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Daily Pivots: (S1) 1.6004; (P) 1.6047; (R1) 1.6095; More....

A temporary low is in place at 1.5997 with 4 hour MACD crossed above signal line. Intraday bias in EUR/AUD is turned neutral first. On the downside, break of 1.5997 will extend the correction fro 1.6765 short term top to 55 day EMA (now at 1.5924) and possibly below. On the upside, above 1.6205 minor resistance will argue that the pull back is completed and turn bias back to the upside for retesting 1.6765.

In the bigger picture, the failure to sustain above 1.6587 key resistance (2015 high), argues that up trend from 1.1602 (2012 low), is not ready to resume yet. But still, as long as 1.5346 support holds, outlook will remain bullish. Break of 1.6765 will target 61.8% retracement of 2.1127 (2008 high) to 1.1602 at 1.7488 next.

Daily Pivots: (S1) 1.1222; (P) 1.1244; (R1) 1.1262; More...

EUR/CHF is staying in range above 1.1181 temporary low and intraday bias remains neutral first. Deeper fall could still be seen. But again, we'd expect strong support from 1.1154/98 support zone to contain downside to bring reversal. On the upside, above 1.1348 resistance will turn bias to the upside for retesting 1.1501 resistance first. However, Sustained break of 1.1154/98 will carry larger bearish implications and extend the whole decline from 1.2004 high.

In the bigger picture, price actions from 1.2004 medium term top is seen as a correction only. Downside should be contained by support zone of 1.1198 (2016 high) and 61.8% retracement of 1.0629 to 1.2004 at 1.1154 to complete it and bring rebound. A break of 1.2 key resistance is still expected in the medium term long term. However, sustained break of the mentioned support zone will mark reversal of the long term trend. In that case, 1.0629 key support will be back into focus.

Pivot (invalidation): 108.45

Our preference Long positions above 108.45 with targets at 109.50 & 110.00 in extension.

Alternative scenario Below 108.45 look for further downside with 108.05 & 107.45 as targets.

Comment The RSI calls for a new upleg.

Pivot (invalidation): 1.2790

Our preference Short positions below 1.2790 with targets at 1.2745 & 1.2720 in extension.

Alternative scenario Above 1.2790 look for further upside with 1.2815 & 1.2850 as targets.

Comment The RSI shows downside momentum.

Pivot (invalidation): 1.1480

Our preference Short positions below 1.1480 with targets at 1.1410 & 1.1385 in extension.

Alternative scenario Above 1.1480 look for further upside with 1.1500 & 1.1520 as targets.

Comment The RSI is bearish and calls for further downside.

• Rates: Payrolls, Powell and services ISM floor US yields
  A strong US non-manufacturing ISM caused new weakness in US Treasuries, bear flattening the curve. Together with payrolls and Powell's comments, the ISM probably puts a floor below US yields. Supply heats up today and might weigh additionally on bonds. Belgium probably launches a new 10-yr benchmark. Risk sentiment remains a wildcard.
• Currencies: EUR/USD rebound still blocked at 1.15 resistance
  FX investors still reduced USD long exposure yesterday in the wake last week's comments from Powell on Fed policy flexibility. This morning, the USD decline is slowing, blocked by recent rise in US yields. For now, the EUR/USD resistance continues to play its role. A retest is possible is case sentiment on risk remains positive

The Sunrise Headlines

• US equity markets climbed higher yesterday with tech shares outperforming (Nasdaq +1.26%). Asian equities trade mixed with Japanese indices leading the gains. China underperforms despite positive signals of US-Sino talks.
• US Commerce Secretary Wilbur Ross, who's leading the US-Sino trade talks, said progress was made and prospects for a deal were good. Beijing already announced that it is buying large volumes of US soy beans again.
• UK PM May is said to be seeking last-minute assurances from the EU to avoid the Irish backstop scenario. Parliament takes a vote next week on May's deal reached with the EU, but it is unlikely that she will secure the necessary votes.
• Nellie Liang, a former US Federal Reserve economist, withdrew from consideration to join the central bank's board of governors. She is said to have withdrawn on her own initiative and wasn't forced out by the White House.
• Atlanta Fed governor Bostic, a non-voting member this year, lowered his rate outlook for 2019 to only one rate hike instead of two. He did add however, that the bank should continue with its plan to gradually shrink the balance sheet.
• US President Trump will address the nation tonight 'on the humanitarian and national security issue” that has partially shut down the federal government. He will also travel to the US-Mexico border later this week.
• Today's economic calendar eyes rather meagre with US NFIB Small Business Optimism and EC confidence indicators. Supply heats up with the US, the Netherlands, Austria, Germany and probably Belgium tapping the market

