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The positive momentum seen in European and U.S. stocks on Monday was unable to translate into broader gains in Asian equities. While Japan’s Nikkei was up more than 1% in afternoon trading, the South Korean Kospiindex traded slightly lower, with Hong Kong’s Hang Seng flirtingwithbear market territory.

Despite a slight return in appetite for equities, the risks have not changed. Emerging markets are still vulnerable to further shocks, and the U.S.-China trade dispute is likely to escalate further in the coming days. This makes it difficult for investors to make up their minds on whether to begin purchasing oversold potential stocks or wait longer for clarity on how U.S.-China relations resolve.

Sterling was under the spotlight in currency markets. GBPUSD shot 100 pips higher after the EU’s chief Brexit negotiator Michel Barnier said a Brexit deal could be struck in six to eight weeks. With many short positions being accumulated over the past several weeks, traders should expect a further rally in the Pound if more progress is achieved. However, to see a meaningful rally, UK MPs need to come together, but so far deep divisions persist.

The Australian dollar recovered slightly in late Asia trade after touching its lowest level since February 2016. While there was no significant economic data released, the AUD continued to behave as a barometer of trade risk. Traders who want to bet on AUD need to keep a close eye on global trade developments, particularly the ongoing dispute between China and the U.S.

Oil prices were slightly higher in early trade as Washington continued to put pressure on countries exporting oil from Iran. While South Korea was the first Iranian customer to cut its crude imports to zero, Japan and India are signaling to move in the same direction. Whether Russia and Saudi Arabia will fill any unexpected supply gaps remains to be seen until November. Geopolitical risks in the Middle East region will escalate if more pressure is put on Iran, and that’s likely to keep prices well supported in the short run.

Daily Pivots: (S1) 143.54; (P) 144.29; (R1) 145.49; More...

GBP/JPY is staying below 145.67 resistance despite the current strong rebound. Intraday bias remains neutral first. on the upside, break of 145.67 will target 38.2% retracement of 156.59 to 139.88 at 146.26. Decisive break there will be a strong signal that fall from 156.59 has completed at 139.88, ahead of 139.29/47 key support zone. Further rally should then be seen to 149.30 resistance for confirmation. On the downside, though, break of 142.58 will turn bias back to the downside for retesting 139.88 low instead.

In the bigger picture, at this point decline from 156.59 is still seen as a corrective move. Focus remains on 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47). Strong rebound from there will re-affirm the bullish case that rise from 122.36 is still to extend through 156.59 high. However, sustained break of 139.29/47 should confirm medium term reversal. GBP/JPY would then target a retest on 122.26 (2016 low).

Daily Pivots: (S1) 0.8877; (P) 0.8918; (R1) 0.8942; More...

EUR/GBP drops to as low as 0.8889 so far and intraday bias stays on the downside. As noted before, corrective rise from 0.8620 could have completed at 0.9097 already. Break of 38.2% retracement of 0.8620 to 0.9097 at 0.8915 affirms our bearish view. Deeper decline should now be seen to 61.8% retracement at 0.8802 and below. On the upside, above 0.8956 minor resistance will turn intraday bias neutral first. But outlook will remain cautiously bearish as long as 0.9051 resistance holds.

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.

Daily Pivots: (S1) 1.6243; (P) 1.6283; (R1) 1.6340; More....

EUR/AUD's rally is still in progress and intraday bias stays on the upside. Next target is 161.8% projection of 1.5271 to 1.5886 from 1.5601 at 1.6596, which is close to another key resistance level at 1.6587. On the downside, below 1.6223 minor support will turn intraday bias neutral and bring consolidation first, before staging another rise.

In the bigger picture, up trend from 1.3624 (2017 low) has just resumed. Further rise should be seen to retest 1.6587 (2015 high). Decisive break there will resume the long term rally and target 1.7488 fibonacci level. On the downside, break of 1.5601 support is need to be the first sign of medium term reversal. Otherwise, outlook will remain bullish in case of deep pull back.

