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In July, Donald Trump met with the President of the European Commission, Jean Claude Juncker. At the time, the US President promised to implement massive tariffs on $200 billion worth of foreign-made cars. This decision would have been very difficult for the EU who threatened to retaliate.

After the meeting, the two leaders committed to talks to resolve the underlying issues. This week, the euro has continued to decline against the USD as it has become increasingly clear that a deal between the US and the EU will not be straight forward. EU’s Cecilia Malmstrom accused the US of not taking the talks seriously. In response, US Commerce Secretary, Wilbur Ross, and Gordon Sondland, the US Ambassador to the EU accused her of “complete intransigence', dragging her feet in the negotiations, and trying to wait out Mr. Trump’s time in office. The US President is now demanding “quick negotiations that produce tangible results,' as trade teams prepare to meet in Washington.

The sterling continued the declines started on Friday. Yesterday, Theresa May tried to assure the market that a Brexit deal with the EU will work out. She said that Brussels and the UK were working for a temporary UK-EU customs territory solution. In recent weeks, it has become clear that a deal between the EU and the UK will be difficult especially when it comes to the Irish border. In fact, officials have said that the deal is almost done with concerns over Island being the only issue. Today, traders will focus on a speech by BOE Governor, Mark Carney and the CBI Industrial trends orders.

Crude oil prices declined slightly in the Asian session after Saudi Arabia said that it committed itself to a "responsible role" in the energy markets. This is after the country’s new leaders face the toughest challenge after the killing of Jamal Khashoggi. Investors are waiting for a response from the Trump administration. Today, traders will receive the inventory numbers from the American Petroleum Institute (API). This is after last week’s drawdown of 2.1 million barrels went in the opposite direction to EIA’s inventories of 6.5 million barrels.

EUR/USD

On October 9, the EUR/USD pair started moving higher after reaching a low of 1.1430. It reached a high of 1.1620 on Wednesday last week and then started moving lower, reaching the previous low of 1.1430 on Friday. Yesterday, the pair opened at 1.1570 and then fell sharply. Today, these declines continued and the pair reached an intraday low of 1.1453. Therefore, with no major economic data from the EU and the US, the pair will likely continue with the path of least resistance and decline to the 1.1430 level. This is confirmed by the double EMA, MACD, and the Money Flow Index indicators.

EUR/CHF

Starting from early September, the EUR/CHF pair has moved from a low of 1.1182 to a high of 1.1500. In this trend, the pair has moved in an equidistance channel as shown below. The pair is now trading at 1.1410, which is at the lower side of the support. It is below the 14 and 28-day EMA. Today, the pair could attempt to move higher as it tries to approach the resistance price of 1.1500. A decline below 1.1410 will see the pair move lower to below 1.1400.

XPD/USD

Palladium was the best performing metal in 2017, gaining by more than 40%. It reached a high of $1137 per ounce. This year, it dropped to $830. In August, the decline ended and the metal started moving up. Today, the XPD/USD pair reached a high of 1125, 12 points lower than last year’s high. The double EMA shows that the pair could continue to move higher. The commodities channel index is currently at 282, which is overbought but a sign that the pair could continue moving up.

Rates: Risk aversion to reign trading today?
Asian stock market lose up to 2% overnight with risk aversion set to spill to European/US trading. Core bonds could profit with US Treasuries lagging German Bunds going into the US Treasury's end-of-month refinancing period. BTP markets could stabilize in the short run with Italy and the EU entering a negotiation phase after placing opening bets.

Currencies: dollar regains the benefit of the doubt.
Yesterday, EUR/USD couldn't maintain earlier gains as uncertainty on the Italian budget finally pushed the single currency back south. This morning, sentiment in Asia turned outright risk-off. For now, it looks that the dollar and the yen are again in the best position to profit. DXY is testing the 96 level. EUR/USD again nears the 1.1432 support.

