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During the Asian morning Tuesday, the Reserve Bank of Australia will announce its rate decision. The forecast is for the RBA to remain on hold once again, a view that we share given that the Bank's latest communications suggested that officials are keen to hold rates unchanged for some time. Even though we got some dovish signals from the latest meeting statement and minutes, those were balanced out by a repetition that high housing prices continue to pose risks to financial stability and that any more rate cuts could amplify such risks further.

Since that gathering, data showed that the unemployment rate rose in February, while retail sales for the same month unexpectedly fell. As such, although we do not expect these data to alter the Bank's overall bias, they tilt the risks towards a somewhat dovish narrative from policymakers. In such a case, we could see the Aussie coming under renewed selling interest.

AUD/USD tumbled during the Asian morning Monday after retail sales for February disappointed. The pair dipped below the 0.7625 (R1) barrier and during the early European morning, it looks to be headed towards the key support zone of 0.7600 (S1). Even though the pair trades within a downward sloping channel since the 17th of March, a clear break below 0.7600 (S1) is needed to confirm a forthcoming lower low on the 4-hour chart and make us more confident on more downside extensions. For now, we expect the rate to settle around that obstacle and wait for the RBA meeting tonight. A dovish tilt by the Bank could prove the trigger for such a dip.

Japan's Tankan survey signals improved business sentiment

The sentiment of Japanese firms improved further in Q1 according to the BoJ's quarterly Tankan business survey. The index measuring the sentiment of large manufacturers rose for a second consecutive quarter, though it missed its forecast, while the large non-manufacturers' figure rose in line with expectations. In our view, these prints are consistent with the BoJ keeping its current policy framework unchanged for the foreseeable future. The gradual improvement in business conditions diminishes the likelihood for any further easing, but the survey was not strong enough to fuel expectations for an eventual end to BoJ stimulus.

With regards to the yen, the currency has strengthened notably in the past weeks, perhaps due to fiscal-year-end demand by Japanese firms trying to repatriate funds. Considering that the fiscal year is officially over, it would be interesting to see whether this move is reversed in the coming weeks.

Another driver of JPY over the coming weeks may be incoming polls with regards to the French election, which have lately shown Le Pen losing ground versus her main rivals. If this continues, we would expect EUR/JPY to recover some of its recent losses, as European political risk diminishes and investors turn away from safe havens.

EUR/JPY traded lower on Friday, falling below the support (now turned into resistance) barrier of 119.10 (R1). The slide was stopped slightly above the key support obstacle of 118.50 (S1). Although the price structure on the 4-hour chart still suggests a short-term downtrend, given our proximity to that key hurdle, we prefer to stand pat for now. The fact that the rate rebounded several times in the past from that zone combined with the aforementioned fundamentals, make us cautious that another recovery may be on the cards. We prefer to wait for a clear close below 118.50 (S1) before we turn our eyes to the downside again.

Today's highlights:

From the UK, we get the manufacturing PMI for March. The forecast is for the index to have remained unchanged, in which case the reaction in GBP could be limited.

In the US, the ISM manufacturing PMI for March is due out. The figure is forecast to decline somewhat, but to still remain well above the 50 barrier that separates expansion from contraction. Although the reaction in USD may be negative, given that the index is expected to remain at a healthy level, we don't expect such a reaction to be major.

As for the rest of the week:

On Tuesday, during the Asian session, the RBA rate decision will be in focus, as we outlined above. On Wednesday, we get the US ADP employment report for March and later during the day, the Fed will release the minutes of the March FOMC meeting. On Thursday, we have a relatively light day, while on Friday, the US employment report for March will take center stage. We also get employment data for March from Canada.

AUD/USD

Support: 0.7600 (S1), 0.7580 (S2), 0.7550 (S3)

Resistance: 0.7625 (R1), 0.7650 (R2), 0.7680 (R3)

EUR/JPY

Support: 118.50 (S1), 117.70 (S2), 116.50 (S3)

Resistance: 119.10 (R1), 119.80 (R2), 120.35 (R3)

The first round of the French presidential election will be held on April 23 with the second round on May 7.

