Sample Category Title

Pivot (invalidation): 1.1595

Our preference Short positions below 1.1595 with targets at 1.1560 & 1.1540 in extension.

Alternative scenario Above 1.1595 look for further upside with 1.1620 & 1.1650 as targets.

Comment The RSI lacks upward momentum.

Pivot (invalidation): 12394.00

Our preference Short positions below 12394.00 with targets at 12300.00 & 12245.00 in extension.

Alternative scenario Above 12394.00 look for further upside with 12434.00 & 12456.00 as targets.

Comment As Long as the resistance at 12394.00 is not surpassed, the risk of the break below 12300.00 remains high.

Pivot (invalidation): 2929.00

Our preference Short positions below 2929.00 with targets at 2914.00 & 2909.50 in extension.

Alternative scenario Above 2929.00 look for further upside with 2937.00 & 2941.00 as targets.

Comment The RSI shows downside momentum.

Here's an update on our GBP/USD short position (entered at 1.3150) as last updated in the weekly report. Yesterday's rebound and breach of 1.3089 minor resistance did prompt us to consider exiting. But such rebound was triggered by ungrounded rumor that Theresa May is going to give a new proposal on Irish border to the EU. We had very very little trust on the news.

Firstly, it's Bloomberg citing unnamed source. More importantly, it just didn't make sense for May to make any concession to the EU while she's at Conservative Party meeting fighting her own Brexit rebels. Instead, the hardline rhetoric of Hammond and Raab made much more sense.

Therefore, we gave the position a few more hours to develop. Admittedly, we're a bit late in this update, which should be done two hours ago. Now that, with 1.2999 taken out as fall from 1.3297 resumes, it sounds like after the fact.

But anyway, our view is unchanged that fall from 1.3297 is "possibly" resuming larger down trend from 1.4376. We'll hold on to the short position entered at 1.3150. Stop is lowered to 1.3115 to lock in some profits. We still have not decided whether to get out at 1.2661/2784 support zone yet. Will keep monitoring.

Rates: Risk aversion to dominate trading?

Italian FM Tria returned from yesterday’s Eurogroup with work to do on the country’s draft budget proposal which is unacceptable to Europe. Italian populist party leaders probably won’t give in, adding selling pressure on BTP’s today amid an empty eco calendar. It could feed into risk sentiment and support core bonds.

Currencies: Italy-EMU budget dispute weighs on euro

Yesterday, EUR/USD moved up and down driven by intraday swings in global sentiment. In the end, tensions on the Italian budget prevailed and this will probably remain the key feature today. EUR/USD is nearing the 1.1526 neckline. A break would worsen the technical picture. Sterling traders continue to keep an eye at the Birmingham Tory conference

The Sunrise Headlines

• US equity markets opened the week on a positive note, with the exception of NASDAQ (-0.11%). Risk sentiment soured somewhat towards the end of trading which is also reflected on Asian equity markets this morning. China is closed.
• France’s economy minister, Bruno Le Maire, among other Eurozone finance ministers, has warned Italy that they have to respect the EU budget rules. The EU has asked for more details on the budget proposal that targets a 2.4% deficit.
• Northern Ireland’s DUP party leader Arlene Foster has said she would be happy to work with Boris Johnson as PM, putting pressure on Therese May. Johnson will speak today at day three of the Conservative Party conference.
• The Reserve Bank of Australia kept its policy rates at a record low this morning despite strong growth, employment and inflation numbers. The bank warns for the impact of record high household debt on consumption and growth.
• Ahead of next week’s IMF annual meeting, IMF Managing Director Christine Lagarde expressed her concerns over the health of the global economy. She said the IMF’s official economic forecasts have become less bright.
• President of the Boston Fed Eric Rosengren, who will vote on the FOMC in 2019, has stated the Fed will likely need to move the policy rates gradually from “a mildly accommodative stance to a mildly restrictive stance”.
• Today’s eco calendar is extremely thin, with no data from the US and only PPI data from the EMU for August. Bank of England’s Haldane chairs a panel in London today. Fed Powell, Quarles, Kaplan and ECB Villeroy speak as well