The Sunrise Headlines

• US equity markets closed yesterday's session with losses, with the exception of technology shares (Nasdaq +0.26%). All Asian markets open in red this morning with Japan and Hong Kong underperforming with losses over 2%.
• President Trump sent CIA director Gina Haspel to Turkey to seek clarification on the Khashoggi murder. He said he is not satisfied with Saudi Arabia's explanation so far, after Treasury Secretary Mnuchin met with the Crown Prince.
• UK PM May survived another confrontation in parliament yesterday, as a vote of no confidence was again rumoured but didn't take place. She reaffirmed a split between Northern Ireland and the rest of the UK is really not an option.
• The UK government is making plans to issue instructions to UK-based companies next month to prepare them for a no-deal Brexit. The move is independent of how the negotiations with the EU proceed.
• Pablo Casado, Spanish opposition leader, accused the socialist government of committing economical suicide in regard with the budget plan. The plan envisages higher spending, higher taxes and a sharp rise in the minimum wage.
• Mexico rejected Canada's move to impose new tariffs and quotas on imports on seven steel categories from many countries. It is considering different types of retaliation measures, including going to the WTO.
• Today's eco calendar contains October Richmond Fed Manufacturing Index and EMU Consumer Confidence. BoE chief economist Haldane, Governor Carney and Fed Bostic, Kashkari and Kaplan are scheduled to speak. The US taps the market

Currencies: Dollar Regains The Benefit Of The Doubt

Dollar again in driver's seat. DXY tests 96.00

Swings in EUR/USD were mostly driven by the news on Italy Monday. Early in the day, investors mostly saw constructive headlines, including remarks from EU's Moscovici. Italian spreads narrowed and EUR/USD spiked higher to the mid 1.15 area. Later, there were ever more indications from Italian politicians that the government has little intention to change the 2019 budget. European equity markets reversed a positive open and so did the euro. EUR/USD closed at 1.1464, from 1.1514 on Friday. USD/JPY held up fairly well even as sentiment on risk deteriorated later in the day. The pair finished 112.82. Overnight, Chinese equities are unable to extend the comeback from Friday and yesterday, inspired by market friendly comments from all kinds of policy makers. The erosion sentiment in China weighs on regional markets. USD/CNY (currently 6.9420) is holding near recent peak levels. The yen regains modest ground (USD/JPY near 112.55). EUR/USD hovers in the 1.1460 area. Today, the US & EMU eco calendar contains only second tier data. The EC consumer confidence is worth keeping an eye on. Global market sentiment will probably again be the main driver for global FX trading. Of late, the dollar wasn't always able to profit from corrections on (US) equity markets. However, with the trade-weighted USD at 96.00, it looks that the US dollar is again in the driver's seat. This week, several US bellwethers will report results. Markets are keen to see whether they stay optimistic on the (near) future. Investors are growing more uncertain on the impact of (geo) political nervousness on growth. So, results probably will have to be strong to improve global risk. The jury is still out what this will mean for global FX trading. As long as uncertainty on Italy persists, the dollar (and the yen) are most likely to profit from global political and economic noise, rather than the euro. 1.1432 remains first intermediate support for EUR/USD. A break below would open the way to the 2018 low at 1.1301.

On Monday, an address of UK PM May before parliament illustrated the deadlock on Brexit as hard Brexiteers in the conservative party continue to reject proposals for a comprise. This time, sterling lost some ground. EUR/GBP returned to the mid 0.88 area. Today, CBI order data will be published. However, Brexit will probably continue to dominate sterling trading. Yesterday, sterling showed more vulnerable. Still, we assume more directionless trading as long as the Brexit uncertainty persists.

EUR/USD: dollar regains momentum, euro suffers from Italy. EUR/USD 1.1432 support again within reach.

GBPUSD has reversed back down after the pullback on the 1.3255 resistance level, while it dipped sharply on Monday below the 23.6% Fibonacci retracement level of the downleg from 1.4375 to 1.2660, near 1.3066. Also, cable is holding well below the 20- and 40-simple moving averages (SMAs) which are ready to create a bearish crossover. The short-term bias seems to be neutral as the price holds within the 1.3300 resistance and the 1.2920 support over the last six weeks.

According to the MACD, negative momentum could push for further losses in the short-term as the indicator weakens below its red signal line. The RSI is also hitting to the downside in the negative territory, indicating a continuation of the bearish pressure on the price action.