Currencies: EUR/USD Rebound Still Blocked At 1.15 Resistance

EUR/USD running into resistance ahead of 1.15

The dollar remained in the defensive yesterday. The move was mainly visible in EUR/USD. Investors scaled back USD long positions in the wake of Fed Powell's comments on Fed policy flexibility on Friday. Initially, the US-German interest rate differential narrowed in the disadvantage of the dollar. This pattern changed after a good US non-manufacturing PMI. Sentiment on risk improved during the US session but EUR/USD stayed well bid despite an upturn in US yields. EUR/USD finished at 1.1474, but the 1.15 resistance remained intact. The picture in USD/JPY was slightly different. The pair initially hovered in the low 108 area, but rebounded after the ISM to finish at 108.72 (from 108.51). Overnight, Asian markets show a mixed picture, with Japanese equities outperforming (weaker yen). China underperforms. Global investors are looking out for the results of the China-US meeting on trade. The dollar is rebounding after yesterday's decline, supported by higher US yields (2-yr yield is >15 bp higher compared to last week's low). EUR/USD trades in the 1.1450 area. USD/JPY gains remain modest (108.75 area).

Today, the calendar is moderately interesting with the EMU confidence data and the US NFIB small business confidence. The first US Treasury auction (3-y) is worth following too. The China-US trade talks and president Trump giving an address on the US government shut-down are wildcards for global (FX) trading. Of late, the risk rebound and Fed's Powell indicating policy flexibility weighed on the dollar, even as US yields rebounded at the same time. For now, the rise in US yields apparently blocks further USD losses beyond first EUR/USD resistance. That said, recent USD performance suggests that underlying sentiment on the USD currency has weakened. Any progress in the US-China trade talks might be euro supportive too. Conflicting drivers are in play, but we have the impression that the downside in EUR/USD is rather will protected. So a retest of the 1.15 resistance might be on the cards. In case of a break, the 1.1621 mid-October top is the next reference.

Sterling trading was mostly driven by technical considerations after Friday's rebound. EUR/GBP mostly hovered in the upper half of the 0.89 big figure. Today, the political debate on Brexit will restart. PM May is said to prepare contingency plans to prepare for a no-deal Brexit. We assume more technical trading in EUR/GBP as long as there is low visibility on what will happen after next week's UK Brexit vote

EUR/USD: post-Powell USD correction slows. 1.15 resistance continues to play its role

The EUR/USD has been choppy and corrective in the last months. Whether price is able to break above the consolidation zone remains to be seen but it would confirm the current wave pattern.

The EUR/USD is making a bearish pullback which is testing the Fibonacci levels of wave 4 vs 3 (orange). The Fib levels could be act as a support zone and cause price to bounce back up, which could be part of a larger wave 3 (green). A break below the support zone (blue) however invalidates the current expected 5 bullish waves(orange).

After a terrible end to 2018 which saw global equities plummet, markets are finally seeing the color greenreturning to their screens. U.S. stocks built on Friday’s massive rally supported by optimism that Beijing and Washington may be moving in the right direction towards a trade deal. The volatility index dropped to 21 from a high of 36.20 in late December. Calm has also returned to Asian equities with Japanese stocks outperforming the rest of Asia.