Rates: Technically driven trading in absence of data/events

Today's eco calendar is empty apart from German ZEW investor sentiment which probably won't impact trading. We expect market action to be sentiment-driven and technically in nature. The start of the US's mid-month refinancing operation could cause an underperformance of US Treasuries.

Currencies: Euro sentiment improves, at least temporary

The dollar reversed most of its post-payrolls gains yesterday. EUR/USD returned to the 1.16 area. A constructive risk sentiment blocked further USD gains. The euro was supported as investors turn less negative on Italian assets. Sterling continues to profit from market hopes on a brexit deal in a not-that-distant future.

The Sunrise Headlines

• US equity markets were mixed on Monday, with DOW JONES (-0.23%) underperforming. Asian markets opened mixed this morning, with China back in green but Japan and Korea outperforming. Others show small losses.
• North Korean leader Kim Jong Un has invited US President Trump for another meeting in a “very warm, positive letter'. US officials said they started planning a 2nd summit to follow-up on the denuclearisation pledge that was made in June.
• Canada's foreign minister Freeland arrives in Washington later today to start a fresh round of trade talks with US trade representative Lighthizer to reach a deal on Nafta, while Mexico said to be open to sign a bilateral deal with the US.
• That same Lighthizer, US trade representative, said that a partial trade deal with the EU could be reached as early as November. The comments were made after a Brussels meeting with EU trade commissioner Malmstrom yesterday.
• Tory Eurosceptics have failed to publish a detailed blueprint for the UK-EU future relationship. Their 'Brexit plan B', as an alternative to May's 'Chequers plan', could not unify the Eurosceptics, leaving hope for the PM's proposal.
• Presidents of China and Rusland, Xi Jinping and Vladimir Putin, will meet today at the Eastern Economic Forum. The pair may discuss North-Korea. Putin's discussion yesterday with Japanese PM Abe produced no breakthroughs.
• Today's US eco calendar is rather dull, with only the secondary eco data in the US and the labour data in the UK. In Germany, the ZEW investor Survey of economic sentiment will be published

Currencies: Euro Sentiment Improves, At Least Temporary

Sentiment on the euro improves (slightly)

On Monday, the dollar failed to extend its post-payrolls' gain. EUR/USD touched minor low in the 1.1525/30 area early in Europe, but this first support held. Risk sentiment improved as investors turned less negative on Italian assets. This supported the euro and prevent further USD gains. Later, the euro extended gains as EU's Barnier saw a good chance for a brexit deal in the next 6-to-8 weeks. EUR/USD (temporarily?) regained 1.16 and closed at 1.1594, reversing most of the post-payrolls' rebound. USD/JPY profited slightly from the constructive risk sentiment and finished at 111.13. Overnight, Asian equities mostly show modest gains. EM stress and US/China trade tensions are moving to background, at least temporary. Most EM currencies that suffered of late are stabilizing. The Russian rouble underperforms as government officials try to convince the central bank to be cautious on hiking rates. EUR/USD is holding near 1.16. The yen eases slightly as risk sentiment improves. USD/JPY rebounded to the mid 111 area. Today, the eco calendar in the Europe and the US is thin. German ZEW sentiment is expected stable after recent declines. US NFIB small business confidence is expected to hold near record levels. Of late, the USD showed no clear trend. The US currency profited only modestly from good US data. A flaring up of trade tensions or EM stress was also only a temporary support. ST term, EUR/USD is blocked in a tight 1.1520/ 1.1750 consolidation pattern. For now, we see no trigger to unlock this stalemate Short term. A new flaring up in the trade tensions remains a wild card. However, even in this case a sustained USD rebound isn't guaranteed.

