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EURUSD (1.1742): The EURUSD currency pair breached the resistance level of 1.1745 on Friday before easing back. With the resistance level breached, we expect price action to consolidate near this level in the short term. The bias remains to the upside as long as the previous low of 1.1650 is not taken out. We expect the euro currency to run further if support is established near 1.1745 - 1.1718.

The U.S. Dollar was seen posting gains on Friday sending most of the currencies lower toward the close. Data from the Eurozone showed that flash manufacturing and services PMI came out mixed. Flash manufacturing PMI for September was seen to be weaker at 53.3 while services PMI was in line with expectations.

The British Pound fell on comments from PM May. Following a failed attempt to push for a favorable Brexit deal in Salzburg last week, Theresa May said that the UK and the EU were at an impasse on Brexit.

The NY trading session saw the release of the inflation data from Canada. Headline inflation dipped 0.1% as expected. The trimmed mean CPI was up 2.1% on the year. Core retail sales advanced 0.9% beating estimates of a 0.6% increase. Headline retail sales improved by 0.3% as expected.

The markets open to a quiet Monday. Economic data is sparse with Japan and China bank holidays. Most of the data is the second tier and is unlikely to impact the markets much.

The German Ifo business climate data will be coming out during the early European trading session. The recent downtick in the Eurozone's consumer confidence could likely dent the sentiment in the German Ifo business climate as well.

Data from Canada will see the release of the wholesale sales report. No scheduled reports are coming out of the U.S. today.

Daily Pivots: (S1) 131.89; (P) 132.51; (R1) 132.87; More....

Intraday bias in EUR/JPY remains neutral for consolidation below 133.12 temporary top. Further rise is expected as long as 130.86 resistance turned support holds. On the upside, above 133.12 will target 100% projection of 124.89 to 130.86 from 127.85 at 133.82 first. Break will target 137.49 high. However, firm break of 130.86 will dampen this bullish view and turn focus back to 127.85 support.

In the bigger picture, current development suggests that EUR/JPY has defended key support level of 124.08 key resistance turned support. And, the larger up trend from 109.03 (2016 low) is still in progress. Firm break of 137.49 will target 141.04/149.76 resistance zone next. This will now be the preferred case as long as 127.85 near term support holds.

Today I focus on Brexit, including the implications for Nordic economies and markets. It is crunch time for the Brexit negotiations. The EU leaders' meeting this week provided no breakthrough. Indeed, in Prime Minister Theresa May's press conference on Friday, she chose a tough rhetoric, ruling out any kind of border between Ireland and Northern Ireland. The Conservative Party Conference begins next Sunday (and runs until 3 October), where Mrs May could be challenged by hardline Brexiteers. Then comes the EU summit on 18 October, which we, so far, have expected would be the 'deal-making' meeting. I now believe there will be an extra EU summit in November with the ambition to sign a deal. Finally, there is an EU summit scheduled for 13-14 December.

To recall, the EU and UK are currently negotiating the Withdrawal Agreement, which the parties have to agree on by end-2018 at the latest. This would ensure that the UK Parliament has enough time to vote on the draft agreement ahead of approval by the European Parliament (simple majority) and the European Council (qualified majority) before the UK officially leaves the EU on 29 March 2019. The trickiest part of the negotiations is the so-called 'backstop solution', which involves establishing a temporary solution for the UK's customs arrangements with the EU if a new permanent deal is not ready in time, with the aim of avoiding a hard border between Ireland and Northern Ireland. The British government has suggested that the whole of the UK stays in the customs union for a while longer after the UK leaves the EU. However, the EU thinks that this is just a trade deal in disguise and wants an indefinite backstop. Instead, the EU has proposed that Northern Ireland effectively stays in the customs union until the parties have found a workable and permanent solution. However, Mrs. May has said she would not accept dividing the UK in such a way.

We judge that there is a 75% chance of a 'decent' Brexit, where the parties sign the Withdrawal Agreement. In this scenario, the UK would leave the Single Market but get an extensive free trade agreement with the EU. Firstly, both parties want to find a solution given the costs of a no-deal Brexit. Secondly, I believe the EU and the UK could find common ground in terms of limiting the number of goods entering Northern Ireland which would have to be checked at the border. We see a 15% risk of a cliff-edge Brexit, where the UK and EU do not reach an agreement. I believe there is only 2-3% probability of a new referendum before 29 March, while I see a 7-8% chance of a soft Brexit where the UK stays in the Single Market. In the 'decent' Brexit scenario, business would largely continue as usual for Nordic companies until end-2020 when the transition period ends. In a cliff-edge Brexit, the UK and the EU would have to trade under WTO (World Trade Organisation) rules. This would mean that trading of goods between the EU and the UK would be subject to customs checks and tariffs.