The forecast for the first-round vote for the three candidates: Le Pen, Macron and Fillion are 25.8%, 25.1% and 18.4% respectively. The chances for Macron and Le Peng getting into the second-round are 98% and 96% respectively, Fillion is facing an even more severe setback now as his wife is currently also under formal investigation associated with a fake parliamentary job.

Le Pen is the focus of the election because of her extreme right-wing policies and high probability to win the election. She takes a similar stance to Trump, the focus of her policies is French first, including anti-globalization, anti-immigrants, trade protectionism, making France leave the EU, repealing the Euro and reusing French Cyan etc.

Many French voters are in favour of Le Pen’s policies, due to France’s high unemployment rate and recent terror attacks; provoking citizens’ anti-foreigner sentiment.

France and Germany are the EU’s largest economies. If France also leaves the EU, following Brexit, then other member states will also likely follow, the EU will likely face the crisis of falling apart, which will result in a lower Euro.

Today UK Markit manufacturing PMI is to be released at 09:30 BST. The crucial US ISM Manufacturing and Prices Paid for March, to be released at 15:00 BST, will likely cause volatility for USD. The dollar index hit a 2-week high of 100.49 last Friday.

New York Fed president William Dudley will make a speech at 15:30 BST, followed by the FOMC member Harker at 20:00 BST, and the Richmond Fed president Jeffrey Lacker at 22:00 BST.

Weekly

    •    Last Candlesticks pattern: Shooting star 
    •    Time of formation: 03 May 2016
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 3 May 2016
    •    Trend bias: Sideways

EUR/USD – 1.0868

Despite last week’s initial brief rise to 1.0906, lack of follow through buying and the subsequent much stronger-than-expected retreat formed a series of black candlesticks, suggesting top has indeed been formed at 1.0906 and downside risk remains for the fall from there to extend weakness towards support at 1.0600 but a daily close below there is needed to retain bearishness, bring test of the lower Kumo (now at 1.0585) and later towards support at 1.0525 but price should stay above pivotal support at 1.0493, bring rebound later due to near term oversold condition.

On the upside, whilst initial recovery to the Kijun-Sen (now at 1.0701) cannot be ruled out, price should falter well below the Tenkan-Sen (now at 1.0779) and bring another decline later. A daily close above the Tenkan-Sen would dampen this bearish view and suggest the fall from 1.0906 has ended instead, risk a stronger rebound to 1.0825-30 but price should falter well below said resistance at 1.0906, bring retreat later. In the unlikely event euro breaks above said last week’s high at 1.0906, this would extend the erratic rise from 1.0340 low to 1.0930-35 (61.8% Fibonacci retracement of 1.1300-1.0340), then towards 1.1000.

Recommendation: Stand aside for this week.

On the weekly chart, although the single currency opened higher last week, the subsequent deeper-than-expected retreat formed a long black candlestick, suggesting top has possibly been formed at 1.0906, hence consolidation below this level would be seen with mild downside b tis for test of 1.0600 support, break there would add credence to this view and bring further fall to 1.0525. Looking ahead, only a break of indicated pivotal support at 1.0493 would signal the rebound from 1.0340 has ended at 1.0906, bring further fall to key support at 1.0454, a sustained breach below this level would provide confirmation, then further fall to 1.0390-00 and later retest of this January low would follow.

On the upside, expect recovery to be limited to 1.0730-40 and bring another decline. Above 1.0780 would risk tabour to 1.0825-30 but price should falter well below said resistance at 1.0906, bring another decline later. Only a break of 1.0906 would revive near term bullish view for the erratic rise from 1.0340 low to bring retracement of recent decline to 1.0930-35 (61.8% Fibonacci retracement of 1.1300-1.0340) and possibly 1.1000, however, reckon upside would be limited to 1.1050-60 and price should falter below 1.1100-10, risk from there is seen for a retreat to take place later.

Weekly

    •    Last Candlesticks pattern: Marubuzo
    •    Time of formation: 14 Nov 2016
    •    Trend bias: Down

Daily

    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 15 Feb 2017
    •    Trend bias: Down

USD/JPY – 111.39

Although the greenback recovered after finding support at 110.11 and consolidation above this level would be seen, reckon upside would be limited to 112.20 and bring another decline later, below said support at 110.11 would signal the decline from 118.66 top has resumed and may extend weakness to 109.90-95 (50% Fibonacci retracement of 101.19-118.66), then 109.50, however, downside would be limited to 109.00 and previous support at 108.55 should hold from here, price should stay well above dynamic support at 107.85-90 (61.8% Fibonacci retracement of 101.19-118.66) and bring rebound later.

