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'A resurgent U.S. dollar, along with higher U.S. yields and equities has taken the momentum out of the gold rally for now.' – Jeffrey Halley, OANDA (based on Reuters)

Pair's Outlook

After failing to score more gains on Tuesday the yellow metal declined, and the commodity price fell below the 1,250 mark, where it remained on Wednesday morning. Due to the fact that the bullion's price recently passed the support put up by the 50.00% Fibonacci retracement level, which is located at the 1,248.96 mark, the price is set to fall. The reason for that is the fact that the closest support level is located at the 1,240.87 level. At that level the weekly PP is residing. The pivot point is also supported by the lower trend line of a medium term ascending channel.

Traders' Sentiment

SWFX market sentiment remains neutral bearish, as 51% of open positions are short. Meanwhile, 64% of trader set up orders are to buy the yellow metal.

EUR/JPY - 119.93

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term up

Original strategy:

Bought at 121.30, stopped at 120.80

Position: - Long at 121.30
Target: -
Stop: - 120.80

New strategy :

Stand aside

Position: -
Target:  -
Stop:-

Although the single currency edged higher again, lack of follow through buying and the subsequent retreat from 120.44 suggest further consolidation is in store, near term upside risk remains for the corrective bounce from 119.32 to extend gain to 120.60-70, however, as this move is viewed as retracement of recent decline, reckon upside would be limited to 121.15-20, bring retreat later. Only break of 121.84 resistance would revive bullishness and signal the fall from 122.89 has ended, bring further gain to 122.25-30 first.

On the downside, below 119.70 support would bring test of said support at 119.54 but break there is needed to signal the fall from 122.89 top has resumed and may extend weakness to 119.00, then 118.67 support but loss of momentum should prevent sharp fall below latter level and price should stay well above previous chart support at 118.25, risk from there is seen for a rebound later.

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).

PM Theresa May will finally today deliver a letter officially triggering article 50 and beginning at least two years of tough negotiations.

Speculation likely to continue as meaningful talks could take months to begin

There has been endless amounts of speculation over the last nine months about how the negotiations are going to proceed and what will and will not be discussed, something that is unfortunately likely to continue for a while yet. And while the triggering of article 50 officially begins two years of negotiations, we could actually be waiting months before any meaningful talks get underway.

GBPUSD off more than 1.5% in 24 hours as sterling shows continued sensitivity to Brexit

The pound has been very sensitive to this speculation since last June and we saw more evidence of this overnight after pictures emerged of May signing the letter invoking article 50 to be delivered to EU President Donald Tusk later today. Sterling had already gradually lost ground against the dollar throughout the session, having traded close to 1.26 in early European trade, but another bout of selling in illiquid trade took it below 1.24 shortly after the photos emerged.

Sterling to remain volatile as May appears before parliament around midday

The pound is likely to remain quite volatile throughout today's session, particularly around May's appearance at PMQs just after midday. May will appear in parliament to discuss the triggering of article 50 just as the letter is being delivered to Brussels and what she says today will likely play a big role in how the pound trades, with the FTSE and UK bonds also being sensitive to her comments. The FTSE has tended to benefit from the pounds fall, as we saw yesterday and are likely to see shortly after the open. Given the selling that we've seen over the last 24 hours, it is worth being prepared for a possible case of traders selling the news and buying the fact today. Of course, that will heavily depend on May's comments this afternoon.

Scottish referendum may also be addressed after Edinburgh voted in favour on Tuesday

May could also address the Scottish parliaments vote on Tuesday to hold a second referendum, which came just one day before the UK triggered its own departure from the EU. May has not been very receptive to the idea previously and I would expect more of the same talk today. While again expected, this was likely another contributor to the pounds decline yesterday and it could be sensitive to it again today.

AUD/USD – 0.7654

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term up

Original strategy :

Bought at 0.7645, Target: 0.7800, Stop: 0.7585

Position: - Long at 0.7645
Target:  - 0.7800
Stop: - 0.7585

New strategy :

Hold long entered at 0.7645, Target: 0.7800, Stop: 0.7585

Position: - Long at 0.7645
Target:  - 0.7800
Stop:- 0.7585

As aussie has rebounded after falling to 0.7587, retaining our bullishness and consolidation with upside bias remains for gain to resistance at 0.7685, break there would signal low is formed there and suggest the retreat from 0.7750 (last week’s high) has ended, then retest of this level would follow, above this resistance would extend gain to 0.7778 (last year’s high), however, break there is needed to retain bullishness and extend headway to 0.7840-50 but price should falter below 0.7900.