All the Nordic economies have a goods surplus but a services deficit with the UK. Among the Nordic countries, the UK is the relatively largest trading partner for Norway, while it is the smallest for Finland. However, to assess the impact of a cliff-edge Brexit it is important to look at the subgroups, as tariffs vary widely. In particular, Norway has a very large goods export to the UK but more than 80% of that is oil and natural gas, which face just 2.5% tariffs under WTO rules. Meanwhile, Sweden has a sizeable auto trade with the UK, which faces a 10% tariff under WTO. However, the total Swedish-UK auto trade amounts to 0.24% of Swedish GDP – a negligible number. Finally, Denmark has substantial agricultural exports to the UK, where tariffs vary between 15.5% for animal products to 35.9% for dairy products. A cliff-edge Brexit could have significant implications for specific industries of the Danish agriculture sector. However, Denmark's agricultural exports to the UK still only account for 0.46% of the overall economy and a large part of the trade is likely to continue. Regarding services, I believe the UK would be more lenient towards the EU than the other way around in case of a cliff-edge Brexit. Still, I expect that both the EU and the UK would take a pragmatic approach in case of a no-deal Brexit while mitigating the immediate disruption in key areas such as transport, travel and business services. In sum, I see a cliff-edge Brexit as a modest risk for Nordic economies and markets, which is also how I expect central banks in the region view it.

General Trend:

• Markets in China, Japan, South Korea and Taiwan are closed for holidays; Hong Kong and South Korea are closed on Tuesday
• US’ tariffs on $200B in China goods took effect on Sept 24th; China’s counter tariffs on $60B in US goods are also due to have taken effect
• China said to have canceled upcoming trade talks with the US, according to press report;
• Hong Kong Dollar (HKD) and money market rates extend gains from last week ahead of this week’s US Fed meeting (Sept 25-26th)
• India’s Finance Min comments on non-banking companies amid recent defaults at IL&FS unit
• Oil prices rise: Saudi Oil Minister said the market is adequately supplied.
• Barrick Gold and Randgold said to be in merger talks (FT)
• UN General Assembly is due to be held this week

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.1%
• Lynas Corp [LYC.AU]: Declines by over 20% on review by the Malaysian government
• (AU) Australia PM Morrison increased lead over Opposition head Shorten to 45% vs. 32% (42% vs. 36% prior) ; Ruling Liberal Party trails Labor by a 46 to 54% margin (on two-party preferred basis) – Newspoll
• (AU) Australia sells A$800M v A$800M indicated in Nov 2029 bonds, avg yield 2.722%, bid to cover 2.8x
• (AU) Australia buys back A$800M in Oct 2019 and April 2020 bonds; bid to cover 2.46x

China/Hong Kong

• Shanghai Composite closed for holiday, Hang Seng opened -0.6%
• Sinopec: Unipec unit said to put plan to increase US oil imports for its own use on hold amid trade war (US financial press)
• (CN) Pres Trump: we have a lot more tariffs if China retaliates
• (CN) China issued white paper on China/US trade frictions - Xinhua
• (CN) S&P affirms China at 'A+/A-1'; outlook stable (from Sept 21st)
• (HK) Last week 8 banks in Hong Kong said to have raised their deposit rates - HK Press

Japan

• Nikkei 225 closed for holiday
• Japan Economy Min Motegi and USTR Lighthizer are expected to hold trade talks on Sept 24th
• Japan said to consider bilateral trade agreement with the US - Japanese Press

Korea

• Kospi closed for holiday
• (KR) Pres Trump: we won't rush into any deal with North Korea, sanctions will stay in place; we are doing well with North Korea
• (KR) South Korea job seekers who have "given up" on finding a job reaches record 510K in Aug, +5.4% y/y - Korean press
• (KR) OECD cuts South Korea 2018 GDP forecast to 2.7% (prior 3% in May

Other

• (IN) India Finance Minister: Government to take all measures to ensure adequate liquidity maintained/provided to NBFCS; to take all steps to ensure adequate liquidity is provided to mutual funds and SMEs
• (IN) Moody's: Measures by the India government to increase capital inflows will slow and not reverse Rupee (INR) currency depreciation
• (MY) Malaysia Finance Min: Expects trade to grow by ~8% in 2018, but sees challenges from the US/China trade war
• (SG) Singapore Aug CPI M/M: 0.4% v 0.5%e; Y/Y: 0.7% v 0.7%e
• (TW) Certain iPhone suppliers in Taiwan said to work overtime during the holidays - Local Press