On the upside, expect recovery to be limited to 112.00 and bring another decline. Above previous support at 112.26 (now resistance) would risk test of 112.81-90 (current level of the Kijun-Sen and previous resistance) but a daily close above there is needed to signal low is possibly formed, risk a stronger rebound to 113.54 resistance, a break above there would add credence to this view, then further gain to 114.00-10 would follow.

Recommendation : Hold short entered at 111.50 for 109.50 with stop above 112.30.

On the weekly chart, as the greenback has recovered after holding above the Kijun-Sen (now at 109.91), suggesting minor consolidation above this level would be seen, however, reckon upside would be limited to 112.26 (previous support) would limit upside and bring another decline later, below 109.90-95 (current level of the Kijun-Sen and 50% Fibonacci retracement of 101.19-118.66) would extend the retreat from 118.66 to 109.00 but reckon support at 108.55 would limit downside and price should stay above 107.85-90 (61.8% Fibonacci retracement), risk from there is seen for a rebound later.

On the upside, although initial recovery cannot be ruled out, reckon upside would be limited to 112.00-10 and bring another decline. Above previous support at 112.26 (now resistance) would defer and suggest a temporary low is formed, bring test of the Tenkan-Sen (now at 112.81), a weekly close above there would add credence to this view, then further gain to 113.54 resistance and then 114.00-10 would follow but price should falter well below resistance at 115.51.

Daily Pivots: (S1) 139.13; (P) 139.60; (R1) 140.24; More...

Intraday bias in GBP/JPY remains mildly on the upside for the moment. Fall from 142.79 is likely completed. Break of 140.60 resistance should confirm near term reversal and target 142.79 resistance first. Break there will send the cross through 144.77 resistance to 148.42 high. On the downside, below 137.51 minor support will extend the fall from 142.79 towards 136.44 support. But still, price actions from 148.42 are forming a consolidation pattern. We'd expect support from 50% retracement of 122.36 to 148.42 at 135.39 to contain downside and bring rebound.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. Main focus is on 38.2% retracement of 195.86 to 122.36 at 150.42. Rejection from there will turn the cross into medium term sideway pattern. Or, sustained break of 50% retracement of 122.36 to 148.42 at 135.39 will turn outlook bearish for a test on 122.36 low. Though, sustained break of 150.42 will extend the rebound towards 61.8% retracement of 195.86 to 122.36 at 167.78.

USD/CHF - 1.0020

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 1.0016

Kijun-Sen level                    : 1.0013

Ichimoku cloud top                 : 0.9995

Ichimoku cloud bottom              : 0.9967

Original strategy :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

As the greenback has continued trading with a firm undertone, suggesting recent rise from last week’s low at 0.9813 is still in progress and bullishness remains for this move to extend gain to previous support at 1.0060 (now resistance), however, loss of upward momentum should prevent sharp move beyond resistance at 1.0109, risk from there has increased for a retreat to take place later. 

In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as said support at 0.9948 should limit downside. Below 0.9931 (50% Fibonacci retracement of 0.9831-1.0031) would abort and signal top is formed instead, bring correction to 0.9905-10 (61.8% Fibonacci retracement) but reckon previous resistance at 0.9869 would hold from here. 

Sunrise Market Commentary

Rates: Further underperformance of US Treasuries with key US eco data?
The US manufacturing ISM will probably key in today's trading session. We put risks on the upside of expectations, which should cause last week's underperformance of US Treasuries vs German Bunds to continue. The focus remains on the US later this week with ADP employment, non-manufacturing ISM, FOMC Minutes and payrolls.
Currencies: Dollar shows no clear trend at the start of Q2. Euro softness prevails
Last week, the dollar rebounded, but the move was not convincing. EUR/USD remained in the defensive as markets are scaling back FX bets positioning for early ECB normalization. Today, the focus turns to the early month data. The dollar needs strong data to gain sustained ground. Sterling remains well bid even as the Brexit procedure started.

