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The Euro maintained slight bullish tone in recent session, posting series of marginally higher highs and higher lows, underpinned by rising 10SMA but the action stayed capped by daily Tenkan-sen. Daily studies are bullish and favor further upside, with markets awaiting today's ECB policy meeting and comments from President Draghi for stronger signals. The ECB is expected to start laying groundwork for start of winding down stimulus program, but Draghi would likely hold off any major commitment in order not to trigger stronger volatility in the market. The central bank is facing a dilemma whether to extend bond-buying program or to start reducing it as economic growth in EU is the strongest in past ten years but inflation remains stubbornly low and holding well below central bank's target. Likely scenario is for Draghi to give initial signals of the future steps regarding QE program and leave stronger action for central bank's meetings in October and December. The Euro is expected to receive support if Draghi's comments today hint action regarding QE program tapering. The pair may probe above 1.2000 and retest recent peak at 1.2070 on bullish signal, with stronger acceleration higher to signal resumption of larger uptrend from 2017 low at 1.0340 towards next target at 1.2166. If Draghi disappoints markets today, the Euro may fall through pivots at 1.1866 (Kijun-sen) and 1.1822 (31 Aug trough) and risk test of daily cloud top at 1.1695.

Res: 1.1950, 1.1979, 1.2000, 1.2070
Sup: 1.1914, 1.1866, 1.1822, 1.1773

Currency traders were in action yesterday, with a couple of unanticipated events causing some wild swings in FX markets. The first was the resignation of the Fed vice-chairman Stanley Fischer, who is considered to be one of the hawks of the Federal Reserve. His departure leaves four of the seven Board of Governors' seats vacant, and it is up to President Trump to nominate new governors who will be supportive of his economic agenda. The news sent USDJPY lower, testing 108.44, but the move didn't last long and was interrupted by Trump's agreement with the Democrats to extend the debt ceiling for three months. Despite the short-term extension upsetting his GOP party, the news was welcomed by the equity markets and the U.S. dollar found some support. Another surprise came from Bank of Canada, as it raised interest rates by another 25 basis points for the second meeting in a row. The unexpected hike sent USDCAD tumbling 270 pips, before settling around 1.22. Although the inflation rate remained below target, the BoC justified the move by presenting stronger than expected economic data and robust consumer spending, supported by continued solid employment and income growth. The BoC's decision brings into even sharper focus today's European Central Bank meeting, which is the main event of the week.

The crucial question facing the ECB is whether Mario Draghi will announce the date of cutting bond purchases. The decision to taper asset purchases was widely expected to occur in today's meeting, after Mr. Draghi hinted on 20 July that the discussion on tapering assets should take place in Autumn. Since then, the Euro has appreciated by more than 4.8% against the dollar, but declined slightly after peaking at 1.2069.

Technically, the Autumn season starts towards the end of September, so even if Mr. Draghi decided to delay the announcement of tapering the asset purchase program, this wouldn't affect his credibility.

However, the day of the announcement isn't the only key driver of the Euro's direction; it's the game plan going forward.

The rising Euro will undoubtedly have a negative impact on the economy through slowing inflation and possibly economic growth, as a higher currency might drag exports from the eurozone, and drive the cost of imported goods lower. This is why ECB's forecast of GDP and CPI should be monitored carefully.

Germany's Finance Minister, Wolfgang Schauble, requested that the ECB end its bond buying program and negative interest rates at a banking conference in Germany yesterday. These remarks are not new to Mr. Schauble, who has consistently criticized the ECB's easy monetary policy, however these have never impacted the central bank's plans.

Investors are convinced that the ECB will begin tapering QE, and it's all about the announcement date and size of the cuts. If the ECB decided to surprise and cut asset purchases by 10-20 billion euros starting January, the Euro will likely revisit the 1.20 level and possibly break above August highs. Postponing the decision will only have a short-term negative impact, and I believe this will create another opportunity to buy the dips towards 1.17-1.18 levels.

USDJPY (109.08): The USDJPY managed to post some gains yesterday as price action continues to consolidate near the major support zone of 109.15 - 108.26. A follow through from here is required in order for the US dollar to post some recovery. On the 4-hour chart, despite price briefly breaking past the falling trend line, the reversal at 108.45 suggests a possible double bottom pattern. USDJPY will need to continue to push higher in order to break above the resistance level of 110.72 to validate this double bottom pattern.

