Sample Category Title

Sunrise Market Commentary

• Rates: Short term Bund gains after German elections?
  German elections ended with a Pyrrhic victory for Merkel's CDU/CSU and create some uncertainty. The SPD's voluntary move to the opposition paves the way for a coalition with Liberals and Greens, but is maybe less “European friendly”. Peripheral spread widening could be the result today, while the Bund could eke out some short term gains.
• Currencies: German election outcome to erode euro positive momentum
  Last week, USD softness prevailed. The German election outcome dominates headlines this morning and is considered as less EU friendly. This weighs on the single currency. Sterling was sold after a Moody's downgrade late on Friday', but the UK currency shows resilience as the dollar and the euro trade soft this morning.

The Sunrise Headlines

• US equities ended Friday's dull sideways session virtually unchanged. Asian equities, excluding Japanese ones, trade down in the opening session.
• German chancellor Merkel gained a 4th term but her party's result was the worst since 1949. A far-right party entered parliament in a sign of the growing polarization. Social democrats refuse to hold coalition talks, so Merkel will have to forge an agreement with the Liberals and Greens, creating uncertainty.
• A Republican attempt to repeal and replace Obamacare appeared headed for defeat after senator Collins said she doesn't see herself backing the plan and Senator Cruz said he's currently “not a yes.” However, uncertainty remains.
• Moody's cut the UK Aa1 rating to Aa2, outlook stable. The outlook for public finances has "weakened significantly," with fiscal consolidation plans in question and debt burden expected to continue to rise, Moody's justified. It may hit sterling, as Fitch and S&P have a negative outlook on their UK rating.
• Republican tax negotiators are targeting a corporate tax rate of 20%, according to people familiar with the matter. That would be higher than President Donald Trump wants -- setting up a key decision for the president.
• New Zealand PM English has claimed a mandate to form the next government after winning the biggest slice of the vote in Saturday's election, even as opposition leader Ardern refuses to concede defeat. NZD/USD trades lower.
• The Republicans cemented control over the French Senate, a setback for president Macron. However, it has only limited powers and its composition reflects the 2015 municipal elections (municipal councillors elect Senate).
• Today, attention goes to the IFO survey and manifold central bank speakers.

Currencies: German Election Outcome To Erode Euro Positive Momentum

German election to weigh on the euro ?

Sentiment on the dollar remained fragile on Friday as (geopolitical) uncertainty and a cautious risk-off mood deprived the dollar of highly needed interest rate support. The euro was supported by strong EMU PMI's. However, at the end of the day, the moves were modest. EUR/USD closed the day at 1.1951. USD/JPY finished the week at 111.99.

There are several stories to guide trading at the start of the new week. Japanese equities outperform as markets look out for new pro-growth measures as PM Abe is considering snap elections for next month. USD/JPY trades again in the 112.25 area, but is off the intraday top as global sentiment in the region is risk-off.

Chinese markets underperform, especially the property sector, on the announcement of measures to ease speculation. EUR/USD dropped temporary to the 1.19 area on the outcome of the German election. For now, the loss of euro is modest (currently around 1.11930/35). The New-Zealand election brought also a diffuse outcome as the ruling National party didn't get a majority. NZD/USD declined from the mid 0.73 area to the mid 0.72 area.

Today, the German IFO business Climate is expected virtually unchanged at the highest level ever. We don't have strong evidence to take a different view from the consensus. There also plenty of ECB and Fed governors scheduled to speak, including ECB Constancio, Mersch, President Draghi and Coeuré. From the Fed side, NY Fed Dudley and Chicago Evans are the speakers on duty. Dudley's speech probably won't address monetary policy. Evans is a dove and was probably one of the governors who don't see a rate hike anymore in 2017.

