'Hidden under the surface of European bond markets, traders are placing bets that will pay out if the risks in the euro zone severely escalate.' - Stephen Spratt, Bloomberg

Pair's Outlook

The common European currency depreciated on Tuesday morning against the US Dollar, as the currency exchange rate passed the combined support of the weekly PP at 1.0604 and the 55-day SMA at 1.0597. Due to this factor the currency pair is set to continue the fall, as the closest support level to the pair is at 1.0529, where the weekly S1 is located at. Moreover, as the weekly S1 is a lone support level, it is highly possible that it will be also easily passed in the upcoming trading sessions. The closest support below the weekly S1 is the lower Bollinger band, which was near the 1.05 mark on Tuesday.

Traders' Sentiment

SWFX traders are bullish on the pair, as 52% of open positions are long on Tuesday. Meanwhile, 55% of trader set up orders are to sell the Euro.

'GBPUSD is sending mixed signals. The pair briefly dipped under its 50-day average near $1.2410 testing $1.2390 before bouncing back toward $1.2430. While this looks like a successful retest, RSI breaking under 50 suggests momentum turning downward.' – CMC Markets (based on PoundSterlingLive)

Pair's Outlook

The GBP/USD pair erased most of Friday's losses yesterday, successfully climbing over the 1.2450 level, thus, breaching the immediate resistance area. Now the British currency is being supported by a strong demand area around the 1.24 major level, with the weekly PP just being a minor nuisance located at 1.2449. Technically, the Cable should remain above the 1.24 mark today and pave its way towards retaking the 1.25 handle. However, technical indicators are still unable to confirm the possibility of the positive outcome, leaving the door open for another leg down.

Traders' Sentiment

Bullish traders' sentiment remains unchanged at 59% for the third time in a row. At the same time, the share of sell orders inched slightly higher, namely from 55 to 58%.

'Technically, it's important for the dollar to get back to 115, which is a nice figure to target, but I think a lot of investors are probably playing from the long position and it's difficult to get a new wave of buyers to give it that extra kick.' – State Street Global Markets (based on Reuters)

Pair's Outlook

The overall picture did not change on Monday, as the USD/JPY pair keeps consolidating between 111.50 and 115.00. The Buck has sufficient space to edge higher again, even though the 20-day SMA and the weekly PP form resistance quite close to today's opening price. A failure to climb over this resistance cluster is likely to result in a relatively serious decline, with the tough demand area circa 111.70 limiting any possible losses. On the other hand, a successful breach of the nearest resistance would allow the 115.00 area to be retested again, making another step towards reaching the two-year down-trend.

Traders' Sentiment

There are no 56% of traders who are bulls, compared to 57% on Monday. The share of purchase orders declined dramatically in the last 24 hours, having fallen from 59 to 38%.

'People are awaiting direction from the minutes of the last FOMC (Federal Open Market Committee) meeting.' – Hareesh V, Geofin Comtrade Ltd (based on Reuters)

Pair's Outlook

The yellow metal lost value during the early hours of Tuesday's trading session, as the bullion was in a retreat after failing to break the resistance put up by the monthly R1 at 1,237.68 during Monday's trading session. However, if compared with previous price levels, the commodity price has not changed much for the past four trading sessions. The reason for that is that market participants are expecting clues regarding US monetary policy. In the meantime, from a technical perspective the yellow metal is set to remain flat until it encounters the uptrend line in the next two trading sessions.

Traders' Sentiment

SWFX traders have not changed their opinion, as 54% of open positions remain long, and 61% of trader set up orders remain set to buy the bullion.

"Ontario recorded the largest increase of wholesale sales in dollar terms among the provinces and territories, and the largest portion of the increase came from the motor vehicle and parts subsector." - Statistics Canada

The value of Canadian wholesale trade advanced more than expected in December, official figures revealed on Monday. According to Statistics Canada, the country's wholesale trade rose 0.7% in the reported month, continuing its uptrend for the third consecutive month, whereas market analysts anticipated an increase of 0.4%. In the meantime, the November gain of 0.2% was revised down to 0.1%. In volume terms, sales gained 0.9% in December, which is expected to prop up economic growth for the month. In the report, Statistics Canada said sales had appreciated in six out of seven sectors. Comparing with 2015 levels, there was a 3.1% gain in sales in 2016, the seventh consecutive yearly surge. The largest annual gain of 4.6% came in the machinery sector, suggesting a solid investment trend. The report also showed both household goods and food sectors rose 0.9% on a monthly basis, while building suppliers posted a 1.4% increase for the month. Nevertheless, there was a 2.1% decline registered in the motor vehicle sector, which is set to threaten growth in manufacturing sector's output. In addition, wholesale inventories rose 1.1% for the fifth straight month in December.