The recent mad volatility in equity markets seems to have forced Fed Chair Jerome Powell to change his tone, sounding more dovish by indicating that the Fed may pause its balance sheet shrinkage if it’s necessary. Atlanta Fed President Raphael Bostic backed his boss yesterday stating that the Fed may only need to raise rates once this year. Such a combination of a dovish Fed and relatively stable economic data should be supportive to risk. However, many unknowns remain especially if more Tech firms follow Apple’s footsteps by lowering their earnings guidance for 2019. While earnings may have continued to grow in double digits in Q4 2018, the projection for 2019 is what matters.

The U.S. non-farm payrolls which easily topped all economists forecast coming at 312,000 in December, supported views that the U.S. economy remained robust in 2018. However, when looking at leading indicators such as ISM Manufacturing & Service data we get different interpretations. Such conflicting economic reports make it difficult for macro investors to make decisions, and that’s likely to keep many investors on the sideline until a clear trend in data is formed.

The U.S. and China are unlikely to come up with a full solution on trade today, neither in the near future. Small baby steps towards a resolution are all what’s needed to support investors’ confidence, and that’s what markets are hoping for.

In currency markets, the Dollar recovered slightly after touching its lowest levels since October on Fed comments. If investorsbecome increasingly convinced that the Fed will pause its tightening cycle, expect today’s recovery to be short-lived as the repricing of interest rate hikes will lead to further losses in the Greenback.

GBPUSD has been edging higher over the last three days, following the bounce off the 21-month low of 1.2390 that was reached on January 2. This week the pair continues to attract buying interest, with the price climbing slightly above the long-term descending trend line.

The technical indicators are still positive in the short-term, with the MACD stretching further above its red trigger line and the RSI moving above the 50 level with weak momentum. Yet the latter could also be an indication that the upside rally is overdone, and hence negative movements should not be a surprise in coming sessions.

If traders turn their attention to higher levels, the 1.2815 and the 23.6% Fibonacci retracement level of the downleg from 1.4375 to 1.2390 of 1.2855 would be the next level to focus on. If bullish actions appear even stronger, the market could find resistance at the 1.3065 barrier, identified by the minor high on November 14.

In the alternative scenario, if the price drops back below the falling trend line, it could touch again the 40- and then the 20-simple moving averages (SMAs) at 1.2725 and 1.2650 respectively in the daily timeframe. Moving lower, a violation of these levels would increase downside pressure, challenging the 1.2475 support obstacle, taken from the low on December 12.

To sum up, the short-term risk looks to be turning positive, while in the long-term view, the downfall from 1.4375 is still active and hence the outlook remains negative.

General Trend:

• Property index declines in Shanghai, Geely drops over 10% on sales figures
• Banks and shares of Softbank rise in Japan; Softbank drastically cuts its investment in WeWork
• China skips open market operations for the second day
• Samsung guides Q4 results below ests, warns of a weaker start in 2019; shares swing between gains and losses
• Few comments have been seen from US and China trade officials, talks are due to end today
• Press articles comment on the impact of the partial US government shutdown on the SEC
• UK and EU officials said to be in talks about possibly extending Article 50 Brexit process

Headlines/Economic Data

Japan

• Nikkei 225 opened +0.9%
• (JP) Bank of Japan (BOJ): Q3 output gap 1.24% v 1.6% q/q (first decline since 2016)
• (JP) Japan Finance Min Aso: Market volatility has been high since late in 2018; will need to continue watching markets with 'sense of urgency'
• WEWORK.IPO Softbank to reduce its planned investment in WeWork to $2B (down from $16B in earlier plans) - FT
• 4565.JP To receive $15M milestone payment from AstraZeneca with first partnered program moving towards Phase 2 [+16%]
• 6758.JP PS4 holiday sales 5.6M units, has now sold 91.6M units worldwide since release, 2018 holiday season sales over 5.6M units v 5.9M y/y
• 7201.JP Former Chairman Ghosn denies wrong doing in court: no loss to Nissan from derivatives contract
• (JP) Japan MoF sells ¥2.2T v ¥2.2T indicated in 0.10% (prior 0.10%) 10-yr JGBs, avg yield 0.015% v 0.074% prior, bid to cover 4.04x v 3.82x prior
• (JP) Bank of Japan (BOJ): Q3 output gap 1.24% v 1.6% q/q (first decline since 2016)