Last week, markets saw some tentative signs that the EU and the UK might come closer to a brexit deal supporting sterling. This pattern continued yesterday, as EU's Barnier saw a brexit deal possible within 8 weeks. EUR/GBP dropped to the 0.89 area. UK eco data were constructive too. Toda, the UK labour market data take centre stage. Job growth is expected soft and wage growth (ex-bonus) is seen at 2.8%. A positive surprise might fit in recent sterling constructive momentum. That said, brexit headlines probably will continue to dominate sterling trading. Over the previous days, markets saw the brexit-glass half-full, but this can still change. We maintain to view that 'real' brexit progress is needed to justify a sustained comeback of sterling.

EUR/USD going nowhere, holding established consolidation pattern

Daily Pivots: (S1) 1.1215; (P) 1.1266; (R1) 1.1354; More...

EUR/CHF's strong rally and break of 1.1319 minor resistance suggests short term bottoming at 1.1178. More importantly, considering bullish convergence in 4 hour and daily MACD too, EUR/CHF should have drawn strong support from 1.1154/98 and is reversing. Intraday bias is turned back to the upside. Decisive break of 1.1452 resistance will be another indication that whole fall from 1.2004 has completed. On the downside, however, break of 1.1265 minor support will turn focus back to 1.1154/98 key support zone.

In the bigger picture, for now, the 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. This cluster level is in proximity to long term channel support (now at 1.1196) too. 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.

GBPUSD closed the day slightly above the 50-day simple moving average on Monday for the first time since mid-April and continued to extend higher above 1-month highs in the following session. In the short-term, the market could maintain its positive momentum as the RSI gains ground above its 50-neutral mark and the red Tenkan-sen line holds above the blue Kijun-sen line. However, according to the stochastics, the upside move might not last for long, as the green %K line and the red %D line come close to the overbought area.

If the move higher is extended, the pair could touch the 23.6% Fibonacci of the downleg from 1.4375 to 1.2660, near 1.3064, which has been tested a number of times in the past. Should the price overcome that level, resistance could run towards the 1.3200 psychological level before bulls visit the area between the 38.2% Fibonacci of 1.3313 and July 9’s peak of 1.3361.

On the downside, immediate support could come between 1.30 and 1.2956 where the 50-day SMA and July 19’s low are placed, while lower than that the market could try to break the 1.2784 trough registered on September 9 ahead of the 1.2660 bottom.

In the medium-term, the market remains bearish given the three-month downside move. In order for the bullish outlook to take hold, the price needs to cross above the 50% Fibonacci of 1.3516, while the negative status would deteriorate if bears drive the pair below 1.2660.

To sum up, the market looks positive in the short-term, while in the medium term GBPUSD continues to trade bearish

XAUUSD (1193.98): Gold prices remain trading flat with a lot of consolidation taking place around the 1197.50 level. Price action has been trading within the larger triangle pattern. The risks are equally balanced with gold prices likely to move in either direction. To the upside, the target at 1219.75 remains in question while to the downside, the declines could stall at 1183.30 level of support. The overall trend in gold prices remains to the downside for the moment.

GBPUSD (1.3038): The British pound broke out to the upside clearing the minor falling trend line and the horizontal resistance level at 1.2958. The upside bounce puts GBPUSD to the upside. We expect to see a retest of the breakout level at 1.2958. Establishing support here could trigger further gains toward 1.3205 resistance level. With price action testing the highs from August 30, we expect a correction to 1.2958. This could most likely result in a cup and handle formation. The measured target puts price action in line to test 1.3205 resistance

EURUSD (1.1599): The EURUSD currency pair closed bullish on Monday on a softer greenback. The rebound in prices came after the euro currency tested the technical support at 1.1540. The upside bounce could keep price action trading within the range of 1.1730 and 1.1540. A breakout from this range will most likely establish a new change in trend. To the upside, above 1.1730 resistance, the EURUSD could be seen testing the next main resistance at 1.1920. To the downside, the lower support at 1.1400 remains within the target.