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The US dollar has maintained recent bullish momentum against the Japanese yen currency, as news that the US and China may enter into a new round of trade talks has boosted risk-on trading sentiment. USDJPY buyers must now go on to break the 111.75 resistance level, while USDJPY sellers will attempt to push the price below the 111.25 support level. Caution is advised as the US Dollar Index is starting to weaken across the board.

The USDJPY pair is only bullish while trading above the 111.37 level, key resistance remains at the 111.75 and 112.05 levels.

If the USDJPY pair moves below the 111.37 level, key support is found at the 110.90 and 110.38 levels.

The euro has started to move higher against the greenback after United States PPI inflation data came in much worse than expected on Wednesday. The recent bullish momentum in the EURUSD pair remains valid while price trades above the 1.1600 support level. Traders now turn their attention to the European Central Bank policy meeting later today, where ECB President Mario Draghi is expected to downgrade eurozone growth prospects.

The EURUSD pair is bullish while trading above the 1.1600 level, key resistance is located at the 1.1681 and 1.1730 levels.

If the EURUSD pair moves below the 1.1600 level, key support is found at the 1.1568 and 1.1528 levels.

Rates: ECB straightjacketed, Turkish CB could influence risk sentiment

The ECB meets today, but normally won't deliver fireworks. Rumours suggest small downward revision to the growth scenario, but that's probably insufficient to really boost Bunds. Italian BTP's might return in the fire line as FM Tria threatened to quit over the 2019 budget. The Turkish central bank meeting could influence global risk sentiment via EM FX.

Currencies: Dollar and sterling still lack a clear story

Yesterday, EUR/USD rebounded temporarily on easing trade tensions. However, multiple sources of (global and EMU) uncertainty continue to provide downside protection to the dollar. Today's ECB and BoE meetings probably won't change the picture for USD and GBP trading. USD traders will continue to look for guidance from global risk sentiment.

The Sunrise Headlines

• US equity markets could just hold their head above water on Wednesday with the exception of NASDAQ (-0.23%). Asian markets opened mixed today, with Japan outperforming the bunch and China noting losses.
• US Treasury secretary Steven Mnuchin is pushing to meet Liu He, a top Chinese economic official, in an attempt to defuse further escalation of the trade war before President Trump imposes tariffs on another $200bn of Chinese imports.
• Federal Reserve Governor Brainard has indicated that the Fed could maintain gradual interest rate hikes for the next year or two, possibly to more than 3%. She said the labour market is very strong and growth is likely to remain solid.
• Canada's Freeland will not return to Washington today to continue negotiations over a renewal of Nafta, as more preparations are needed. Mexico repeated it is prepared to pursue a trade deal with the US without Canada.
• UK Brexit Minister Dominic Raab said yesterday that a deal between the UK and EU is within reach. He also confirmed that if a ‘no deal' scenario would take place, the UK would not pay the terms of the financial settlement.
• Australia's labour market remains very strong in August, with 44k new jobs. The rise in full time jobs (+34k) is the biggest contributor. Unemployment rate remains at record low (5.3%) and participation rate rises to 65.7%.
• Today's US eco calendar is interesting, with CPI's and unemployment numbers in the US. Central banks in the UK (BoE), in Europe (ECB) and in Turkey are holding their September meeting. Fed's Bostic speeches tonight.

Currencies: Dollar And Sterling Still Lack A Clear Story

US CPI data and CB's to guide global FX trading

Yesterday, there was no dominant story for global trading. European equities outperformed Asia and the US but gains remained modest. EMU July production was weak. US PPI was also softer than expected. EUR/USD initially lost a few ticks. Later, markets outside the US were supported by headlines that the US and China might resume trade talks. The dollar weakened. EUR/USD closed at 1.1626. USD/JPY traded in line with overall USD softness and closed at 111.26. In a broader perspective, EUR/USD and USD/JPY are holding recent tight ranges. Overnight, the hope of a restart of the US-China trade talks caused a rebound of Asian equities on recent steep decline. The move was supported by strong Japanese machinery orders. EM currencies also succeed a broad-based rebound. EUR/USD (1.1630 area) maintains yesterday's gain. USD/JPY (111.40) is trading marginally higher on the risk rebound. AUD/USD rebounded to the high 0.71 area, on overall dollar weakness and on very strong August job growth in Australia.

