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Sterling jumped yesterday after it was reported by Bloomberg that Germany and the UK have made progress regarding Brexit negotiations, potentially paving the way for Britain to strike a favourable deal with the EU. This was a major shift from the previous hard-line stance between the UK and the EU. Last week, the leader of the EU said that he was strongly opposed to many parts of the Chequers plan. On Sunday, Theresa May responded in an opinion piece saying that she will not accept a deal unfavourable of her country.

The US dollar fell slightly against its major peers yesterday after the US trade deficit increased to a five-month high in July. Data from the commerce department said that the deficit jumped by 9.5% to $50.1 billion as exports of soybeans and civilian aircraft declined and imports hit a record high. The goods trade deficit with China increased by 10% to a record $36.8 billion.

After days of sustained gains, the price of Bitcoin dropped sharply yesterday after a report said that Goldman Sachs was abandoning its plans to set up a cryptocurrencies trading desk. When the bank announced these plans, traders viewed it as positive news for blockchain because its clients are large institutions and high net-worth individuals. Executives at the bank, however, considered the move to be risky because of how deregulated the crypto industry is. This news came a few weeks after SEC rejected nine crypto ETF proposals, which traders viewed as being positive for the industry. While reasons for rejection are now being reviewed, the total market capitalization of cryptocurrencies tracked by Coin Market Cap dropped by $18 billion.

The Canadian dollar was little moved after the Bank of Canada released its interest rate decision. The bank left interest rates unchanged as expected. Officials indicated that while the economy is ripe for another rate hike, the ongoing trade talks between Canada and the US presented some short-term risks. Traders expect the bank to hike in October when it will present its quarterly economic forecast. The bank pointed to an improving economic condition where household debt is falling, the housing market is stabilizing, and business investment is rising.

EUR/USD

EUR/USD is slightly higher than yesterday’s close, partly because of the dollar weakness. It is now trading at 1.1634, which is above the 61.8% Fibonacci Retracement level. This level is slightly higher than the 50 and 100-day moving average and along the upper Bollinger Band. Today, the main drivers for the pair will be the ADP job numbers and Germany’s factory orders. Therefore, the key levels to watch will be 1.1732 in the upside and the 38.2% Fibonacci level of 1.1485 to the downside.

BTC/USD

The price of Bitcoin dropped sharply from a high of $7330 to a low of $6140. This ended an important rally that started in mid-August. The BTC/USD pair is now trading at 6343, which is the lowest level since August 23 and below an important diagonal support. There is a likelihood that the pair will continue moving lower and if it does, it could trade below the 600 level.

USD/CAD

USD/CAD started a strong rally on Thursday last week. The pair moved from a low of 1.2887 to a high of 1.3208. This week, the pair has found resistance between 1.3208 and 1.3156, with the former being an important double top. This means that the likely movement for the pair will be downwards as the BOC moves to raise interest rates in October. In the short term, the pair could reach the 38.2% Fibonacci Retracement level of 1.3100.

XAUUSD (1198.10): Gold prices extended modest gains on Wednesday but gave up the gains rather quickly. Price action was seen reversing around 1197.50 where resistance is seen to have been established. The downside is likely to send gold prices lower to 1180.25 level which marks a retest of the support level which previously served as resistance. Establishing support at this level could potentially prepare gold prices for a longer term corrective move to the upside.

GBPUSD (1.2908): The cable posted moderately strong gains on Wednesday as price action rallied to spike higher to fill Friday’s close at 1.2959. Price action pulled back. Fundamentals were supportive of the jump with the news about Brexit talks and the services PMI. In the near term, we expect to see a firmer retest around 1.2959 region before the cable is expected to give up the gains. Strong support formed at 1.2808 which could be tested. We continue to watch for the head and shoulders pattern to evolve. A break down below 1.2808 could send the cable down to 1.2685 as the minimum measured downside target.

EURUSD (1.1632): The euro currency gained as the U.S. dollar took a breather. Economic data on Wednesday showed that the eurozone composite PMI increased in August. However, businesses were concerned about the economic outlook due to the trade wars. The Euro fell to the session lows of 1.1542 before rebounding off the support level. The currency pair tested 1.1656 regionmarking a retest of the minor rising trend line’s break out level. A reversal from this level would signal a decline back to 1.1540. This would in turn validate the head and shoulders pattern suggesting further declines to 1.1418.

It was a busy day for the markets on Thursday. The U.S. dollar gave up the gains from the previous day leading to the Euro and the pound sterling posting activity on the day. The British pound was volatile after initial reports from Bloomberg showed that Germany was willing to make concessions for the UK under the Brexit deal.

However, reports later indicated that Germany did not change its stance. However, the sterling managed to maintain the gains. Services PMI from the UK showed a better than expected print as activity measured by the index rose to 54.3 in August.