In view of this, we are holding on to our long position entered at 0.7645. Only below 0.7585 would abort and signal top is formed instead, then further choppy trading would take place and risk is seen for pullback to 0.7530-40 but indicated support at 0.7491 should remain intact.

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Tuesday evening, March 28, the Scottish parliament has voted by 69 to 59, in favour of holding a second independence referendum. GBP/USD has slumped more than 220 points since Tuesday, from a psychological level at 1.2600, to 1.2376, breaking the support level at 1.2500. The bulls are currently attempting to recover the significant support level at 1.2400.

Scottish First Minister, Nicola Sturgeon and her SNP Party won the first round of the battle, helped by the support from the Green party. The proposal will be delivered to the UK parliament for voting. However, UK Prime Minister Theresa May has stated not long ago that the UK government will not approve the referendum during the 2-year Brexit negotiation process with the EU.

UK Prime Minister Theresa May, will trigger Article 50 of the Lisbon treaty today, March 29, starting the 2-year Brexit negotiation process with the EU. Theresa May will formally notify the EU Council President, Donald Tusk. Tusk is expected to present draft Brexit guidelines to the European Union's 27 member states, within 48 hours of the UK triggering Article 50. The member states are expected to hold a Brexit summit on April 29.

Brexit process uncertainties and a second Scottish referendum turmoil pose downward pressure on GBP and GBP crosses. The UK's economic prospects are still vague.

Although Trump's healthcare bill failure hit USD and US equities on Monday, US consumer confidence for March, released on Tuesday, soared to its highest level since 2000. The figure cushioned USD and pushed US equities up from a 6-week low. From the perspective of economic data, the US economy remains solid at present. US Q4 GDP final reading will be released this Friday March 31, with better-than-expected readings likely providing further support to USD.

It will take an extended period to see the concrete impacts caused by Trump's administration on the US economy, after more actions are put on the table, although it doesn't seem to be optimistic.

Today US pending home sales (Feb), will be released at 15:00 BST. It will be followed by the US EIA crude oil inventory at 15:30 BST. Oil prices have rebounded since March 27, helped by OPEC's 6-month output extension consideration.

Cable extends weakness below 1.2400 handle in early Wednesday's trading, after negative signal was generated on previous day's strong 1.2594/1.2439 fall that left long bearish daily candle.

Traders are nervous about today's Article 50 triggering that inspired recent strong sell-off (cable is down around 1.5% from Tuesday's opening until now).

Today's bearish extension broke below first pivot at 1.2420 (daily cloud top /100SMA) and eyeing next strong support at 1.2360 zone (daily cloud base, reinforced by Kijun-sen line), break of which would generate another strong bearish signal for further weakness.

Extended weakness below 1.2300 (Fibo 61.8% of 1.2107/1.2613 upleg) is needed to confirm reversal.

Near-term studies are firmly bearish while daily bulls were dented but still holding strong bullish momentum that keep alive hopes of fresh rallies. Current easing should be contained above daily cloud base to keep this scenario in play.

Return above daily cloud and lift above daily Tenkan-sen (1.2466) would generate stronger bullish signal.

Res: 1.2420, 1.2466, 1.2494, 1.2522
Sup: 1.2374, 1.2360, 1.2322, 1.2300

The Euro dipped below 1.0800 handle on Wednesday, in extension of Tuesday's strong fall, as long bearish candle, formed previous day, continues to weigh. Repeated failure to clear 200SMA (currently at 1.0875) generated bearish signal for current weakness. Initial supports, 5 SMA's at 1.0808 and 10SMA/4-hr cloud top at1.0787 are broken and pullback eyes next pivot at 1.0748 (Fibo 38.2% of 1.0493/1.0905 rally). Overall picture is bullish and correction is expected to ideally reverse above 1.0748 support. Otherwise, deeper correction could be expected on loss of 1.0748 Fibo 38.2% support, which would expose 1.0700 (50% retracement/daily Kijun-sen) and plethora of supports that lies below (20/55/30/100 SMA's in 1.0696/1.0627 zone).

Res: 1.0825, 1.0855, 1.0875, 1.0905
Sup: 1.0776, 1.0748, 1.0700, 1.0670

Aussie is currently making a sharp reversal down from around the 0.7748 level where a possible top for wave C) of E may have been found. This sharp decline is a confirmation that the previous five wave rise within wave C) is completed and that a minimum three wave reversal may now be in the cards. That said, at the moment we see price undergoing an intra-day rally, probably into wave 2) which may see limited upside in the near-term.

AUD/USD, 4H

EUR/CHF : 1.0717






EUR/CHF: Major wave 5 trough ended at 0.8426 and correction has commenced from there for subsequent gain towards 1.1400-1.1500.