Last week, the dollar remained soft even as the Fed reiterated its intention to continue policy normalization. The euro profited slightly from strong PMI's. Today, the focus might be on the consequences of the German election outcome. The IFO will have to bring a big surprise to have impact on euro trading. The German election outcome is less positive for the EU and intra-EMU cooperation. This might widen intra-EMU spreads and cause some euro softness. At the same time, the sources of uncertainty that weigh on the dollar have still not gone. We start the week with a slightly euro negative bias. However, it is far from sure that the outcome of the German election will start a real sustained euro down-leg. EUR/USD 1.1823 remains to first reference

From a technical point of view EUR/USD hovers in a consolidation pattern between 1.1823 and 1.2070. It was disappointing for EUR/USD bears that the recent correction didn't reach the range bottom. More confirmation is needed that the bottoming out process in US yields and in the dollar might be the start of more sustained USD gains (against the euro). In case of a break, next support in EUR/USD comes in at 1.1774 and 1.1662

The day-to-day momentum in USD/JPY remains more constructive. However, this in the first place due to yen weakness. USD/JPY regained the 110.67/95 previous resistance, a short-term positive. Unless an unexpected risk-off event, the yen might remain in the defensive. The 114. 49 correction top is the next important reference.

EUR/USD: Will German election cause a euro negative repositioning?

EUR/GBP

No lasting sterling damage from Moody's downgrade

On Friday, sterling was at the mercy of the broader swings in the euro and the dollar as markets awaited UK PM May's Brexit speech in Florence. UK PM May brought some general considerations on the relationship between the EU and the UK, but stressed that the UK intends to maintain the best relations with the EU. The UK PM also advocated a transition period. Sterling initially declined, but soon regained most of the lost territory as the tone of the speech was reconciliatory. The reactions from Europe were mildly positive. Later in the session, the sterling faced another headwind as Moody's cut the rating of the UK from Aa1 to Aa2. This downgrade hammered sterling. EUR/GBP closed the session at 0.8850. Cable finished the day at 1.3504

Today, the euro is slightly in the defensive after the German election result. EUR/GBP dropped again to 0.88 barrier. Sterling profits from both underlying euro and USD softness and this may still go somewhat further. The recent lows in EUR/GBP (0.8775 area) are within reach.

EUR/GBP made an impressive uptrend since April and set a MT top at 0.9307 late August. Recent UK price data amended the dynamics and the reversal of sterling was reinforced by hawkish BoE comments. Medium term, we maintain a EUR/GBP buy-on-dips approach as we expect the mix of relative euro strength and sterling softness to persist. However, the prospect of (limited) withdrawal of BOE stimulus put a solid floor for sterling ST term. We look how far the current correction has to go. EUR/GBP is nearing support at 0.8743 and 0.8652, which we consider difficult to break. We start looking to buy EUR/GBP on dips

EUR/GBP: near recent lows

Download entire Sunrise Market Commentary

USD/CHF - 0.9704

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9712

Kijun-Sen level                    : 0.9699

Ichimoku cloud top                 : 0.9699

Ichimoku cloud bottom              : 0.9669

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the greenback has edged higher after rebound from Friday’s low of 0.9668 and marginal gain from here cannot be ruled out, break of last week’s high at 0.9748 is needed to signal recent rise from 0.9421 low has resumed and extend gain to 0.9761-66 (50% Fibonacci retracement of 1.0100-0.9421 and previous resistance), then test of another previous resistance at 0.9773.

On the downside, below said support at 0.9668 would extend weakness to previous minor resistance at 0.9649 but break there is needed to signal top has been formed, bring further fall to 0.9620, however, price should stay well above indicated support at 0.9589, bring rebound later. As near term outlook is still mixed, would be prudent to stand aside for now.

GBP/USD - 1.3551

Most recent candlesticks pattern   : N/A

Trend                                 : Up

Tenkan-Sen level                 : 1.3535

Kijun-Sen level                    : 1.3521

Ichimoku cloud top              : 1.3557

Ichimoku cloud bottom        : 1.3555

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite falling to 1.3450 late Friday, lack of follow through selling on break of previous support at 1.3452 and the subsequent rebound suggest further consolidation would take place and recovery to 1.3585-90 cannot be ruled out, however, still reckon upside would be limited to 1.3615-20 and price should falter below last week’s high at 1.3658, bring another retreat later.

On the downside, below 1.3500-10 would bring another fall towards 1.3450 support but a firm break below there is needed to retain bearishness and signal top has been formed at 1.3658, bring retracement of recent rise towards 1.3400-05 (50% Fibonacci retracement of 1.3153-1.3658). As near term outlook is still mixed, would be prudent to stand aside for now.

