) Moody's: Continued product mix in Chinese life insurers bodes well for solvency ratios in coming 12-18 months

(CN) China Stats Bureau Head: Sept survey-based jobless rate in major cities 4.83% (lowest since 2012)

Japan

(JP) Bank of Japan (BoJ) Gov Kuroda: Expects CPI to pick up pace towards 2% target; Will maintain QQE with YCC for as long as needed to reach 2% inflation in stable manner

Asian Equity Indices/Futures (00:00ET)

Nikkei +0.4%, Hang Seng +0.1%; Shanghai Composite -0.3%; ASX200 -0.2%, Kospi +1.8%

Equity Futures: S&P500 +0.0%; Nasdaq100 +0.1%, Dax +0.1%; FTSE100 +0.2%

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.1782-1.1739; JPY 112.83-112.61; AUD 0.7790-0.7750;NZD 0.7088-0.7056

Dec Gold +0.3% at $1,289/oz; Nov Crude Oil +0.1% at $49.63/brl; Dec Copper +0.6% at $3.05/lb

(AU) Australia sells A$150M in 1.25% 2040 indexed bonds; avg yield 1.2167%; bid-to-cover 2.60x

USD/CNY *(CN) CHINA PBOC SET YUAN REFERENCE RATE AT 6.6273 V 6.6493 PRIOR

(CN) China PBOC injects CNY40B in 7-day reverse repos v skips prior

(KR) Bank of Korea (BOK) sells KRW0.5T v KRW0.5T indicated in 6-month stabilization bonds; avg yield 1.41% v 1.33% prior

(KR) South Korea sells 5-yr bonds; avg yield 2.135%

Equities notable movers

Australia/New Zealand

PPS.AU Reports Q1 FUA A$6.66B v A$6.11B prior; +13.5%

ESV.AU Cuts FY17 Rev €9.7-11.0M (prior €15-19M); +8.3%

Japan

5406.JP Admitted it had falsified data on some aluminum and copper parts products - Japan press; -22%, limit down

Korea

006400.KR Said to be bidding for lithium development project in Chile; +8.5%

China/Hong Kong

2380.HK Proposes rights issue on basis of up to one rights share for every three existing shares – filing; -6.5%

Market movers today

There are no big global market movers on the agenda today. Of tier 2 data, we have German trade balance, UK industrial production and US NFIB small business optimism.

In the afternoon, the Fed's Neel Kashkari (voter, dovish) is due to speak.

Catalonian President Carles Puigdemont is due to address law makers in local parliament in Barcelona at 18:00 CEST on the outcome of the 1 October referendum to consider a declaration of independence. The referendum has been ruledillegal by the Spanish courts, and Prime Minister Mariano Rajoy has dismissed the ballot as meaningless and vowed to defend the unity of Spain using all means at his disposal.

In Scandinavia, focus will be on Norwegian CPI and in Sweden, the NIER's updat ed macro forecasts will be scrut inised for comments on fiscal policy and whether it is considered to have any impact on the Riksbank. See next page for details.

Selected market news

It has been a relatively quiet session overnight both in terms of news and price actions. In the US, equity indices ended the day slightly lower with S&P500 and Dow Jones declining 0.1% and 0.2%, respect ively. In Asia this morning, trading is relatively mixed, with Chinese indices trading lower while Japanese equity indices are up 0.2-0.4%.

The fifth round of Brexit negotiat ions kicked off in Brussels yesterday and stakes were upped after UK Prime Minister Theresa May told the House of Commons yesterday how the government thinks the UK could operate as an independent trading nat ion after Brexit and out lined a contingency plan for a no-deal scenario, saying that the country must be prepared for 'every event uality'. Theresa May rejected existing models for economic co-operation such as the Norwegian model (membership of the European Economic Area) or the Canadian model, calling for an unique solution for the UK. At the same time, she stressed that the government is still prepared to walk away from Brexit negotiations without a deal. In terms of a possible transition period, she confirmed that Britain will remain subject to the rulings of the European Court of Justice during a planned two-year transition period after Britain leaves the EU in March 2019 and did not rule out accepting new regulations imposed by Brussels. This round of Brexit negotiations concludes on Thursday and it is the final set of talks before EU leaders meet to discuss Brexit at a summit next week.