North America

• (US) Reportedly the White House is considering an executive order to investigate the practices of social media companies including Google and Facebook - press
• Arconic [ARNC]: Private equity firms that are eyeing Arconic are said to be growing concerned about the price of a potential deal - NY Post
• (CA) US and Canada may hold informal talks related to NAFTA on the sidelines of this week's UN Meeting - Canadian Media
• Fitch said to cut global growth forecast on US/China trade dispute - US financial press

Europe

• (UK) Reportedly aides to PM May have started contingency planning for possible snap election in November - Sunday Times
• (UK) Brexit Minister Raab reiterated the UK is standing firm on Brexit proposals, no election is planned – financial press
• (UK) UK Foreign Sec Hunt refuses to rule out Canada-style Brexit deal - FT
• (UK) Labour Party (opposition) said to reach agreement on the wording of motion on Brexit referendum – press
• At meeting on Sunday, OPEC+ affirmed plans to gradually continue increasing crude output in line with decision from the summer (US financial press)
• (EU) ECB Nowotny (Austria) reiterated the ECB should speed up its exit from crisis-mode monetary policy - Press
• Sky [SKY.UK]: Comcast beats Fox in Sky auction with a $39B bid; Fox to review options for its 39% stake in Sky (press)
• Randgold [RRS.UK]: Barrick Gold and Randgold said to be in late-stage talks regarding an $18B merger – FT
• Casino [CO.FR]: Carrefour denies that it had solicited the company, says merger proposal does not exist
• (EU) Bank of International Settlements (BIS) issues quarterly report: Sentiment turned sharply in financial markets as 2018 moved into its H2

Levels as of 01:30ET

• Nikkei 225, closed, ASX 200 -0.1%, Hang Seng -1.4%; Shanghai Composite closed; Kospi closed
• Equity Futures: S&P500 -0.2%; Nasdaq100 -0.4%, Dax -0.2%; FTSE100 -0.2%
• EUR 1.1753-1.1737; JPY 112.65-112.38 ; AUD 0.7283-0.7262 ;NZD 0.6689-0.6668
• Dec Gold flat at $1,201/oz; Oct Crude Oil +1.2% at $71.64/brl; Dec Copper -0.3% at $2.838/lb

Market movers today

Financial markets will be awaiting new developments in the trade war between China and the US after China over the weekend officially cancelled the potential trade talks between the two countries this week (and likely until after the US mid-term elections in early November) after the US announced new tariffs against China. Today, the new US tariffs on Chinese goods worth USD200bn will be implemented.

In light of the recent relatively hawkish signals from ECB board members, ECB President Draghi's appearance at the European Parliament today will be scrutinised.

Italy will also remain a key focus today and during this week in the run-up to the government's presentation of its budget for 2019 on Thursday. There are likely to be contrasting signals from the various government members as Thursday approaches.

Otherwise, the week will be much about the Fed meeting on Wednesday (where we expect another interest rate hike) and the US PCE core inflation numbers on Friday.

Selected market news

On Friday, UK PMI Theresa May addressed UK citizens after the EU summit failed to make progress on the Brexit deal. May was hawkish on the Irish border discussion and awaits a counterproposal from the EU. She said that 'no deal is better than a bad deal' and that the UK continues to prepare in case of a no deal. Media reported that aides of PM May have been said to plan for a possible snap election in November for May to gather support for a new Brexit plan. That said, we continue to expect a 75% chance of a 'decent' Brexit, although in a no-deal Brexit the overall impact on the Nordic economies are somewhat small yet potentially large for specific sectors. See Harr's View: Brexit and the Nordics - with or without a deal . The uncertainty regarding Brexit will be high and remains the key driver for GBP.

The OPEC meeting on Sunday gave little support to Trump's recent comments on too high oil price. OPEC said that it could boost production only if consumers ask for it.

Last week, both the ECB Chief Economist Praet and ECB board member Coeuré gave speeches that seemed to have a less dovish rhetoric than we have been used to. Further, during the weekend, ECB's Nowotny said that monetary policy should be tightened sooner than originally planned. He also argued that the current ECB crisis mode is not needed anymore as Europe is currently in a very good economic situation. We strongly doubt that Nowotny - as he also admits himself - reflects the majority at the ECB governing council.