The Sunrise Headlines

• US equities closed the final session of a strong quarter with minor losses (S&P: +5.5%). Lower bank shares offset gains in utilities and real estate. Asian markets started Q2 on the front foot, overcoming WS's negative lead.
• US president Trump said he plans to inform Chinese president Xi that the US will act alone against North Korea if it doesn't get more help from Beijing. Trump pushed his view that China engages in trade abuses that lead to deficits.
• S&P raised Spain's outlook of its BBB+ rating to Positive from Stable on balanced eco performance and narrowing deficit.
• French left-wing candidate Jean-Luc Melenchon's creeping gain to 16% in the polls is adding a new layer of risk to France's election. He is now within touching distance of Fillon in third place.
• Crude stockpiles are starting to drop, OPEC Secretary-General Barkindo said, a sign that supply cuts are restoring balance. However, US oil drillers added rigs for an 11th time to 662 last week, more than double the 2016 low,
• The PBOC raised interest rates for standing lending facility loans, aimed mainly at small- and medium-sized financial institutions. Rates were increased on overnight, 7-day and one-month contracts as it tries to rein in leverage.
• Confidence among Japan's large manufacturers improved in the first three months of the year as a weaker yen helped profits rise to a record.
• Today's eco calendar contains ISM manufacturing sentiment, car sales and construction spending. EMU data contain final PMI' and unemployment rate.

Currencies: Dollar Shows No Clear Trend At The Start Of Q2. Euro Softness Prevails

USD shows no clear trend at the start of Q2

On Friday, EUR/USD entered calmer waters even as the EMU inflation slowed much more than expected. The news was apparently discounted after German and Spanish data on Thursday. EUR/USD hovered in a tight range in the high 1.06 area for most of the day, but closed the session at 1.0652 (from1.0674). USD/JPY failed to sustain Thursday's rebound as the rise in core yields and the equity rally did ran into resistance. The pair closed the session at 111.39 (from 111.92).

Overnight, Asian equities are starting the quarter on a positive footing. The headline Japan Tankan indicator improved for the second quarter in a row, but the rise was more modest than expected. Capex was slightly stronger than expected. The dollar continues to trade mixed. EUR/USD is holding with reach of the correction lows reached late last week. So, the euro remains in the defensive. USD/JPY is holding in the mid 111 area.

Today, manufacturing ISM sentiment, car sales and construction spending will get attention. The March manufacturing ISM is expected to have eased slightly from 57.7 to 57.2.Most sentiments indicators improved further in March. Also on a global level, sentiment improved further. So, we put the risks on the upside of expectations. Construction spending is expected to have recouped January's 1% M/M decline in February. Given the solid single family housing starts in January, we see no reasons to deviate from consensus. Speeches of ECB Coeuré, Fed Dudley and Harker are probably less important as all three spoke already in past days.

Last week, USD sentiment improved as the US reflation trade regained traction after a very strong US consumer confidence. US Fed speakers also confirmed that further policy normalization is to be expected throughout 2017. At the same time, the euro faced headwinds. Market rumours questioned the case for early ECB policy normalization. The move was reinforced by very soft EMU inflation data. In Friday both the decline of the euro and the rebound of the dollar slowed. A good US ISM manufacturing should support a further rebound in US yields and in the dollar. That said, we have the impression that the dollar needs very strong data to gain more ST term. For EUR/USD, has the repositioning away from early ECB normalization s already been worked out. We maintain a cautious EUR/USD negative bias, but the decline might slow compared to last week's pace. We stay more cautious on the USD/JPY upside potential.

From a technical point of view, USD/JPY regained the 111.36/60 previous range bottom. This called off the imminent downside alert in this cross rate. For now, we maintain a neutral bias. EUR/USD extensively tested the topside of the MT range, but the test was rejected last week. The 1.0874/1.0906 area now looks a solid resistance. EUR/USD might return lower in the previous 1.0875/1.05 trading range.