EUR/USD - 1.1916

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.1920

Kijun-Sen level                  : 1.1951

Ichimoku cloud top             : 1.1948

Ichimoku cloud bottom      : 1.1940

Original strategy  :

Sold at 1.1970, Target: 1.1870, Stop: 1.1970

Position : - Short at 1.1970

Target :  - 1.1870

Stop : - 1.1970

New strategy  :

Hold short entered at 1.1970, Target: 1.1870, Stop: 1.1970

Position : - Short at 1.1970

Target :  - 1.1870

Stop : - 1.1970

Although the single currency rebounded after finding good support at 1.1861 last week, the subsequent retreat after meeting renewed selling interest just above 1.2000 level has retained our bearishness and consolidation with mild downside bias remains for another decline, below 1.1890 would bring test of said support at 1.1861 but break there is needed to extend the fall from 1.2035 to previous support at 1.1838 which is likely to hold on first testing.

In view of this, we are holding on to our short position entered at 1.1970. Only above resistance at 1.2005 would dampen our bearishness and risk test of last week’s high at 1.2035 but only break there would shift risk back to upside and extend the rebound from 1.1838 to 1.2060-70 first.

EURUSD

The EURUSD was indecisive last week. Price gapped lower earlier today opened at 1.1899. Overall I remain bullish but price is still trapped between 1.2090 – 1.1823 range area as you can see on my daily chart below. The bias is neutral in nearest term. Immediate resistance is seen around 1.1950. A clear break above that area could trigger further bullish pressure testing 1.2000 region. Immediate support is seen around 1.1865. A clear break below that area could trigger further bearish pressure testing 1.1823 key support which remains a good place to buy with a tight stop loss as a clear break below that area would take price to a bearish correction zone testing 1.1700 – 1.1600 region.

GBPUSD

The GBPUSD attempted to push higher last week slipped above 1.3615 key resistance but whipsawed to the downside and closed lower at 1.3484. Overall I remain bullish but the bias is bearish in nearest term testing 1.3400 – 1.3330 support area which is a good place to buy. Immediate resistance is seen around 1.3550. A clear break above that area could lead price to neutral zone in nearest term retesting 1.3615 key resistance which need to be clearly broken to the upside to continue the bullish scenario targeting 1.3700 – 1.3750 area as nearest bullish target. On the downside, a clear break below 1.3330 support area would take price to a bearish correction zone testing 1.3150 key support.

USDJPY

The USDJPY continued its bullish momentum last week topped at 112.71 but closed lower at 111.97. The bias is neutral in nearest term but as long as stay above 111.00 my H1 chart bias remains bullish targeting 113.50 as nearest bullish target. Immediate resistance is seen around 112.71. A clear break and daily close above that area could trigger further bullish pressure testing 113.50 or higher. Immediate support is seen around 111.65 followed by 111.00 key support. Overall I remain neutral.

USDCHF

The USDCHF had a bullish momentum last week topped at 0.9747 but closed a little bit lower at 0.9695. The bias is neutral in nearest term. Key resistance is seen around 0.9765 – 0.9807 area which is a good place to sell. Immediate support is seen around 0.9650. A clear break and daily close below that area could trigger further bearish pressure testing 0.9525 support area buy key support remains at 0.9450 which remains a good place to buy. Overall I am neutral on this pair.

Euro Slips After German Election Tests Angela Merkel's Coalition Building Skills. The Euro has climbed up from $1.1865 neckline support where it slipped in early Asian trading on Monday after Germany's election. Chancellor Angela Merkel won a fourth term in office on Sunday but will have to build an uneasy coalition to form a government after her conservatives haemorrhaged support in the face of a surge by the far-right. The Euro still remains stuck below the $1.2000 round number which it needs to retake to call off a head and shoulders top that has been forming.

Kiwi Took a Knock Early on Monday After Election. Political uncertainty also took a toll on the New Zealand dollar that slid down to its support at $0.7280 and is expected to be volatile today. The ruling National Party won the largest number votes in the election, but neither of the major parties won enough seats to gain a majority in parliament, leaving investors facing likely weeks of political horse-trading before a government is formed.