Currencies: Italy-EMU Budget Dispute Weighs On Euro

Euro under pressure as Italy stays in the spotlights

Yesterday, FX traders looked for guidance from global risk sentiment. The US-Canada trade deal but at the same time uncertainty on the Italian budget were the main ingredients for the swings in sentiment. Caution on Italy initially prevailed pushing EUR/USD to the 1.1570 area. Later, the euro felt some mild support as global markets turned more optimistic on trade after USMCA. However, after a good open of US equities, this optimism proved fragile, too. Negative comments from the EU on the Italian budget probably also capped any further euro gains. Eco data (decent US ISM) were only of second tier importance. EUR/USD closed at 1.1578. USD/JPY was hardly affected by lingering uncertainty and held near 114. Overnight, most Asian markets that are open, are trading in negative territory. Japan outperforms. Asian EM currencies like the IDR remain under pressure. The RBA as expected left its policy unchanged, keeps a balanced assessment and doesn’t signal a rate hike anytime soon. AUD/USD is drifting back to the 0.72 area, but that is probably due to global sentiment. Today, the eco calendar in Europe and the US is almost empty. So, global sentiment will continue to dominate FX trading. Italian Fin Min Tria returning home with a ‘no go’ from Europe on the budget will meet harsh talk from the Party leaders supporting the government. This might cause renewed pressure on Italian govies, European equities and weigh on the euro. If sentiment turns more negative globally, the dollar will probably also profit. Last week’s topside test in EUR/USD is rejected. 1.1526 is the neckline of a ST double top formation. A break would signal more trouble for the single currency and might open way to the 1.1301 correction low. The technical picture of USD/JPY is constructive, but we are reluctant on yen shorts. In case of a less positive global sentiment, selling pressure from EUR/JPY might start on weigh on this cross rate, too.

Yesterday, sterling initially traded in the defensive as headlines from the Tory party meeting on Brexit remained quite harsh. Later, the UK currency rebounded on press headlines/rumours that the government was preparing a new proposal on the Irish border issue. Today, the focus will remain on the Birmingham meeting. Markets will especially monitor the position of Boris Johnson. We stay cautious on sterling, but euro weakness might also weigh on EUR/GBP. The 0.8850 area is a first intermediate support

EUR/USD: Italy weighs on euro; 1.1526 neckline within reach

The British pound is trading back towards the worst levels of the week against the US dollar, despite a short-lived move above the 1.3100 level on Monday over positive Brexit news. The GBPUSD pair is awaiting a clear technical break, sellers need to move price below the 1.3000 level, while buyers need to hold price above the 1.3082 resistance level. Traders also remain cautious as the United Kingdom economy releases key PMI construction data later this morning.

The GBPUSD pair is only intraday bullish while trading above the 1.3082 level, key resistance is now found at the 1.3117 and 1.3164 levels.

If the GBPUSD pair trades below 1.3000 level, further losses towards the 1.2966 and 1.2920 support levels seems likely.

The euro currency is back under pressure against the greenback on Tuesday, as better than expected US economic data and rising Italian bond-yields push the pair lower. A clear break below the 1.1553 support level should encourage technical selling towards the 1.1500 level. EURUSD buyers need to force price above the 1.1600 resistance level and break the former daily high to change the bearish sentiment towards the pair.

The EURUSD pair is strongly bearish while trading below the 1.1553 level, key support is now found at the 1.1500 and 1.1470 levels.

If the EURUSD pair moves above the 1.1600 level, key technical resistance is located at the 1.1624 and 1.1665.

The US dollar was little moved in the Asian session. This followed disappointing Institute of Supply Management (ISM) PMI data. The data showed that the activity of purchasing managers in September was lower than expected. The PMI rose to 59.8, which was lower than the 60.1 traders were expecting. It was also lower than August’s 61.3. At the same time, the ISM manufacturing employment rose to 58.8 from August’s 58.5.

The Canadian dollar remained at multi-month high levels against the US dollar after the new NAFTA deal was announced. US President, Donald Trump, praised the ‘wonderful new trade deal’ stating how it was beneficial to US farmers and the auto sector. He had previously described NAFTA as “the worst trade deal” ever signed and just last week it seemed that the US would move forward without Canada. This new agreement will calm the markets as the confrontation with China continues. Traders hope that another deal will be made between the US and Japan and the European Union.