The downside movement could stall at the support level of 1.2920, taken from the latest lows. Further below, 1.2780 could also provide support and then investors would turn their focus on the 14-month low of 1.2660 as the pair was unable to fall significantly under that line in the last two months and any violation at this point could potentially trigger further sell-off in the market, probably leading the price down to 1.2360, identified by the trough on April 2017.

In the positive scenario, where the price tries to expand above 23.6% Fibonacci mark, a new top could be formed around 1.3255. If the market manages to overcome that area, traders could look for resistance at the 1.3300 psychological level, which stands near the 38.2% Fibonacci of 1.3315, before steeper bullish actions take the price up to the 1.3475 barrier.

To sum up, regarding the medium-term picture, the bearish outlook remains as the price failed to surpass the 1.3300 handle in the previous sessions, while a dive below 1.2660 could reinforce the negative sentiment.

General Trend:

• Asian equity markets trade generally lower
• Chinese automaker BAIC Motor trades at record low, reported 9-month results
• Australian equities weighed down by Utilities, Energy and Financial shares
• Shipping and Iron/Steel companies underperform in Japan
• Asian steelmaker earnings in focus
• Tokyo Steel declines ahead of expected earnings report
• South Korean steelmaker Posco declines ahead of expected earnings report
• Samsung Biologics declines over 4% ahead of expected earnings report
• China govt official Zhang Qingli reportedly told US investors at meeting that 'We don't fear a trade war with the US
• US companies expected to report earnings on Tuesday (including afterhours) include 3M, Arch Coal, Biogen, Caterpillar, Corning, Harley Davidson, Lockheed Martin, McDonald’s, Pulte Homes, Texas Instruments and Verizon

Headlines/Economic Data

Japan

• Nikkei 225 opened -0.9%
• 7202.JP Reportedly to partner with Nvidia on self-driving trucks and large commercial vehicles - Nikkei
• (JP) Japan to end new official development assistance to China - Japanese Media
• (JP) Former BOJ gov Shirakawa: Growing global debt may lead to the next economic crisis - Japan press
• (JP) Japan Fin Min Aso: 'In principle' the sales tax increase will happen as planned, some disruption expected when it takes place but will not delay for that
• Nomura: Planning to set up ¥100B fund with China sovereign wealth fund CIC - Japan press

Korea

• Kospi opened -0.7%
• (KR) According to economists South Korea needs to quickly take measures to prevent a possible interest rate hike next month from making a deeper dent in the country’s economic growth and employment - Korean press
• (KR) South Korea Sept PPI M/M: 0.3% v 0.5% prior; Y/Y: 2.7% v 3.0% prior
• (KR) South Korea Fin Min Kim: domestic financial and FX markets are stable
• Posco, 005490.KR Reports Q3 (KRW) Net 1.1T v 910Be; Op 1.5T v 1.4Te; Rev 16.4T v 16Te; Expect steel prices to remain solid due to China winter production cuts

China/Hong Kong

• Hang Seng opened -0.5%, Shanghai Composite -0.1%
• (CN) China govt official Zhang Qingli reportedly told US investors at meeting that 'We don't fear a trade war with the US'
• (CN) Brokerage firms in China to establish CNY21.0B asset management plan - China Securities Times
• (CN) China PBoC Open Market Operation (OMO): To inject CNY120B in 7-day reverse repos v CNY120B prior: Net: CNY120B injection v CNY120B prior
• (CN) China PBOC sets Yuan Reference Rate: 6.9338 v 6.9236 prior
• (CN) China Industry Ministry (MIIT) Official: China vehicle sales may grow slowly in the future
• (CN) China PBOC funds release from re-lending is not QE - China 21st

Australia/New Zealand

• ASX 200 opened flat
• (AU) New polling analysis shows collapse in support for Australia PM Morrison's Coalition in every mainland state since the leadership change - The Australian
• WPP.AU Cuts FY18 EPS tracking below current guidance of +3% y/y, now expects -15% to -13% y/y; Rev -2% to -1% y/y; CEO Mike Connaghan resigns, effective Dec 31st [-28%]
• BXB.AU Reports Q1 Rev $1.42B, +6% y/y at cc [-0.8%]
• HSO.AU Receives A$2.36/share cash offer from BGH Consortium; board to assess the proposal [+21%]
• (AU) Australia PM Morrison: Energy retailers to set price benchmarks for bills
• (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: 112.3 v 119.5 prior
• (AU) Rabobank sees Australia Winter 2018/19 wheat harvest at 29.3M tons, -23% y/y - Winter Crop Production Outlook