Italy will naturally once again set the agenda as the long-awaited publication of the so-called Economic and Financial Document on Thursday will contain the updated budget and growth numbers from the Italian government. We look for a budget deficit in the range of 2.0-2.4%. We estimate that market consensus is around 2%. Even if the deficit is slightly above market consensus, it should be seen as positive for the BTP market as the risk of a 3% breach has been remove d. For more, see Government Bonds Weekly.

For the 24 hours to 23:00 GMT, the EUR declined 0.25% against the USD and closed at 1.1749 on Friday.

Macroeconomic news revealed that the Euro-zone's preliminary manufacturing PMI slid to a two-year low level of 53.3 in September, overshooting market consensus for a fall to a level of 54.5. The PMI had recorded a level of 54.6 in the prior month. On the other hand, the region's flash services PMI unexpectedly jumped to a level of 54.7 in September, marking its highest level in 3 months and compared to a level of 54.4 in the previous month. Market participants had envisaged the PMI to record a steady reading.

Moreover, in Germany, the flash manufacturing PMI eased to a level of 53.7 in September, marking its lowest level in 25-months and higher than market expectations for a drop to a level of 55.7. In the preceding month, the PMI had registered a reading of 55.9. Separately, the nation's preliminary services PMI surprisingly rose to a level of 56.5 in September, compared to a level of 55.0 in the prior month. Market had anticipated the PMI to record an unchanged reading.

In the US, data showed that the preliminary Markit manufacturing PMI advanced to a level of 55.6 in September, higher than market anticipation for a rise to a level of 55.0. In the prior month, the PMI had registered a level of 54.7. On the contrary, the nation's flash Markit services PMI unexpectedly dropped to a level of 52.9 in September, due to a fall in private sector growth and defying market consensus for a rise to a level of 55.0. The PMI had registered a reading of 54.8 in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.1741, with the EUR trading 0.07% lower against the USD from Friday's close.

The pair is expected to find support at 1.1715, and a fall through could take it to the next support level of 1.1689. The pair is expected to find its first resistance at 1.1785, and a rise through could take it to the next resistance level of 1.1829.

Going forward, investors would keep an eye on Germany's IFO business climate, current assessment and expectations indices for September, set to release in a few hours. Later in the day, the US Dallas Fed manufacturing business index for September, will keep investors on their toes.

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

For the 24 hours to 23:00 GMT, the GBP declined 1.45% against the USD and closed at 1.3079 on Friday, after British Prime Minister, Theresa May, stated that the UK and European Union (EU) have reached an impasse in Brexit negotiations and warned that the UK must be prepared for leaving the EU without a deal.

In the economic news, UK's public sector net borrowing posted a deficit of £5.9 billion in August, more than market expectations for a deficit of £2.9 billion. In the prior month, the nation had recorded a revised surplus of £3.9 billion.

In the Asian session, at GMT0300, the pair is trading at 1.3078, with the GBP trading slightly lower against the USD from Friday's close.

The pair is expected to find support at 1.2997, and a fall through could take it to the next support level of 1.2916. The pair is expected to find its first resistance at 1.3218, and a rise through could take it to the next resistance level of 1.3358.

Trading trend in the Sterling today is expected to be determined by UK's CBI total trends orders for September, scheduled to release in a few hours.

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

For the 24 hours to 23:00 GMT, the USD rose 0.08% against the JPY and closed at 112.57 on Friday.

In the Asian session, at GMT0300, the pair is trading at 112.59, with the USD trading slightly higher against the JPY from Friday’s close.

The pair is expected to find support at 112.43, and a fall through could take it to the next support level of 112.27. The pair is expected to find its first resistance at 112.81, and a rise through could take it to the next resistance level of 113.03.

Looking forward, traders would closely monitor the Bank of Japan’s (BoJ) September monetary policy meeting minutes, set to release overnight.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

Daily Pivots: (S1) 0.8904; (P) 0.8951; (R1) 0.9029; More...

Intraday bias in EUR/GBP remains on the upside for the moment. Corrective fall from 0.9097 should have completed at 0.8847. Further rise should be seen back to 0.9097 resistance first. Firm break there will resume the rise from 0.8620 towards 0.9305 high. On the downside, break of 0.8936 minor support will turn intraday bias neutral first.

In the bigger picture, EUR/GBP is staying in long term range pattern from 0.9304 (2016 high). At this point, there is no clear sign of range break out yet. And more corrective trading would continue. On the upside, in case of another rise, we'd stay cautious on strong resistance from 0.9304/5 to limit upside in case of further rally. Meanwhile, if there is another medium term decline, strong support will likely be seen from 0.8303 to contain downside.