The Aussie was little changed after the RBA’s monetary policy statement. The bank left interest rates unchanged at 1.75%. This was an expected move and is the reason why the Australian dollar made no major movements. In a statement, the bank sounded upbeat about the economy and pledged to leave rates unchanged for some time. They believe that this will continue to support the economy. Part of the statement said:

Inflation is around 2 per cent. The central forecast is for inflation to be higher in 2019 and 2020 than it is currently. In the interim, once-off declines in some administered prices in the September quarter are expected to result in inflation in 2018 being a little lower than otherwise.

EUR/USD

The EUR/USD pair is trading at 1.1570. This is the same level as at market close yesterday. It is also along the lower band of the Bollinger Band on the four-hour chart below. The Money Flow Index has fallen below the neutral level of 50 while the Parabolic SAR signals a bearish move. The pair’s path of least resistance is likely lower. Traders should watch out for the 1.1500 level.

USD/CAD

The USD/CAD pair is trading at 1.2803, which is close to yesterday’s close of 1.2800. This was the lowest the pair has fallen in four months. The Bears Power indicator has moved from a multi-month low to almost zero. At the same time, the Bulls Power is close to zero. This is an indication that the bulls and bears are torn about the next moves for the pair. There is a likelihood that a small upward retracement will happen before the downward momentum continues.

AUD/USD

The AUD/USD pair was little moved after the RBA released the monetary policy statement. The pair is trading at 0.7229, which is in line with the 14-day moving average and at the middle band of the Bollinger Bands. It is also below an important support as shown below. With no major monetary change, the pair’s downward trend is likely to continue.

EURUSD is trading increasingly bearish over the past five days, heading towards one-month lows, with the technical indicators pointing to further declines in the short-term period. Yet a rebound could be around the corner.

Technically, the price may extend negative momentum in the near term according to the RSI which continues to weaken below its 50 neutral-mark. The MACD gives another bearish signal since it is has diverged further below its red signal line and is set to enter the negative territory. However, the Stochastics suggest that the downfall is overdone, and the market could reverse higher as the green %K line and the red %D line are on track to post a bullish cross below 20, the oversold threshold.

Should the bearish run continue, the 1.1500 round level could provide nearby support ahead of the 1.1400 psychological level. If the latter fails to hold, bears would drive the price towards the 1.1300 bottom reached on August 15, where any decisive close lower could see a strong barrier between 1.1250 and 1.1200, a previous resistance area in June 2017.

On the other hand, a recovery above 1.1560, the 23.6% Fibonacci of the downleg from 1.2412 to 1.1300 could lift the price up to 1.1600 before the 38.2% Fibonacci of1.1724 comes into view. Slightly higher, the area around 1.1750, which acted as resistance recently should be in focus, while a bigger challenge is expected between last week’s high of 1.1814 and the 50% Fibonacci of 1.1854.

In the medium-term picture, EURUSD turned to neutrality after the pullback from the 1.1814 peak and the neutral profile is not expected to change to bullish unless the price breaks back above that top.

Daily Pivots: (S1) 1.2773; (P) 1.2824; (R1) 1.2867; More...

Intraday bias in USD/CAD remains on the downside for the moment. Fall from 1.3385 is in progress and would target next fibonacci level at 1.2567, which is close to 1.2526 support. On the upside, above 1.2883 resistance turned support will turn intraday bias neutral first. But break of 1.3081 resistance is needed to indicate near term reversal. Otherwise, outlook will remain bearish even in case of recovery.

In the bigger picture, the firm break of 38.2% retracement of 1.2061 to 1.3385 at 1.2879 key fibonacci level argues that whole choppy rebound from 1.2061 has completed at 1.3385 already. Deeper fall would be seen back to 61.8% retracement at 1.2567, which is close to 1.2526 support and possibly below. For now, we're not seeing fall from 1.3385 as resuming larger down trend from 1.4689 (2015 high) yet. Thus, we'll look for bottoming signal again below 1.2567 .