Other Asia

• (SG) Singapore Sept CPI M/M: 0.0% v 0.1%e; Y/Y: 0.7% v 0.8%e

North America

• US equity markets ended mixed: Dow -0.5%, S&P500 -0.4%, Nasdaq +0.3%, Russell -0.2%
• (US) President Trump seeking extra tax cut of 10% for middle income Americans
• TRPX FSD Pharma Signs Binding LOI to Acquire Therapix Biosciences, TRPX shareholders to receive $48M [+70% afterhours]
• (US) President Trump: Drug prices will soon be "plunging"

Europe

• (UK) OBR underestimate on tax receipts gives Finance Ministry a £13B/yr windfall in budget to ease pressure on National Health Service (NHS) - FT
• Bayer [BAYN.DE]: San Francisco judge in 'Roundup' case Ramos Bolanos ruled the $250M in punitive damages awarded by jury must be cut to match the ~$39.3M in compensatory damages - US financial press

Levels as of 01:30ET

• Hang Seng -2.2%; Shanghai Composite -1.3%; Kospi -2.8%; Nikkei225 -2.4%; ASX 200 -1.1%
• Equity Futures: S&P500 -0.8%; Nasdaq100 -0.9%, Dax -0.8%; FTSE100 -0.6%
• EUR 1.1468-1.1452; JPY 112.49-112.84 ; AUD 0.7059-0.7084;NZD 0.6537-0.6612
• Dec Gold +0.2% at $1,227/oz; Dec Crude Oil -0.3% at $69.19/brl; Dec Copper -0.1% at $2.77/lb

Market movers today

It is a very light calendar day, so market focus will remain on Italy and the situation in the Middle East and the killing of the Saudi Arabian journalist.

Yesterday, Italy sent a letter to the EU Commission reaffirming its fiscal stance but opening up for a dialogue with the EU on the budget for 2019. As a result, our base case is that the Commission will give a negative opinion on the Italian budget draft and ask for a revision, maybe as soon as today. The relief rally in the Italian government bonds yesterday did not last long as 10Y Italian government bond s reversed the gain in the morning and ended more or less unchanged.

Pressure is increasing on Saudi Arabia to give full details behind the death of journalist Khashoggi. Yesterday, Germany said they would block arms sales and the US expressed dissatisfaction with the account given by the Saudi government. The tense situation in the Middle East may have an impact on oil prices if tensions increase further.

Overnight in Japan, we will get manufacturing PMIs. The manufacturing sector has shown some weakness recently amid global trade tensions and several natural disasters.

In Denmark , the consumer confidence number is being released today and we expect the Danes to be more positive about both the future and the current situation after a steady decline over the summer. We expect the indicator to climb to 8.0 in October.

Selected market news

Equity markets have traded lower again in Asia, ending the strong rally in Chinese stocks yesterday. The rebound on Monday was probably partly due to Chinese state-backed funds buying, which is rarely enough to turn the market around. While we do see value in the Chinese market, we should expect continued high volatility as long as the US-China trade war is unresolved. However, more Chinese policy easing (tax cuts etc.) and reform announcements and a fairly strong housing market should support Chinese stocks as it reduces the risk of a hard landing.

In the US, President Donald Trump has promised that Congress will pass a 10% tax cut for middle income earners after the mid-term elections. It may be an attempt to put pressure on the Democrats, who seem likely to win the majority in the House. It would challenge them going into the election as well as afterwards if they sit with the House majority and will not vote it through. The news took many Republican Party leaders off guard.

In another sign that a new cold war is brewing, Trump warned yesterday that the US intended to build up its arsenal of nuclear weapons against Russia and China . It comes two days after he warned that the US would withdraw from the Intermediate-Range Nuclear Forces Treaty. If implemented, it could mark the start of a new arms race. Some critics say the move would damage diplomatic pressure on Russia to comply with the Treaty without bringing clear military advantages.