The Bank of Canada held its monetary policy meeting. As widely expected, the central bank left interest rates unchanged in the backdrop of U.S. and Canada NAFTA negotiations. The BoC, however, reiterated that rate hikes would be required to prevent the economy from overheating.

The economic calendar for the day will see the release of the quarterly GDP report from Switzerland. GDP growth is forecast to rise 0.5% during the second quarter. Data from the Eurozone is quiet today with the focus shifting to the U.S. ADP payrolls report.

The median estimates point to a 195k forecast for private payrolls which is slightly lower than the 219k jobs seen the month before. The ISM's non-manufacturing PMI report is expected to rise to 56.8 marking a slight increase from 55.7.

Other data includes the factory orders report and Canada's building permits.

Investors had a tough week as the fall in emerging market currencies seemed to spread into other asset classes, not just in developing economies but also the developed world. Crashes in the ArgentinePeso and Turkish Lira were first believed to be idiosyncratic risks that wouldn’t lead to any spillover.But now it looks like the concern over contagion risks are spreading to all asset classes. EM equities entered into a bear market, falling 20% from their January peak. The Indonesian Rupee, Indian Rupee, South African Rand, and several other EM currencies are either trading at record or multi-year lows.

Investors who have been on the sidelines may think of the selloff as a good opportunity to start accumulating some oversold EM assets. However, the prospects of more U.S. interest rate hikes, and continuing global trade tensions make it difficult to jump in. Over the next two days focus will be on President Trump who is expected to announce another round of tariffs on $200 billion worth of Chinese goods. Going ahead with these tariffs suggest that a full-blown trade war has just kicked off and more pain willbe felt across the globe. Yesterday’s big jump in the U.S. trade deficit indicates that Trump’s “America First” policies are not even close to achieving his targets, suggesting that further tariffs are almost inevitable.

In major currencies, Sterling had a rollercoaster day on Wednesday. After jumping 1.2% in less than 15 minutes against the dollar on a Bloomberg report that Germany and the U.K. have abandoned key Brexit demands, the currency pair moved sharply lower later in the day after German officials denied these reports. Expect to see more of such swings in GBPUSD in the coming weeks, as every comment related to Brexit negotiations hasthe power of moving the currency more than 100 pips in any direction.

While major currencies traded in narrow ranges early Thursday, cryptocurrencies seemed to be having a bad day. News that Goldman Sachs had rolled back plans for a cryptocurrencies trading desk led to a steep selloff in bitcoin and other cryptocurrencies which lost more than 10% in value in less than 24 hours. Goldman’s decision comes several weeks after the SEC rejected proposals for a bitcoin exchange-traded fund. Many traders will be focusing now on the $5,800 level for bitcoin, a price which had been tested five times but failed to break below. A break below will likely lead to a further selloff and potentially drag bitcoin below $5,000.

Rates: Awaiting Trump's verdict on additional tariffs

Investors await US President Trump's verdict later today to push through with imposing tariffs on an additional $200bn of Chinese goods. Some cautiousness might be warranted in the run-up, suggesting a slowdown/reversal of the past days' sell-off in core bonds. US eco data have the potential to offset some of the potential safe haven flow impact.

Currencies: Dollar still looking for direction despite lingering global uncertainty

The dollar failed to record broad-based gains even as EM tensions persisted and as global equities remained under pressure. EUR/USD even rebounded north of 1.16. US eco data might confirm a healthy US economy today. However, global (FX) trading will probably focus on the next steps in the US trade policy

The Sunrise Headlines

• Major US equity indices closed with (marginal) losses on Wednesday with NASDAQ (-1.19%) underperforming. Asian markets extended the trend this morning, with all major indices opening in red.
• Delegations from North and South Korea had constructive talks yesterday in Pyongyang. They have set a date for a third meeting between Kim Jong Un and his southern counterpart President Moon Jae-in, for September 18-20.
• Canada's Foreign Minister Freeland will continue trade negotiations with the US today. US President Trump told reporters that trade talks with Canada “were coming along” and expects a result in the next few days.
• Trump said last week he is ready to impose tariffs on $200bn more of Chinese goods once the public comment period on the plan ends. That period ends today, though it remains unclear how quickly possible tariffs could go into force.
• Argentina's economy minister said the negotiations to speed up the IMF's $50bn aid package are making progress. He also denied that Argentina is possibly receiving a loan from the US, as media reported earlier.
• A German official overturned earlier rumours that Germany was ready to accept a less detailed agreement on future trade ties with the EU, saying Germany's position is unchanged. The pound lost earlier gains on the news.
• Today's eco calendar in the US contains Jobless Claims and ISM Non-Manufacturing Index for August, while Fed's Williams speaks at the university of Buffalo. ECB's Lautenschlager speaks in Vienna