On the updated chart of USDJPY, we can see a nice and strong bullish turn taking place from around the 111.60 level, where we labeled end of a complex correction. As such, recent recovery gives us an indication for a completed double zig-zag correction and a suggestion that higher levels will now follow while market stays above 111.60. At the moment we see price trading up from black wave 2, that seems to have found a base at the 61.8 Fibonacci ratio.

USDJPY, 4H

Sunrise Market Commentary

• Rates: Underperformance of US Treasuries vs German Bunds?
  Risks for EMU PMI data are tilted to the downside of expectations which might trigger a test of nearby resistance at 164.90 though we don't anticipate a break higher. French election worries might continue to influence (EMU) risk sentiment. In the US, focus will gradually turn to Trumps' fiscal stimulus plans, causing underperformance of US Treasuries.
• Currencies: Dollar extends gradual rebound
  Yesterday, EUR/USD and USD/JPY held extremely tight ranges. Political uncertainty caps the topside of the euro. The dollar receives support from hawkish Fed speak as markets await Trumps' fiscal plans. Sterling is reversing the losses incurred after Friday's poor retail sales.

The Sunrise Headlines

• US markets were closed for Presidents' Day yesterday. Overnight, Asian equities are trading stronger, also Japanese ones despite a stronger dollar. European equities may start positive, but election uncertainty may hold them back.
• China's central bank said that it will extend a preferential scheme for some banks that will free up additional funds for lending, as long as they channel money to weaker, cash-starved sectors of the economy.
• Greece and its international lenders agreed to let teams of experts work out new reforms to Greek pensions, income tax and labour market that would allow Athens to eventually qualify for more cheap loans, euro zone officials said.
• Growth at Japanese manufacturers continued to improve in February as activity in the sector expanded at the fastest rate since early 2014. The preliminary February PMI increased from 52.7 to 53.5.
• Portugal has made a new early repayment of €1.7B to the IMF, meaning it has reimbursed half of the bailout loans provided by the IMF during the 2011 debt crisis, the Finance Ministry said.
• Philly Fed Harker repeated in an MNI interview that he could support a rate increase next month. 'I would not take March off the table at this point. We'll have to see how it plays out in the next few weeks'.
• Issuing another upbeat assessment of the economy, the Australian central bank said it expects wage pressures to rise gradually, but one factor that may force it to raise rates earlier might be an outbreak in catch-up pay demands.
• Today, attention goes to the EMU business confidence (PMI). Fed speakers on duty have recently spoken, but the appearance of Draghi will be scrutinized closely for signs that the election season is affecting policy. US Treasury starts its mid-month refinancing operation (see below).

Currencies: Dollar Extends Gradual Rebound

Dollar extends gradual rebound

On Monday, USD trading developed in thin markets, as US markets were closed for Presidents' Day. The dollar held very tight ranges against the euro and the yen even as political uncertainty on the French elections persisted. EUR/USD hovered in a narrow range in the 1.0605/30 area. USD/JPY stabilized in the low 113 area, awaiting more guidance from the US today.

Overnight, Asian equities show modest gains. The dollar rallied early in Asia as Fed's Harker reepeated that a rate in March isn't off the table. USD/JPY rebounded to the 113.70 area and trades currently around 113.55. EUR/USD fell below the 1.06 barrier, currently changing hand in the 1.0580 area. In the Minutes, the RBA was rather positive on the economy, taking into account the positive impact of higher commodity prices on the economy. Even so, the Aussie dollar is trading marginally softer in line with the broader USD rebound after the Harker comments. AUD/USD trades currently in the 0.7670 area.