NZDUSD Short term Elliott Wave view suggests the decline from 9/20 peak remains in progress a zigzag Elliott Wave structure. Down from 9/20 high (0.7434), pair ended Minor wave A at 0.7165. Subdivision of Minor wave A unfolded as 5 waves impulse where Minute wave ((i)) of A ended at 0.7276 and bounce to 0.7362 ended Minute wave ((ii)) of A. Afterwards, decline to 0.7166 ended Minute wave ((iii)) of A and Minute wave ((iv)) of A ended at 0.7239. Minute wave ((v)) of A completed at 0.7165. Pair then bounced in Minor wave B in 3 waves and ended at 0.7243. Minor wave C is currently in progress and unfolding also as 5 waves impulse. Minute wave ((i)) ended at 0.7145, Minor wave ((ii)) ended at 0.7206, and Minute wave ((iii)) at 0.7049. While Minute wave ((iv)) bounce stays below 9/29 peak (0.7243), expect pair to extend lower towards 0.6919 – 0.6983 before ending cycle from 9/20 peak.

NZDUSD 1 Hour Elliott Wave Chart

Currency pair GBP/USD

The GBP/USD is building a bullish retracement in the downtrend channel (red line) which could be part of a larger wave C or 3 (green).

The GBP/USD is probably building a deeper bullish retracement via a wave 4 (orange). This wave 4 (orange) becomes less likely if price breaks above the downtrend channel and 50% Fib. A bearish break below the bullish channel (blue) could indicate the continuation of the downtrend.

Currency pair EUR/USD

The EUR/USD broke above the falling wedge chart pattern (dotted orange), which indicates a bullish bounce at the 23.6% Fibonacci level of wave 4 (purple). The wave 4 does not have to be completed. This depends on whether price makes a bullish ABC or 12345 pattern when challenging the next resistance trend lines.

The EUR/USD wave structure has multiple options at this moment but a wave 3 (pink) is more likely if price manages to break above the resistance trend line (red).

Currency pair USD/JPY

The USD/JPY is in a sideways range, which is indicated by the support (blue) and resistance (red) trend lines. A bearish breakout could indicate a retracement towards the Fibonacci levels of wave 2 or B (purple).

The USD/JPY could be building a potential ABC (pink) correction.

Daily Pivots: (S1) 0.7739; (P) 0.7760; (R1) 0.7774; More...

A temporary low is in place at 0.7732 and intraday bias is turned neutral first. Another fall is expected as long as 0.7874 resistance holds. As noted before, rise from 0.7382 is possibly completed at 0.8124 already. Below 0.7732 will target medium term fibonacci level at 0.7628 first. Decisive break there will target 0.7328 key cluster support. On the upside, break of 0.7874 will argue that the decline is completed and turn bias back to the upside.

In the bigger picture, rise from 0.6826 medium term bottom is seen as corrective pattern. Current development suggests that it might be completed with three waves up to 0.8124 already. Break of 38.2% retracement of 0.6826 to 0.8124 at 0.7628 will firm this bearish case. And, decisive break of 0.7328 key cluster support (61.8% retracement at 0.7322) will confirm and bring retest of 0.6826 low. In case rise from 0.6826 resumes and extends, strong resistance should be seen at 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside.

Daily Pivots: (S1) 1.2531; (P) 1.2544; (R1) 1.2564; More....

USD/CAD continues to lose upside momentum as seen in 4 hour MACD. But with 1.2448 minor support intact, further rise is in favor. Rally from 1.2061 would target 1.2777 resistance first. Decisive break there will target key medium term fibonacci level at target 38.2% retracement of 1.4689 to 1.2061 at 1.3065. On the downside, break of 1.2448 will indicate short term topping and turn bias back to the downside for retesting 1.2061 low.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. And in that case, USD/CAD should target 1.3793 resistance next. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

Daily Pivots: (S1) 112.34; (P) 112.88; (R1) 113.17; More....

Intraday bias in USD/JPY remains neutral at this point. On the upside, break of 113.43 and sustained trading above the channel resistance will argue that correction from 118.65 is already completed with three waves down to 107.31. Break of 114.49 will confirm this bullish case and target a test on 118.65 next. On the downside, considering bearish divergence condition in 4 hour MACD, break of 112.31 will suggest rejection from the channel resistance and turn bias back to the downside.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It's unclear whether this this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don't expect a break there on first attempt.

Daily Pivots: (S1) 0.9775; (P) 0.9791; (R1) 0.9812; More....

USD/CHF continues to lose upside momentum as seen in 4 hour MACD. But with 0.9708 minor support intact, further rise is expected. We're favoring the whole down trend form 1.0342 has completed after defending 0.9443 key support again. Further rise would be seen to 61.8% retracement of 1.0342 to 0.9420 at 0.9990. However, break of 0.9708 will mix up this bullish outlook and turn bias back to the downside for 0.9587 support instead.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could develop into a medium term move and target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9587 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.