Bank of America Corporation ticker symbol: BAC short-term Elliott wave view suggests that a decline from 8/08/2018 high to $27.64 low ended intermediate wave (W). The internals of that decline unfolded in 3 swings with the distribution of 5-3-5 zigzag structure. Up from there, a bounce to $29.20 high ended the short-term correction against 8/08/2018 high in intermediate wave (X) as double three structure. Where Minor wave W ended in 3 swings at $28.58. Minor wave X pullback ended at 28.16 low and Minor wave Y ended at $29.20 high.

Down from there, intermediate wave (Y) remains in progress and a break below $27.64 last weeks low confirming the next extension lower. Down from $29.20 high, the lesser degree Minute wave ((i)) ended in 5 waves at $27.97. Minute wave ((ii)) bounce ended at $28.52 and Minute wave ((iii)) remain in progress looking to extend lower 1 more time. Afterwards, BAC is expected to do a Minute wave ((iv)) bounce before further downside in Minute wave ((v)) is seen to complete Minor wave A of a possible zigzag structure. We don’t like buying the stock and prefer more downside against $29.20 high.

BAC 1 Hour Elliott Wave Chart

The EUR/USD made a bullish bounce at the support trend line (blue) as part of the expected wave B (blue) but the wave C (blue) was shorter than expected and price turned at the resistance trend line (orange).

The EUR/USD seems to have completed its ABC (blue) correction within wave B (purple) and a bearish breakout below the support line (blue) would confirm the bearish breakout within wave C (purple). A bullish bounce and break of course could still indicate an expanded wave B (purple).

The EUR/USD seems to have completed 5 bullish waves (green) before breaking below the minor support line (dotted blue). A new bearish breakout could indicate a continuation towards theFibonaccitargets of wave C (purple).

For the 24 hours to 23:00 GMT, the EUR declined 0.37% against the USD and closed at 1.1465, amid continuing political uncertainty over Italy’s budget.

In the US, data indicated that, the Chicago Fed national activity index eased to a level of 0.17 in September, less than market expectations for a decline to a level of 0.21. The index had recorded a revised reading of 0.27 in the previous month.

In the Asian session, at GMT0300, the pair is trading at 1.1461, with the EUR trading marginally lower against the USD from yesterday’s close.

The pair is expected to find support at 1.1428, and a fall through could take it to the next support level of 1.1395. The pair is expected to find its first resistance at 1.1522, and a rise through could take it to the next resistance level of 1.1583.

Looking ahead, traders would await the Euro-zone’s consumer confidence index for October, along with Germany’s producer price index for September, set to release in a few hours. Later in the day, the US Richmond Fed manufacturing index for October, will garner significant amount of investors’ attention.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

Daily Pivots: (S1) 1.1430; (P) 1.1492; (R1) 1.1529; More....

Intraday bias in EUR/USD remains neutral at this point and more consolidation cannot be ruled out. Near term outlook remains bearish with 1.1621 resistance intact. On the downside, break of 1.1431 will resume the fall from 1.1814 to retest 1.1300 low. Nonetheless, break of 1.1621 will turn focus back to 1.1814 instead.

In the bigger picture, corrective pattern from 1.1300 could have completed at 1.1814 after hitting 38.2% retracement of 1.2555 to 1.1300 at 1.1779. Decisive break of 1.1300 will resume the down trend from 1.2555 to 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. On the upside, break of 1.1814 will delay the bearish case and extend the correction from 1.1300 with another rise before completion.

For the 24 hours to 23:00 GMT, the GBP declined 0.70% against the USD and closed at 1.2968, as ongoing disputes over Irish border continued to cloud worries over Brexit negotiations.

In the Asian session, at GMT0300, the pair is trading at 1.2966, with the GBP trading marginally lower against the USD from yesterday’s close.

The pair is expected to find support at 1.2919, and a fall through could take it to the next support level of 1.2871. The pair is expected to find its first resistance at 1.3052, and a rise through could take it to the next resistance level of 1.3137.

Moving forward, investors would closely monitor UK’s CBI total trends orders for October, slated to release in a few hours

The currency pair is trading below its 20 Hr and 50 Hr moving averages.