The single currency remained confined within near term established narrow range and further sideways trading is in store, euro’s retreat from 1.0825 (this month’s high) has retained our bearish view for weakness to 1.0650-60, however, break of support at 1.0622 is needed to confirm early erratic decline from 1.1201 (2016 high) has resumed, bring subsequent selloff to 1.0550 and possibly towards 1.0500 but oversold condition should prevent sharp fall below latter level and reckon 1.0390-00 would hold from here, risk from there has increased for a rebound later.

To recap our preferred count, the decline from 1.6828 (end wave (B)) is labeled as the beginning of wave (C) which should unfold as an impulsive move with 1: 1.5326, 2: 1.6377 and wave 3 is sub-divided into (i): 1.4300, (ii): 1.5880 and wave (iii) is still unfolding with (1): 1.4577, (2): 1.5448 and wave (3) is an extended 3rd with i: 1.5006, ii: 1.5383, wave iii: 1.3073, then wave iv ended at 1.3925 and wave v at 1.3073, wave (4) ended at 1.3925 and wave (5) has ended at 1.2765 which also marked the low of wave (iii) and wave (iv) has ended at 1.3835 and wave (v) as well as larger degree wave 3 has ended at 1.0075. The selloff from 1.2650 signals wave 4 has ended there and we are taking a view that the wave 5 could also have ended 0.8426, hence consolidation is seen with mild upside bias for rebound to 1.1000 first, then towards 1.1400.

On the upside, expect recovery to be limited to 1.0750-60 and bring another decline. Only above said resistance at 1.0825 would abort and signal low has been formed, bring a stronger rebound to 1.0850 and later towards resistance at 1.0898 which is likely to cap euro’s upside, the pair shall head back south again from there.

Recommendation: Hold short entered at 1.0750 for 1.0550 with stop above 1.0825.

 
The long-term downtrend started from 1.9626 (Apr 1985) to 1.4166 (Sep 1995) is treated as wave (A) with A:1.6285 (Dec 1987), B: 1.9342 (May 1992) and C: 1.4166, then wave (B) ended at 1.6828 with A: 1.7147 (Feb 1997), B: 1.4398 (Sep 2001), C: 1.6828 (Nov 2007), therefore, wave (C) is now in progress with the breakdown indicated as above. This wave (C) already met indicated downside target at 1.1455/60 and 1.1300, it could have ended at 0.8426, consolidation with mild upside bias is seen for gain to 1.1000 and later towards 1.2000.

Sunrise Market Commentary

• Rates: US Treasuries sell-off in US trading; today's calendar uninspiring
  US Treasuries sold off during US trading yesterday following a batch of strong eco data. Recovering stock markets and a rising oil price weighted as well. Fed vice-chair Fischer dealt the final blow by confirming that the Fed intends to hike rates 2 more times this year, which isn't completely discounted yet. Today's uninspiring calendar suggests sentiment driven trading.
• Currencies: Dollar rebounds after exceptionally strong US consumer confidence
  Yesterday, the dollar initially didn't go anywhere. However, the reflation trade restarted and the dollar rebounded after an exceptionally strong US consumer confidence. Fed's Fisher confirming the scenario of two additional rate hikes was also USD supportive. Sterling is facing headwinds as UK PM May will trigger article 50 today, formally starting the Brexit procedure

The Sunrise Headlines

• The Dow Jones joined other US stock barometers in the black yesterday, snapping its longest losing streak since 2011. Indices ended around 0.75% higher. Overnight, Asian risk sentiment is more mixed.
• Fed Vice Chair Fischer said the FOMC's median estimate for two more rate hikes this year “seems about right.” He added the failure of the health-care bill on Friday may have changed his “internal calculus,” but not the overall outlook.
• BoE interest rate-setter McCafferty highlighted a weak outlook for the economy and said he did not know if he would vote to increase borrowing costs at the next meeting of the BoE's policymakers in May.
• The faltering campaign of French presidential candidate Francois Fillon suffered another setback when magistrates placed his wife under formal investigation over allegations that he paid her for a fake parliamentary job.
• The Scottish parliament has voted to demand a second independence referendum, raising the stakes in the constitutional impasse with a UK government that has already rejected such a vote.
• The official Article 50 exit process will begin today at just after 1.30pm in Brussels when Sir Tim Barrow, Britain's ambassador to the EU, presents Mrs May's letter of withdrawal to Donald Tusk, the European Council president.
• Today's eco calendar is thin with only US pending home sales and national EMU consumer confidence data. Central bank speakers are Fed Evans, Rosengren, Williams and ECB Praet. Finland and the US tap the market