Today, the US CPI data will be published (headline expected 2.8Y/Y from 2.9%; core stable at 2.4%). An upward surprise probably wouldn't go unnoticed on (FX) markets. However, the focus might be on the ECB policy meeting. The decision of the Turkish central bank might have consequences for broader FX. ECB staff economic forecast might bring a mixed story (tentative lower growth but higher inflation). We don't expect the ECB to change policy guidance in a profound way. Budget talks in Italy and headlines on global trade remain wildcards for global (FX) trading. Of late, the USD, including EUR/USD, mostly held tight ranges. Overnight, global trends (EM, trade talks) turned slightly in the disadvantage of the USD, but we are not convinced that this more positive global sentiment (and thus a softer USD) will persist. EUR/USD is locked in a tight 1.1520/ 1.1750 consolidation pattern. We don't anticipate a break of this range yet. MT we assume that fundamentals continue give the USD downside protection.

Yesterday, EUR/GBP hovered close to, mostly slightly north of 0.89 as investors faced conflicting headlines on Brexit (positive tone from the EU, ongoing opposition for May from headline Brexiteers). We expect this pattern to continue today. The BOE will announce its policy decision. However, no change is expected after last month's rate hike. We maintain the view that ‘real' brexit progress is needed to justify a sustained comeback of sterling

EUR/USD: no market theme dominant enough to break EUR/USD stalemate

XAUUSD (1205.67): Gold prices lifted higher on Wednesday as price action is seen posting an upside breakout. Having cleared the 1200.00 round number resistance, we could expect further gains. In the near term, gold prices could retest the breakout level before targeting the resistance level of 1219.75. To the downside, support is seen at 1197.50 which could be tested once again.

Canadian Foreign Minister Chrystia Freeland said that she won't hold NAFTA talks with USTR Robert Lighthizer until some more work is completed. She told reporters that "we decided that in order to have another productive conversation, it would be best to give our officials some time to hold technical discussions."

It's believed that dairy, cultural protection and dispute resolution mechanism remained the deadlocks. But Freeland said the talks have "absolutely not" hit a stalemate. And even though she won't be present, Canada's chief NAFTA negotiator, as well as the country's ambassador to the United States, will fly back to Washington on Wednesday night.

GBPUSD (1.3048): The British pound was seen struggling near the double top resistance level of 1.3034. Price action managed to slightly lift off above this level. With the BoE meeting due later today, we could expect to see some volatility. The upside is likely to see GBPUSD rally toward 1.3205 level of resistance. For this, a successful retest of the current resistance level of 1.3034 will be required. Establishing support could confirm the upside bias. To the downside, there is a risk for GBPUSD to retest the support near 1.2959.

EURUSD (1.1636): The euro currency managedto post modest gains for the third consecutive day. However, price action was seen trading rather subdued. Price action on the 4-hour chart shows the EURUSD still trading with the adjusted descending triangle pattern. With strong support established at 1.1540, we expect to see a potential upside breakout. As the common currency trades in the resistance area of 1.1656 - 1.1626, we expect a potential upside breakout above this level. However, to the downside, the EURUSD will need to break below the strong support to push lower to 1.1418.

The U.S. dollar eased back strongly on Wednesday. The United States was seen making attempts to hold trade talks with China. On the economic front, data from the Labor Department showed that producer prices fell 0.1% in August unexpectedly. This was the first monthly decline since February 2017. Economists polled expected to see PPI rise 0.2% on the month.