GBPUSD (1.3048): The British pound was seen trading near the 1.3033 resistance level yesterday. Price action briefly posted a 23-day high as GBPUSD traded at 1.3059 before easing back. In the short term, price action at the resistance level of 1.3052 - 1.3033 could potentially post a reversal. This will push GBPUSD down to 1.2908 support in the short term. However, with the daily chart suggesting a potential head and shoulders pattern evolving, further downside could send GBPUSD lower towards 1.2829 support where the possible neckline support could be coming into focus. Alternately, a close above 1.3052 could see further gains coming in the currency pair.

EURUSD (1.1925): The EURUSD has been largely muted this week with price action still confined to last Friday's range. This suggests a near-term breakout in price. To the upside, the minor resistance that was briefly tested last week could once again come into focus. A reversal at 1.1963 suggests a possible decline on a breakdown of support at 1.1882. This will potentially expose further downside in EURUSD towards 1.1688. To the upside, price action will need to break past 1.2000 level in order to maintain the bullish momentum to the upside.

The Bank of Canada's monetary policy decision yesterday saw the central bank hiking the key interest rates by 25 basis points. The markets were expecting another rate hike from the BoC but only later in the year. The central bank signaled that the decision to hike interest rates came from the better than expected GDP numbers. The BoC however toned down its forward guidance noting that rate hikes were not on a preset course. Still, the surprise rate hike sent the Canadian dollar to rise 1.2% on the day.

In the US, the ISM's non-manufacturing index advanced to 55.3 in August up from 53.9 in July, but the US dollar was seen trading subdued.

Looking ahead, investors will be closely watching the press conference by ECB President Mario Dragi and the ECB's monetary policy statement today. Questions about the ECB tapering its QE program will be on the agenda which has helped fuel the euro rally since July. However, with the euro surging to levels of $1.20, questions on the exchange rate also increases the risks.

GBP/USD – 1.3045





Original strategy :

Buy at 1.2990, Target:1.3160, Stop: 1.2930

Position: -

Target:  -

Stop: - 




New strategy :

Buy at 1.2990, Target:1.3160, Stop: 1.2930

Position: -

Target:  -

Stop:- 



As cable has retreated after rising to indicated upside target at 1.3082 (approx. 61.8% Fibonacci retracement of 1.3269-1.2774), suggesting consolidation below this level would be seen and pullback to previous resistance at 1.2996 (now support) cannot be ruled out, however, reckon 1.2975-80 would limit downside and bring another rise later, above said resistance at 1.3082 would extend the rise from 1.2774 (a leg trough) to 1.3120-25, however, near term overbought condition should limit upside and resistance at 1.3165 should hold from here, bring retreat later. 

In view of this, would not chase this rise here and would be prudent to buy sterling on further subsequent pullback. Below 1.2955-60 would defer and suggest top is possibly formed, risk weakness to 1.2909 but only break there would add credence to this view, bring further fall to 1.2880 and later test of indicated support at 1.2852, however, as low has been formed at 1.2774, downside would be limited and 1.2800 should hold, bring another rebound later.

Our preferred count on the daily chart is that cable's rebound from 1.3500 (wave (A) trough) is unfolding as a wave (B) with A ended at 1.7043, followed by triangle wave B and wave C as well as wave (B) has ended at 1.7192, the subsequent selloff is the larger degree wave (C) which is still unfolding with minor wave (III) of larger degree wave 3 ended at 1.1986, hence wave (IV) correction is in progress which could either be a triangle wave (IV) of a complex formation but upside should be limited to 1.3500 and price should falter well below 1.4000, bring another decline in wave (V) of 3 for weakness to 1.1500, then 1.1200. 


Sunrise Market Commentary

• Rates: Steeper yield curve after ECB decisions?
  We expect ECB president Draghi to announce an extension of APP until June 2018, while simultaneously reducing the amount of purchases from €60B/month to €30B/month starting from 2018. Such scenario should trigger a steepening of the German yield curve. Long term EMU bond yields could temporarily decline if Draghi delays a decision on APP to October.
• Currencies: Will ECB tapering announcement support further euro gains?
  Yesterday, the dollar found some comfort as the issue of the debt ceiling was delayed. Today, the focus turns to the ECB. Several options are open. If the ECB announces a further reduction of APP, the euro might return to pole-position, at least temporary.