Today, the advance EMU PMI's will be published. Markets expect a near stabilization at 54.3 for the EMU composite PMI. German confidence is expected stable at 54.8. For France a slight decrease to 53.8 from 54.1 is expected. The indicator indicates ongoing decent growth, but some downside risk might materialize due to political uncertainty. The US Markit PMI is no market mover. A slight increase is expected (55.3 vs 55 for manufacturing, 55.8 from 55.6 for services). Fed speakers Kaskhari, Harker and Williams spoke recently and probably won't bring no new info. Over the previous days, political uncertainty in France installed a modest risk-off trade in Europe. It weighed on the euro and was also slightly yen positive. The theme of political uncertainty in Europe will continue to play its role. At the same time, the focus in the US will turn to the Trump fiscal plan and to Fed comments. The combination of both factors suggests further USD buying against a weakish euro. USD/JPY rebounded on the Harker comments this morning. Any further gains probably need support from higher USD bond yields. We maintain a cautious USD positive bias in an day-to-day perspective. This applies especially to USD/EUR

Global context. The dollar corrected downward since the start of January as the Trump reflation trade slowed down. Two weeks ago , the dollar bottomed out, supported by the ‘Trump tax promise'. Underlying euro weakness due to political uncertainty in the area is a factor too. We see 1.0874 as solid resistance and thus still favour a sell EUR/USD on upticks approach. The downside test of USD/JPY is also rejected. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) remains key support. The comments of Yellen before Congress (and of other Fed members) were USD supportive, but had little lasting impact on yields and/or on the dollar. We keep a cautious USD positive bias, but remain more cautious on the upside potential of USD/JPY compared to USD/EUR.

EUR/USD: near the ST low on euro softness and USD strength

EUR/GBP

Sterling fights back after last week's setback

Yesterday, sterling reversed part of Friday's losses which were due to poor UK retail sales. We didn't see a specific driver for this comeback. At the Brexit-debate in the House of Lords, some members want more influence before the final vote, but for now there are no indications that the debate in the House of Lords will profoundly derail PM May's Brexit strategy. The CBI orders and output data were stronger than expected. The data were maybe a slightly supportive for sterling. EUR/GBP closed the session at 0.8517 (from 0.8561). Cable rebounded to close the day at 1.2463.

Today, the UK monthly budget data will be published. We don't expect the report to be of lasting importance for sterling trading. Good data might be slightly sterling supportive in a daily perspective. Overnight, the decline of EUR/USD also pushed EUR/GBP back below the 0.85 barrier. EUR/GBP recently hovered in a tight range north of the 0.8450 support, but a break didn't occur. Sterling sentiment softened slightly of late as the market feels that a BoE rate hike is still very far away. At the same time, euro softness due to political uncertainty is a risk for all euro cross rates, including for EUR/GBP. Longer term, we have a sterling negative view as the Brexit still has to (negatively) impact the UK economy. However, this is no issue at this stage. The test of 0.8450 support is rejected, but the upside momentum isn't convincing. In case or further EUR/USD softness, a retest of 0.8450 is still possible

EUR/GBP: new test of 0.8450 support avoided, but rebound fails to convince

Download entire Sunrise Market Commentary

After a muted trading session on Monday due to the U.S. holiday, the USD is finally showing signs of strength in early Asian trade as investors await economic data, speeches from several FED Presidents, and minutes of the latest FOMC meeting.

U.S. treasury yields moved up across the curve after declining for two consecutive days, albeit slightly, it still managed to provide the dollar a minor push.

The narrow trading ranges indicate that traders are reluctant to take big bets until they get a detailed plan on U.S. tax, trade, and spending plans. Tweets from Trump related to such policies will create some noise, but I believe the sideway trading will resume until February 28 when the President addresses a joint session ofCongress. This will probably provide a major indication on where the USD is headed, given that monetary policy seems to have lost influence lately.

European political risks can't be ignored either. The mounting nervousness over the outcome of France's Presidential election is clearly reflecting in fixed income markets. The spreads between the French and German yields rose to post Eurozone crisis highs in 2012 after polls yesterday showed far-right candidate Marine Le Pen narrowing the gap with her opponents.

The positive news in Europe came from Brussels, as the gridlock between the European Union and the IMF over releasing a new tranche of financial aid somehow eased. However, it's too early to rule out that an agreement could be reached. Greece will most likely refuse the implementation of new austerity measures, the IMF will keep pushing for debt reliefs, meanwhile Germans insist on IMF involvement.

PMI readings for the manufacturing and services sectors from France and Germany are expectedto show that economic activity remained healthy during the month of February, but expect little impact on the Euro given the scale of political risks.