EUR/USD: euro drifting lower in the 1.09/1.05 range

EUR/GBP

No negative Brexit fall-out on sterling yet

The final UK Q4 GDP printed at a good 0.7% Q/Q and 1.9% Y/Y on Friday, but details suggested a softening in consumer spending even as the savings ratio declined. Net exports made a substantial positive contribution to growth. Will exports continue to compensate for a slowdown in domestic spending as the Brexit-procedure continues? In a guideline for the Brexit-negotiations, EU Tusk indicated that enough progress has to be made on issues regarding the separation process before talks on future trade relations can start. The news was a bit mixed to even slightly negative for sterling, but for now it didn't hurt the UK currency. Especially EUR/GBP declined further, partially on euro weakness. The pair closed the session at 0.8485 (from 0.8562). Cable hovered mostly in the higher half of the 1.24/lower 1.25 big figure but closed the session at 1.2550.

The UK manufacturing PMI is expected to rebound slightly from 54.6 to 55.0 today. We have no reason to take a different view from the consensus. Mid- March, sterling found a better bid. Substantially higher than expected UK inflation and a more hawkish tone from the BoE supported sterling. We changed our shortterm bias on EUR/GBP from positive to neutral. Last week's decline of the euro reinforced the EUR/GBP downside momentum. Further consolidation in the MT sideways range might be on the cards. The return below the 0.8592 previous break-up suggests that a full retracement to the 0.8402 range bottom is possible. Longer term, Brexit-complications remain a potential negative for sterling. We are not convinced that the BoE will raise rates anytime soon, even not after recent higher inflation data.

EUR/GBP: euro decline and sterling short-squeeze push EUR/GBP lower in the established trading range

Download entire Sunrise Market Commentary

GBP/USD - 1.2527

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2538

Kijun-Sen level                    : 1.2496

Ichimoku cloud top              : 1.2472

Ichimoku cloud bottom        : 1.2455

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As cable found good support at 1.2433 on Friday and staged another strong rebound on active cross-trading in sterling, suggesting the erratic rise from 1.2377 (last week’s low) is still in progress and may extend gain towards 1.2570-75, however, as broad outlook remains consolidative, reckon upside would be limited to 1.2595-00 and price should falter below last week’s high at 1.2616, bring retreat later.

In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below the Kijun-Sen (now at 1.2496) would bring weakness to the upper Kumo (now at 1.2472) but said support at 1.2433 should remain intact. Only a drop below 1.2433 support would revive bearishness and suggest the rebound from 1.2377 has ended, bring weakness to 1.2400, break there would confirm and retest of 1.2377 would follow.

Daily Pivots: (S1) 118.26; (P) 119.03; (R1) 119.45; More...

Intraday bias in EUR/JPY remains on the downside for the moment. Further fall is expected but overall, price actions from 124.08 are still viewed as a consolidation pattern. Hence we're expecting strong support from 118.39/45 (38.2% retracement of 109.20 to 124.08 at 118.39) to contain downside. On the upside, break of 119.81 resistance will indicate short term bottoming. In such case, intraday bias will be turned back to the upside for 120.43 resistance first. However, sustained trading below 118.39/45 will invalidate our view and bring deeper fall.

In the bigger picture, we're holding on to the view that medium term rise from 109.20 is still in progress. Focus is on 126.09 key resistance level. Sustained break will confirm completion of the whole decline from 149.76. And rise from 109.20 is of the same degree as the fall from 149.76. In such case, further rally would be seen to 104.04 resistance and possibly above before topping. Meanwhile, rejection from 126.09, or firm break of 118.45 cluster support, will likely extend the fall from 149.76 through 109.20 low.

EUR/USD - 1.0666

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.0673

Kijun-Sen level                  : 1.0677

Ichimoku cloud top             : 1.0746

Ichimoku cloud bottom      : 1.0700

Original strategy  :

Sell at 1.0765, Target: 1.0645, Stop: 1.0800

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0740, Target: 1.0625, Stop: 1.0775

Position : -

Target :  -

Stop : -

As the single currency has remained under pressure after last week’s selloff, suggesting the decline from 1.0906 top is still in progress and bearishness remains for this fall to extend further weakness to 1.0620-25, then test of previous chart support at 1.0600, however, a sustained breach below the latter level is needed to retain downside bias for subsequent selloff to 1.0570-75 first, otherwise, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0735-40 should limit upside. Only a firm break above resistance at 1.0773 would suggest low is formed instead, bring a stronger rebound to 1.0800 but resistance at 1.0827 should remain intact.