Moody's Cut the Rating on Brexit, Underscoring The Economic Risks. Sterling was steady after falling on Friday when a few hours after Prime Minister Theresa May set out plans for new ties with the European Union, ratings agency Moody's downgraded Britain's credit rating to Aa2, saying government plans to bring down debt had been knocked off course and Brexit would weigh on the economy. In her speech, May failed to give any concrete details for how Britain might retain preferential access to Europe's single market.

Aussie Starts to Roll Over Against Its Peers. The Australian dollar was a fraction softer on its U.S. counterpart at $0.7949 but gained on the euro after a German election also proved inconclusive. The Australian dollar also gained on the kiwi, edging up to NZ$1.0880 and off a six-week low around NZ$1.0774.

Gold Falls on Firmer Dollar. Gold prices eased early on Monday, after registering a second consecutive weekly fall last week, as the U.S. dollar firmed and as the euro edged lower on political uncertainty in Germany. Spot gold dipped 0.4 percent to $1,292.40 per ounce after falling about 1.7 percent last week in what was its second straight weekly fall.

Crude Oil Remains in Position to Extend the Rally. Despite the disappointing news from OPEC and WTI, that failed to reach a decision on extending its production cuts and may wait until January before deciding whether to extend their output curbs beyond the first quarter, markets continued to be underpinned by a bullish outlook for demand. Crude inventories rose for a third straight week, building by 4.6 million barrels. Traders had priced in a 2.8-million-barrel build.

Watch Out Today for:

07:35 am GMT: Bank of Japan Governor Kuroda Speech

15:00 pm GMT: ECB President Draghi's Speech

EUR/USD

Current level - 1.1933

The intraday bias is neutral as the pair is trading in the middle of 1.1830-1.2070 range. I favor a break on the upside to target 1.2070, en route to 1.2240.

USD/JPY

Current level - 112.15

My outlook here is bearish below 112.80, for a slide towards 111.10 hurdle. 

GBP/USD

Current level - 1.3543

The support at 1.3440 is still intact and the bias is positive above that area, for a break through 1.3635, towards 1.3830 zone.

USD/JPY - 112.20

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 112.31

Kijun-Sen level                  : 112.18

Ichimoku cloud top             : 112.15

Ichimoku cloud bottom      : 111.92

Original strategy  :

Bought at 111.70, Target: 112.70, Stop: 111.60

Position :  - Long at 111.70

Target :  - 112.70

Stop : - 111.60

New strategy  :

Hold long entered at 111.70, Target: 112.70, Stop: 111.70

Position :  - Long at 111.70

Target :  - 112.70

Stop : - 111.70

Although the greenback has retreated after meeting resistance at 112.52 and further consolidation below last week’s high at 112.72 would be seen, reckon downside would be limited to 111.80-85 and bring another rise, above 112.52 would bring retest of said resistance at 112.72, break there would confirm recent upmove has resumed and extend further gain to 112.90-00, then towards 113.25-30 (1.236 times projection of 107.32-111.04 measuring from 109.55), having said that, previous chart resistance at 113.58 would hold from here, bring correction later.

In view of this, we are holding on to our long position entered at 111.70. Only below indicated support at 111.65 would abort and risk weakness to 111.40-45 but break there is needed to signal a temporary top has been formed at 112.72, bring retracement of recent rise towards support at 111.11 first.

Asia Summary

Asian equity markets opened mixed, solar names in China and South Korea weighed on indexes after ITC ruled imported solar panels are crippling American manufacturers. Election results in New Zealand saw ruling National Party with 46.6% and Labour with 35.5%. With neither party winning enough seats to have a majority in parliament, will have to use nationalist New Zealand First Party to form a coalition. This uncertainty sent NZD/USD into a tail spin, falling over 1% to 0.7252. The kiwi is expected to remain volatile until all votes are tallied by Oct 7th and a govt is formed.

In Germany similar results happened with the election, Chancellor Merkel's party finishes 1st (32.8%) with opposition SPD with (20.4%). So she will again need to form a coalition. Notably, like elections around the world, the nationalist party took a notable part of the vote (13%) which will see the AFD Party enter parliament for first time. EUR/USD was slightly weaker, 1.1898.

Japan PM Abe to hold press conference at 09:00GMT, no topic given but widely expected to announce a snap election, though a recent poll shows public is not in favor of one.