Korea

• Kospi opened +0.1%
• 05930.KR Reports Prelim Q4 (KRW) Op 10.8T v 13.8Te, Rev 59.0T v 63.6Te; comments: Earnings to remain subdued in Q1 due to memory, Q4 memory earnings fell significantly q/q
• (KR) South Korea Nov Current Account: $5.1B v $9.2B prior; Balance of Good (BOP): $7.9B v $11.0B prior
• (KR) North Korean train possibly carrying North Korean Leader Kim Jong Un crossed into China Monday, to visit from Jan 7-10th on invitation of China President Xi - Yonhap

China/Hong Kong

• Hang Seng opened +0.1%, Shanghai Composite -0.1%
• (CN) CHINA DEC FOREIGN RESERVES: $3.073T V $3.072TE; gold holdings rise for 1st time since Oct 2016 (after the close yesterday)
• (CN) China Vice Premier Liu He unexpectedly attended US/China trade talks, which were scheduled to be at a vice ministerial level from the MOFCOM - press
• (HK) Hong Kong office landlords are now requiring 6-9 months worth of rent up front v the standard 3-months due to tenants backing out of their leases – SCMP
• 175.HK Reports Dec Sales 93.3K units -39% y/y [-11% in the session]
• (CN) China PBoC Open Market Operation (OMO): Skips OMO operations for the second consecutive day; Net: CNY20B drain v CNY170B drain prior
• (CN) China PBoC sets yuan reference rate: 6.8402 v 6.8517 prior
• (CN) China State Administration of Foreign Exchange (SAFE): China Dec foreign reserve increase due to stronger non-dollar denominated currencies, price spikes of treasury bonds of major countries, as well as asset price changes - Chinese press
• (CN) Former PBOC Governor Zhou: monetary policy still has room for quantitative adjustment, and will continue to support economic growth, the job market, and investment in the interest of maintaining price stability - Chinese press

Australia/New Zealand

• ASX 200 opened +0.1%
• (AU) AUSTRALIA NOV TRADE BALANCE (A$): 1.9B V 2.2BE; Exports m/m: 1% v 1% prior ; Imports m/m: 2% v 3% prior
• BOQ.AU Raises mortgage rates on certain loans by 11-18bps due to funding pressures and deposit competition
• (AU) Australia Dec Foreign Reserves: A$76.3B v A$66.0B prior

North America

• (US) Fed's Mester (hawk, non-voter in 2019): Fed could adjust its portfolio runoff if it proves more disruptive than anticipated for markets
• (CA) Canada PM Trudeau and President Trump discussed steel tariffs, will seek release of Canadians from China
• ILMN Reports prelim Q4 Rev ~$865M v $861Me; guides initial FY19 $6.50-6.60 v $6.39e; Rev $3.76-3.80B v $3.8Be – slides
• (US) White House Economic Advisor Hassett: There will be 'some' economic impact from partial government shutdown, tax refunds will be issued during shutdown - US media

Europe

• (UK) UK and European leaders said to be in talks over possibly extending Article 50 Brexit process - UK's Telegraph
• (UK) Downing Street spokesperson: PM May has always said would be willing to leave the EU on March 29, 2019 and would not extend Article 50
• (DE) Trump administration downgraded diplomatic status of the European Union's delegation to the United States from member state to international organization at the end of last year without notice - German press
• Levels as of 12:50ET
  - Hang Seng -0.2%; Shanghai Composite -0.4%; Kospi -0.4%; Nikkei225 +1.0%; ASX 200 +0.7%
• Equity Futures: S&P500 +0.2%; Nasdaq100 +0.2%, Dax +0.1%; FTSE100 +0.0%
• EUR 1.1485-1.1432; JPY 108.99-108.52; AUD 0.7149-0.7122; NZD 0.6758-0.6738
• Feb Gold -0.5% at $1,283/oz; Feb Crude Oil 0.0% at $48.53/brl; Mar Copper -0.3% at $2.63/lb