The Sunrise Headlines

• US stock markets traded fairly uneventful, but managed to hold on to 0.3% opening gains in the end. Most Asian equity indices record similar gains overnight.
• President Trump forged a deal with Democrats in Congress to extend the US debt limit and provide government funding until Dec 15, embracing his political adversaries and blindsiding fellow Republicans in a rare bipartisan accord
• President Trump is unlikely to nominate Cohn, his top economic adviser, as the next Fed chair, according to people familiar with the matter, adding to the uncertainty over the US central bank's leadership and policies next year.
• Stanley Fischer has submitted his resignation as vice-chairman of the Federal Reserve, adding to the turbulence at the US central bank as it faces a host of vacancies at its most senior levels.
• The Spanish government asked a top court to block the Catalan regional government's bid to hold a referendum on independence, the latest clash in what has become Spain's most pressing political issue.
• Brazil's central bank slashed interest rates to a four-year low, from 9.25% to 8.25%, but said the pace of monetary easing would probably be reduced next month as policymakers prepared to gradually stop cutting rates.
• All eyes turn to Frankfurt today for the ECB's policy meeting. Will Draghi already announce the central bank's intentions with APP in 2018? The Swedish Riksbank meets as well and US weekly claims will be published. Spain and France tap the market and Fed Mester speaks on the economy.

Currencies: Will ECB Tapering Announcement Support Further Euro Gains?

Draghi ' to decide' on further euro gains.

Yesterday, the dollar initially stayed in the defensive. Global uncertainty and political noise in Washington deprived the dollar from highly needed interest rate support. Later, US yields jumped higher as President Trump secured an agreement to postpone the US debt ceiling. Still, the USD gains were modest. The problem will return and several other political issues aren't solved yet. USD/JPY finished the session at 109.40 (from 108.81 on Tuesday). The correction in EUR/USD was even more modest. The pair finished little changed on a daily basis (1.1917 from 1.1914).

This morning, Asian equities trade flat to modestly higher mirroring WS modest gains. USD/JPY is drifting off yesterday's 'top' and trades in the low 109 area. EUR/USD holds within its recent range, changing hands in a tight 1.1915/35 range. AUD/USD hovers around the 0.80 pivot. The pair faced a modest setback overnight, as retail sales missed the consensus.

The eco calendar in Europe and the US only contains second tier eco data. The focus will be on the ECB decisions and the press conference. Will Draghi announce any changes to the APP today or postponed it till October? We don't see the advantages of keeping the market in uncertainty. We expect the ECB to extend the APP purchases beyond 2017 to the end of June 2018 at a reduced pace of €30B/month. To soften the announcement effect on markets, we expect the ECB to keep the option open that they might extend APP if conditions warrant. The ECB will will also reiterate that 'a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term.” Finally the ECB may keep its forward guidance on rates 'we expect rates to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.

Over the previous days, global uncertainty weighed on the dollar. Today, the focus shifts to euro side of the story. Of late, markets pondered whether ECB's Draghi would 'use' recent euro strength to delay an announcement on reducing APP. Several options are open. We take the view that bringing clarity to the market has its merits. This might (temporary) support further euro gains. Will delaying the 'inevitable announcement' till October would make much difference for the euro?

Even so, the ECB announcing an reduction in APP today might cause a further lift of EUR/USD. Will the 1.2070 top hold?. If so, it could indicate that enough good news is already discounted for the euro.

Global context. Dollar decline slowed after the Jackson-Hole sell-off, but USD didn't regain any technically relevant level as a (moderate) risk-off sentiment continued to weigh. At the same , the euro also showed no clear trend. On the topside, the 1.2070 correction top remains the first reference. This level might be retested if ECB start normalize policy today However, we don't preposition for a new euro up-leg right now. EUR/USD falling below the 1.18/1.1775 area would suggest more downside short-term. The USD needs good data and higher US yields, a postponement of an ECB normalisation is not enough.

A downward correction in core (US and European) yields supported the yen in August. USD/JPY declined from mid-114 mid-July and came within reach of the key 108.13 range bottom, but the support did its job. We maintain the working hypothesis that this level won't be broken easily as a lot of USD bad news is discounted. A cautious buy-on-dips (with stop-loss protection below 108) may be considered. USD/JPY needs to regain the 110.95 level to suggest an improved upside momentum. Such a break might be difficult as long as global sentiment remains risk-off.