Indonesia 10-yr yield fell 15bps to 6.27%, the lowest level since June 2013 after central bank cut rates Friday. Onshore yuan fell to lowest intraday level in September after PBOC cut the fixing to the weakest since Aug. 31. The Hong Kong dollar overnight interbank rate fell 21bps (the most in three week) to 0.19464%.

Key economic data

(JP) Japan Sept Prelim PMI Manufacturing: 52.6 v 52.2 prior (4-month high)

Speakers and Press

China/Hong Kong

(CN) Eight China cities, including Shijiazhuang, Chongqing, Nanchang, Nanning and Guiyang imposed curbs on home resales as part of campaign to cool home prices

(CN) China Tangshang City to cut steel capacity by 50% in order to lower pollution levels; effective Monday – US financial press

(CN) China Academy of Fiscal Sciences chief Liu Shangxi: China will push fiscal reforms that could boost revenues for local governments after next month’s key party congress

Korea

(KR) North Korea Foreign Minister Ri Yong Ho: Pres Trump has made our rockets' visit to the entire U.S. mainland inevitable by nicknaming Kim Jong Un "rocketman" - UN speech

Japan

(JP) Japan PM Abe said to seek ¥2.0T economic package plan; Package is meant to be in effect from FY18/19 - Japan press

(JP) Support for ruling LDP Party at 44%, ahead of opposition; Abe cabinet support up 4 pct points to 50% – Nikkei Poll

(JP) According to Kyodo poll nearly Two-thirds of Japan voters oppose PM Abe calling snap election - financial press

New Zealand

(NZ) New Zealand Election Results: Ruling National Party 46.6%; Labour 35.5%; neither party wins enough seats to have a majority in parliament, will have to use nationalist New Zealand First Party to form a coalition

(AU) Australia PM Turnbull: To impose extra controls unless LNG exporters set up domestic supply

(AU) Australia Energy Market Operator: Expect east coast gas supply shortfall to intensify next year, expects the shortfall to be as much as 107 petajoules - Australian

Europe

(DE) Germany exit polls suggest Merkel's party finishes 1st in German election; anti-migrant party to enter parliament; AFD Party to enter parliament for first time - tweet by financial press

Asian Equity Indices/Futures (00:00ET)

Nikkei +0.4%, Hang Seng -1.2%; Shanghai Composite -0.3%, ASX200 +0.2%, Kospi -0.6%

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

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

EUR 1.1960-1.1898; JPY 112.53-111.93; AUD 0.7973-0.7942;NZD 0.7362-0.7252

Dec Gold -0.0% at $1,297/oz; Nov Crude Oil -0.3% at $50.52/brl; Dec Copper -0.3% at $2.95/lb

(PH) Philippines to issue PHP500B in treasury bills in 2018 v PHP327B in 2017 - local press

(CN) PBOC OMO: To inject CNY200B in 14 and 28-day reverse repos v injected CNY120B in 7 and 28-day reverse repo prio

USD/CNY (CN) China PBOC sets yuan reference rate at 6.5945 v 6.5861 prior (weakest setting since Aug 31st)

(KR) Bank of Korea (BOK) sells KRW0.7T v KRW0.7T indicated in 1-yr monetary stabilization bonds; avg yield 1.54% v 1.50% prior

Equities notable movers

Australia/New Zealand

FCG.NZ Reports FY17 (NZ$) Net 745M v 834M y/y; EBIT 1.12B v 1.43B y/y; Rev 19.2B v 17.2B y/y; +0.2%

PEP.AU Gets improved and final proposal form KKR at A$3.70/shr for cash and special dividend; +4.6%

BLY.AU Third day of losses, -26%

Japan

7211.JP Planning to launch electric SUVs in Japan, US and Europe in early 2020s – Japanese Press; +4%

EURUSD - With the pair still facing price correction despite its past week price hesitation, more correction is envisaged. Resistance comes in at 1.2000 level with a cut through here opening the door for more upside towards the 1.2050 level. Further up, resistance lies at the 1.2100 level where a break will expose the 1.2150 level. Conversely, support lies at the 1.1900 level where a violation will aim at the 1.1850 level. A break of here will aim at the 1.1800 level. Below here will open the door for more weakness towards the 1.1750. All in all, EURUSD faces corrective pullback despite price hesitation.