Oil prices surged on a report from OPEC about rising demand and tighter supplies. Weekly inventory report from the EIA showed U.S. crude oil stockpiles fell 5.3 million barrels last week.

Australia's employment data released earlier today showed that the unemployment rate was steady at 5.3%. The economy added 44k jobs during August, beating estimates of a 16.5k increase.

The day ahead is expected to be busy with the BoE and the ECB meetings lined up. The Bank of England is expected to keep interest rates unchanged. The recent uptick in wage growth and monthly GDP could bring some cheer to policy-makers.

Later in the day, the European Central Bank will be holding its monetary policy meeting. No changes are expected and investors remain clued into the central bank's forward guidance on interest rates.

The U.S. consumer price index data will be coming out later today. Headline CPI is expected to rise 0.3% accelerating from 0.2% increase previously. Core CPI is expected to rise at a steady pace of 0.2%.

AUDUSD short-term Elliott wave view suggests that the bounce to 0.7384 high ended intermediate wave (X) bounce. Down from there, the pair has broken to new lows already confirming the intermediate wave (Y) lower. Thus suggesting that the right side in the pair is to the downside. The decline to 0.7084 low unfolded in 5 waves impulse structure. And should have completed the Minor wave A of a possible Zigzag structure.

The internals of lesser degree cycles within that decline also unfolded in 5 waves structure i.e Minute wave ((i)), ((iii)) & ((v)). Where the initial decline to 0.7237 low ended Minute wave ((i)) in 5 waves structure. Up from there, the bounce to 0.7361 high ended Minute wave ((ii)). Below from there the decline to 0.7165 low ended Minute wave ((iii)) in another 5 waves structure. Then a 3 wave bounce to 0.7234 high ended Minute wave ((iv)). Finally, a move lower to 0.7084 low completed Minute wave ((v)) of A as ending diagonal structure.

Up from there, the pair is doing a 3 wave bounce in Minor wave B bounce for the correction of 0.7384 high. The internals of that bounce also expected to be in a zigzag correction but expected to fail below 0.7384 high during the week. We don’t like buying the pair as the right side is calling pair to trade lower & expect sellers to appear at the completion of Minute wave ((a))-((b)).

AUDUSD 1 Hour Elliott Wave Chart

Thursday has the potential to be another interesting day in the markets, with interest rate decisions due from both the Bank of England and the European Central Bank.

It's not often that we hear from two major central banks on the same day, let alone around the same time, but when we do there's always the potential for some turbulence.

Both central banks are in the early days of their respective tightening cycles, with the BoE having recently raised interest rates above 0.5% for the first time since the financial crisis and the ECB drawing its quantitative easing program to a close at the end of this year.

While there'll still be plenty of cash sloshing around the financial system until they start the process of reducing their balance sheets – as the Federal Reserve is currently experimenting with – the moves being undertaken represent a very cautious and gradual tightening that traders are monitoring very closely for any signs that they may lose their nerve.

This is particularly true in the current environment with the UK and EU locked in Brexit negotiations as the 31 March deadline draws ever near. Protectionism is another key risk factor with US President Donald Trump threatening tariffs on the block. Add to that the struggles being experienced in emerging markets at the moment and the jobs of the central banks become that much harder.

We already appear to be seeing a slowdown in numerous economies across Europe due to a combination of these factors, something the central banks don't appear too concerned about just yet but may do should they persist.

My expectations are actually quite low for the meetings. The reason why is that it seems to suit both central banks to stay under the radar for now. Both have made important first steps towards normalization and are in no rush and with Brexit on the horizon, now is not a good time to be changing course, especially as they don't have to.

Both have laid out quite clear plans for the next year and even if they don't stick to them – which there's a good chance they don't given the amount of unknowns and risks – the important thing is that investors are largely on board and the economies are doing ok. I don't think they'll want to mess with that.

So I don't expect any changes in interest rates or QE this month and we can probably expect ECB President Mario Draghi's press conference to be a rather dull affair.