Traders will have the chance to hear from Mark Carney today when he testifies before the U.K. parliament's Treasury Committee. What's going to be interesting is that his testimony comes after Bank of England upgraded its growth forecast in February 2, and since then signs of weakness in the economy emerged. Markets are currently seeing less probability of BoE tightening this year, but if Carney indicates that higher interest rates are still on the table during U.K.'s negotiation period, sterling may find some support.

Currency pair GBP/USD

The GBP/USD failed to break above resistance (red) several times which makes it more likely that an ABCDE (purple) contracting triangle chart pattern is taking place on the charts. The above chart is showing the bearish version of the triangle pattern but it primarily depends on whether price breaks above resistance (red) or below support (blue).

The GBP/USD will need to finally show a breakout before a larger bullish or bearish move can be possible. A bearish breakout could see price fall down to the 61.8% Fibonacci level of wave B vs A at 1.2250. A bullish break above 1.25 could see price move towards the next resistance trend line (brown) on the 4 hour chart at 1.26.

Currency pair EUR/USD

The EUR/USD is at the Fibonacci levels of wave X (blue) which could be a bouncing zone if price is building a complex WXY correction within a larger wave 2 (puple). The Fibonacci levels of wave 2 (purple) could therefore also act as resistance. A break above the 100% level of wave 2 vs 1 invalidates the wave 1-2 (purple).

The EUR/USD could be complete a bearish ABC (green) within wave X (blue) at the 61.8% Fibonacci level. A break above the resistance trend line (red/orange) would confirm that whereas a break below the support trend line (green) makes the scenario unlikely.

Currency pair USD/JPY

The USD/JPY bounced at the 61.8% Fibonacci support level of wave 2 vs 1. A break below the 100% level would invalidate this wave 1-2 structure. A breakout above resistance (red) and the round 115 psychological level could confirm and start the wave 3 (blue). Wave 2 (blue) could expand potentially into a larger correction as well (see 1 hour chart).

The USD/JPY could be completing a bearish ABC (brown) zigzag within wave 2 (blue). A break above the red line invalidates wave B (brown). There could be another ABC zigzag (orange) within wave that wave B (brown).

Key Points:

• ABC wave still intact and could come into play this week.
• Recent bullishness shouldn't impact the medium-term forecast.
• Long-term trend line should hold firm.

The Swissy seems to have found the turning point in its potential ABC wave slightly earlier than anticipated which could mean further downsides are on the way. At first, this might appear to be at odds with the pair's behaviour over the past few sessions which could lead one to question whether or not the ABC wave is valid. Fortunately, there are a number of technical factors suggesting that the forecasted decline should take place.

Firstly, let's address the strong surges in buying pressure in the immediate wake of Thursday's plunge. Typically, one could argue that this shows that the USDCHF still has some serious underlying bullish sentiment at work. However, what seems more likely in this context is that the pair simply took a slide too early in a knee jerk response to the ongoing political turmoil in the US. These subsequent rallies are then an attempt to correct what, in hind sight, looks to have been a bit of an overreaction.

Whilst the distinction is slight, it is important as this bullish price action probably has the momentum to bring the pair back to the 38.2% Fibonacci level but it is unlikely that we see gains extend further. Instead, a reversal should be seen as the USDCHF attempts to get back on track and complete that forecasted 'C' leg.

There are a number of technical signals that would support this outcome for the Swissy. Firstly, the Parabolic SAR is firmly bearish now and, therefore, we can expect losses to resume within a handful of sessions. Secondly, even if we do have further upside movement, stochastics will be pushed into overbought territory which could help the bears to wrest control of the pair back from the bulls once again. When this decline does finally resume, it is worth noting that it won't take much to see the 12, 20, and 100 day moving averages move into a bearish configuration which could help to keep selling pressure high moving forward.

Ultimately, as has been discussed before, this downtrend should end around the 0.9784 mark as the final leg of the wave intersects the long-term ascending trend line. Whilst we will have to take a look closer to the time, given the relative robustness of the trend line it will be unlikely that we see losses go much beyond this point. Of course, there always remains the threat of a major fundamental upset which could exacerbate the pair's tumble, especially as a result of the Franc's safe haven status in the era of Trump. Therefore, keep an eye on the news and on your twitter feed.