EUR/USD: will the announcement of a reduction in APP caused further sustained euro gains.?

EUR/GBP

Sterling remains well bid, but focus turns to the ECB

There was no UK economic news yesterday. However, no news was again good enough news to further support a technical sterling rebound. EUR/GBP held near the recent lows even as EUR/USD remained well bid. EUR/GBP closed the session at 0.9137. Sterling also gained a few more ticks against the dollar. Cable closed the day at 1.3043. There was again plenty of Brexit-noise from politicians on both sides of the English channel, but that didn't prevent a sterling rebound.

Halifax house prices are no mover for sterling trading today. Global factors and the ECB policy decision will be the drivers for GBP-trading. A post-ECB euro rebound might temporary block the recent correction of EUR/GBP. However, given recent sterling resilience, we are not convinced that this correction has already run its course and that euro strength will continue to dominate further out. So for now, we assume that the correction has still some further to go.

From a technical point of view, EUR/GBP cleared 0.8854/80 resistance (top end June), opening the way for further gains. The move was the result of euro strength. Simultaneously, UK price data were soft enough to keep the BoE sidelined. MT, we maintain a buy EUR/GBP on dips approach as we expect the combination of relative euro strength and sterling softness to persist. The 0.9415 'flash-crash spike' is the next target on the charts. However, we wait for a correction, e.g. to the technical support in the 0.88/89 area, to sell sterling again versus the euro.

EUR/GBP: ECB to interrupt sterling rebound

Download entire Sunrise Market Commentary

GBP/JPY - 142.10

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Despite staging a strong rebound to 142.65 yesterday, the subsequent retreat has retained our view that further consolidation would be seen and only a firm break of said resistance would signal the correction from 143.00 has ended at 141.20, bring retest of this level, break there would signal the erratic rise from 139.35 low is still in progress for at least a retracement of recent fall to 143.20, then 143.70-80. 

In view of this, would be prudent to stand aside in the meantime. Below 141.80-85 would bring weakness to 141.40 but break of support at 141.20 is needed to revive bearishness and extend the retreat from 143.00 to 141.00 and possibly towards 140.45-50, however, price should stay above another previous support at 140.05. Only a drop below 140.05 support would signal the rebound from 139.35 has ended and risk further fall to 139.70-75, then retest of this recent low at 139;35.

Our preferred count is that larger degree wave V with circle is unfolding from 251.12 with wave (I) 219.34, (II): 241.38 and wave (III) is subdivided into 1: 192.60, 2: 215.89 (23 Jul 2008) and wave 3 ended at 118.87 earlier in 2009. The correction from there to 162.60 is wave 4 which itself is a double three and is labeled as first a-b-c ended at 151.53, followed by wave x at 139.03, 2nd a ended at 162.60, 2nd b at 146.75 and 2nd c leg of wave 4 ended at 163.00. Therefore, the decline from 163.00 to 116.85 is now treated as wave 5 which also marked the end of larger degree wave (III), hence wave (IV) major correction has commenced for retracement of the wave (III) from 241.38 and upside target at 183.95-00 (50% Fibonacci retracement of the wave (II) from 241.38) had been met, a drop below 160.00 would suggest wave (IV) has ended at 195.85, bring decline in wave (V) for initial weakness to 130 (already met) and 120.


EUR/JPY - 130.15

Original strategy:

Sold at 130.25, Target: 128.25, Stop: 130.85

Position: - Short at 130.25
Target: - 128.25
Stop: - 130.85

New strategy :

Exit short entered at 130.25

Position: - Short at 130.25
Target:  -
Stop:-

As the single currency found buying interest at 129.63 and has rebounded again, suggesting further consolidation above this week’s low at 129.37 would be seen and upside risk remains for recovery to 130.50-60, however, if our view that a temporary top formed at 131.71 is correct, upside would be limited to 131.35 and price should falter below 131.71, bring another leg of corrective fall later.

In view of this, would be prudent to exit short entered at 130.25 and look to sell euro again on further subsequent rebound. Below said support at 129.63 would bring retest of this week’s low at 129.37 but break there is needed to revive bearishness and extend the corrective decline from 131.71 top for retracement of recent upmove to 129.10-15, then towards 128.70-75, however, support at 128.49 should remain intact. .

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).