Currencies: Dollar Still Looking For Direction Despite Lingering Global Uncertainty

USD still going nowhere despite risk-off

On Wednesday, safe haven flows initially supported the dollar. EM tensions persisted and EUR/USD dropped below 1.1550. However, the dollar again couldn't hold to its gains. Later, the euro even took the lead. Headlines on Italy turned constructive as the government indicated to comply with EU budget rules and a Bloomberg article suggested that Germany and the UK would ease their demands in order to make it easier to reach a brexit separation deal. Equity sentiment remained fragile with US tech stocks selling-off. Still, the USD stayed in the defensive against the euro. EUR/USD closed at 1.1630 (from 1.1582). USD/JPY held up well despite the tech sell-off, closing at 111 53. This morning, Asian equities show modest additional losses. At the same time, the sell-off in EM currencies looks like easing. EUR/USD maintains yesterday's gain and trades in the 1.1630 area. The yen is gaining a few ticks as the BOJ executed a regular bond buying operation. Today, the US eco calendar is well filled with the ADP jobs report, jobless claims, ISM non-manufacturing and final US orders data. However, (US) eco data often had only a limited impact on FX trading off late. The focus of global markets was/is on EM and on the US trade policy (negotiations with Canada/implementation of additional tariffs on China). Both issues (EM & trade tensions) remain on the radar. Usually, this kind of uncertainty is USD supportive. However, recent USD performance was far from convincing. At the same time, pressure on the euro due to uncertainty on Italy is apparently easing, at least for now. We maintain the working hypothesis that EUR/USD 1.1791/1.1850 resistance will be tough for EUR/USD short-term and keep a cautious USD positive bias. However, recent price action suggests fortunes for the dollar might change if global uncertainty (trade & EM) were to ease.

Yesterday, sterling rebounded temporary on a Bloomberg report that the UK and Germany might have agreed to allow a less detailed brexit deal, raising chances to reach a deal. EUR/GBP dropped temporarily to the 0.8960 area. However, the report was questioned by other soruces. EUR/GBP closed the session at 0.9012. There are no UK eco data today. We don't give too much weight to yesterday's report and don't change our cautious attitude on sterling. The 0.91 area remains the next point of reference if sentiment on sterling deteriorates further. EUR/GBP 0.9306 is key. A break would suggested real brexit panic.

EUR/USD: dollar shows no clear trend despite persistent global uncertainty

USDJPY is hovering around the 23.6% Fibonacci retracement level of the upleg from 104.60 to 113.16, around the 111.13 barrier. According to the technical indicators, the market could maintain neutral momentum in the short-term as the RSI indicator is moving slightly to the downside near the threshold of 50, while the MACD oscillator is flattening near the zero line. Also, the pair still holds above the 20-and 40-simple moving averages but seems ready to slip below them.

On the downside, the price could attempt to fall below the 23.6% Fibonacci (111.13) and the 20-SMA, retesting the 110.70 support level, which if successfully broken could open the door for the 38.2% Fibonacci mark of 109.90. Should traders continue to sell the pair below this level, immediate support could come from the trough of 109.75 on August 21.

A strong bullish movement, however, could find resistance at the 112.10 hurdle, identified by the high of August 8. If the latter fails to halt bullish movements, the next target could be the 113.16 obstacle, where it topped on July 19.

Looking at the longer-term picture, the outlook is neutral over the past two months and only a decisive close above 113.16 could resume the bullish picture. On the other hand, a significant decline below May’s trough of 108.10 could shift the outlook to bearish.

General Trend:

• Asian equity markets trade mixed, following mostly lower session in the US
• BHP declines over 2% amid ex-dividend
• Various Japanese companies announce operational halts following earthquake in Hokkaido
• Hokkaido Electric Power declines over 5%
• China Securities Regulator proposes rule changes aimed at broadening the circumstances in which companies can repurchase shares
• Tencent declines over 1%
• BoJ dove Kataoka spells out his dissent to the central bank’s forward guidance
• Reminder: The public comment period related to the US’ proposed tariffs on $200B in China goods is due to end on Sept 6th (Thursday).
• RBNZ Gov Orr is due to speak on Friday on the topic of geopolitics

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.2%
• ASX 200 Consumer Discretionary index -1.6%, Utilities -1.3%, Utilities -1.3%, Resources -1.2%, Energy -1.2%, Financials -0.8%; Telecom +2.9%
• ANZ Bank: To increase variable home loan interest rates in Australia by 16bps (2nd large bank in Australia to raise rates); effective Sept 27
• Commonwealth Bank: To raise variable mortgage rates by 15bps (3rd major bank in Australia to raise mortgage rates); effective Oct 4th
• (AU) AUSTRALIA JULY TRADE BALANCE (A$): 1.6B V 1.5BE (7th straight surplus)
• (NZ) New Zealand sells NZ$100M v NZ$100M indicated in Sept 2040 Indexed Bonds, avg yield: 1.8030%, bid to cover: 2.63x