Currencies: Dollar Rebounds After Exceptionally Strong US Consumer Confidence

Dollar shows tentative signs bottoming out

Yesterday, USD traders initially didn't find clear guide in the wake of the debacle of the US healthcare vote on Friday. Uncertainty and a further (modest) slide in core yields weighed on the dollar, especially on USD/JPY. However, market sentiment improved after a very strong US consumer confidence. Later in the session, Vice Fed Chair Fischer reiterated the mainstream Fed view for two more rate hikes this year. US bond yields turned north again and the dollar rebounded. USD/JPY finished the session at 111.15 (from 110.66). EUR/USD declined to the 1.08 area and finished the session at 1.0814 (from 1.0864).

Overnight, Asian equities show only most gains despite yesterday's rebound in the US. Oil trades off the recent lows and so does the dollar. The trade-weighted dollar (99.75 area) holds within reach of the yesterday's recovery top, but there are no follow-through gains. USD/JPY tries to extend gains north of 111, but still fails to regain the previous range bottom (111.36/60 area). Poor Japanese retail sales data hardly affected yen trading. EUR/USD hovers in a tight sideways range in the low 1.08 area. The resumption of the reflation trade is also slightly supportive for the likes of the Aussie dollar (AUD/USD 0.7640 area) despite the overall USD rebound.

Today, there again no important eco data in EMU and in the US. Fed members Evans, Rosengren and Williams are scheduled to speak. Recent appearances suggest they will confirm the mainstream Fed's scenario of two additional rate hikes this year. So, global risk sentiment will probably set the tone for USD trading today

Yesterday, the dollar made a U-turn as exceptionally strong US consumer confidence removed investors' disappointment on last Friday's US healthcare vote. Yesterday, we advocated that a good US consumer confidence could help to reverse doubts on the reflation trade, but that more positive (US) news was needed to restore confidence in the dollar. The dollar yesterday made a lofty attempt to put a short-term bottom in place. However, except in a scenario of further equity gains, there is probably too little on the agenda today to trigger more USD gains. So, we look out whether the dollar stays away from this week's correction lows. If the US currency succeeds to do so in a session devoid of important news, it would be a first indication that the downside of the dollar becomes better protected. For now, we are in no hurry to aggressively add USD long exposure. Especially the technical picture of USD/JPY still looks fragile. For EUR/USD we look out where the USD/EMU (German) interest rate differential halts its narrowing trend of the recent past.

From a technical point of view, the picture of USD/JPY remains fragile as it dropped below the 111.60/36 support. Next support kicks in at 108.84 (50% retracement of the MT up-move). EUR/USD is extensively testing 1.0829/1.0874resistance. A break beyond this level would deteriorate the MT picture for the dollar. Chances on a break of this level have grown, but we don't expect a real protracted rally of the euro against the dollar. The interest rate differential between the US and Germany/Europe makes EUR/USD longs costly. At the same time, we also don't see the euro as the perfect safe haven currency

EUR/USD: test of 1.0874 resistance is rejected, at least for now

EUR/GBP

Sterling in the defensive going into formal start of Brexit

There were no eco data in UK yesterday. Sterling trading was driven by technical considerations. Investors were looking forward to today's formal start of the Brexit procedure. Sterling traded with a positive bias early in the session, but returned (modest) gains against the dollar and the euro later. Scotland's demand for a second independence vote was a slight additional negative for sterling. Later in the session, cable dropped quite sharply, but this move in the first place mirrored the overall comeback of the dollar. Cable finished the session at 1.2450 (from 1.2559 on Monday evening). EUR/GBP close the day at 0.8684 (from 0.8650).

This morning, the sterling remains under pressure in Asia as markets look out for the UK triggering article 50 of the Lisbon treaty around noon today. EUR/GBP regained the 0.87 barrier. Cable is trending further below 1.24. Later today, the UK money supply and lending data will be published, but the focus will be on the letter of UK PM May to EU president Tusk. Markets will look for clues that might give any indication of the start of the Brexit procedure. (e.g. will the EU insist on starting with the penalty for the UK?). We expect sterling to stay in the defensive going into the start of a complicated process.

Two weeks ago, sterling found a better bid after the early March decline. Some time ago, EUR/GBP cleared 0.8592 resistance, improving the MT technical picture. However, (substantially) higher than expected UK inflation probably put a decent floor for sterling short-term. We changed our short-term bias on EUR/GBP from positive to neutral. Further consolidation in the 0.85/0.88 area might be on the cards. 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 this months' higher inflation data.

EUR/GBP: sterling rebound shows tentative signs of slowing going into the startof BRexit

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