China/Hong Kong

• Shanghai Composite opens -0.3%, Hang Seng -0.6%
• Hang Seng Info Tech index -1.9%, Services -1.8%, Industrial Goods -0.7%, Financials -0.6%, Property/Construction -0.3%; Telecom +0.9%, Energy +0.4%, Utilities +0.4%
• (US) Pres Trump: Not prepared to make a trade deal that China wants to make
• (CN) China Finance Ministry (MoF): Financial institutions' interest income from loans to smaller firms to be exempt from the value-added-tax; effective from Sept 1 2018 to the end of 2020
• (CN) China CSRC proposes rule revisions related to stock buybacks by listed companies: The purpose of the revisions is to broaden the circumstances in which companies can repurchase shares
• (CN) China NDRC (state planner): Approves CNY93.3B urban rail plan for Suzhou City
• (CN) China said to consider M&A fund for the steel sector - Chinese Press
• (CN) China PBoC Open Market Operation (OMO): Skips OMO (12th straight skip)
• (CN) China PBoC set yuan reference rate: 6.8217 v 6.8266 prior
• (CN) China should improve the yuan currency (CNY) rate mechanism in gradual way - Chinese Pres
• Exxon: Confirms signing of framework agreement for proposed chemical complex in China; the project is worth several billion dollars and is expected to be launched in 2023

Japan

• Nikkei 225 opened -0.5%
• TOPIX Retail Trade index -0.8%, Real Estate -0.8%, Securities -0.8%, Electric Appliances -0.7%, Info & Communications -0.6%, Iron & Steel -0.4%
• (JP) Bank of Japan (BOJ) Board member Kataoka (dove): Sees chance low for Japan economy to see momentum to hit price target under the current framework
• (JP) BoJ announcement related to daily bond buying operation: raises 5-10 yr JGB purchases by ¥50B to ¥450B
• (JP) The push by Japan’s government for lower mobile phone service fees said to raise concerns within the Bank of Japan (BoJ) – Nikkei
• (JP) 6.8 magnitude earthquake reported near Hokkaido in northern Japan

Korea

• Kospi opened -0.1%
• (KR) South Korea Official: North and South Korea to hold summit on Sept 18-20 in North Korea; said North Korea leader Kim said he wanted to realize denuclearization during US President Trump's first term, noted he no longer intends to test long-range missile
• (KR) South Korea Jul BoP Current Account Balance: $8.8B v $7.4B prior: Goods Balance: $11.4B v $10.0B prior

North America

• US equity markets ended mostly lower: Dow +0.1%, S&P500 -0.3%, Nasdaq -1.2%, Russell 2000 -0.3%
• S&P500 Technology -1.3%, Communication Services -1.3%
• (US) Fed FOMC member Bostic: US economy is performing quite well; the economy is at full employment and inflation is at the 2% goal
• (US) Weekly API Oil Inventories: Crude: -1.2M v 0M (flat) prior
• (BR) Brazil Treasury expects gross public debt at 77% of GDP (prior outlook at 75.8%)

Europe

• (UK) UK Naval Ship said to have conducted Freedom of Navigation Operation near the China patrolled Paracel Islands (South China Sea) - financial press
• (TR) Turkey govt said to have replaced prosecutor in Pastor Andrew Brunson case - press

Levels as of 01:30ET

• Nikkei 225, -0.5%, ASX 200 -1.1%, Hang Seng -1.3%; Shanghai Composite -0.2%; Kospi -0.2%
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.1%, Dax -0.2%; FTSE100 -0.4%
• EUR 1.1660-1.1627 ; JPY 111.55-111.16 ; AUD 0.7213-0.7171 ;NZD 0.6617-0.6585
• Aug Gold +0.1% at $1,202/oz; Sept Crude Oil -0.2% at $68.59/brl; Sept Copper +0.1% at $2.622 /lb

The GBP/USD showed a strong bullish spike yesterday, which could indicate a completed bearish wave 1 (blue) and a pullback within wave 2 (blue). This is invalidated if the price manages to break above the previous top, together with, the 100% Fibonacci retracement level around 1.3040. A break below the support trend line (blue) confirms the bearish breakout.

The GBP/USD broke the triangle to the downside and completed a wave 5 (green) before moving up quickly. The spike could either be a pullback within the downtrend or a reversal, which will depend on the next breakout direction. The GBP/USD hit the 78.6% Fibonacci retracement level, which acted as a resistance spot. The price will need to break below the support (blue zone) and then show a bear flag pattern, before a downtrend continuation has better odds of success.