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The US dollar started the month by rising against its global peers. The rise came as trade worries mounted. On Friday, it was announced that the North American Free Trade Agreement (NAFTA) talks would extend beyond the deadline. Traders are pessimistic about the NAFTA deal because of the incendiary comments by President Trump about Canada. The leaked comments showed the president saying that he was prepared to move on without Canada. He also said that if the deal was to happen, it will be totally on US terms. These statements were a setback to the ongoing talks and the optimism they had built.

The USD rose by 25 basis points against the Australian dollar. This happened after disappointing retail sales from Australia. Data showed that Australian customers held back spending in July, with sales remaining flat during the month. This was the weakest growth since March this year and was below the estimated 0.3% gain. The main contributors to the lagging retail sales were clothing and footwear which declined by 2%. The declines were offset by an increase in food sales. In the second quarter, business inventories rose by 0.6%, which was better than the expected 0.3% while the company gross operating profits rose by 2.0%, which was better than the expected 1.4%. Traders will watch out for the AUD/USD pair as the RBA releases its interest rates decision tomorrow.

The New Zealand dollar fell against the dollar after weak data on trade. The New Zealand bureau of statistics released trade data that was weaker than expected. In the second quarter, the export prices rose by 2.4%, which was lower than the expected 3.0%. This data measures the average price of the country's exports. The import price index rose by 1.7%, which was weaker than the expected 2.0%. In total, the terms of trade in the quarter was 0.6%, lower than the expected 1.0% gain. The terms of trade data measure the ratio of an export to the price of an import per commodity.

EUR/USD

The EUR/USD pair fell slightly during the Asian session to an intraday low of 1.1597. This will be the pair to watch this week as the US releases employment data for August and as the EU releases the final revision of the second quarter GDP numbers. The current price is below the 25 and 50-day EMA and is at an important support level. The ADX is at 22, which is an indication that the downward trend is weaker. If the pair continues the downward movement, traders should watch out for the 1.1530 support.

AUD/USD

The AUD/USD pair fell to an intraday low of 0.7165. As it dropped, it crossed the important support of 0.7200. The current price is below the 25 and 50-day EMA with the ADX at 62. This is an indication that the downward trend could continue as traders wait for the monetary policy statement from the RBA. This was the lowest level since January this year. If it continues to fall, the pair will likely test the 0.6800 support.

NZD/USD

The NZD/USD pair fell to an intraday low of 0.6593. This was the lowest level since mid-August. It is now trading at 0.6597, with the downward trend being a strong one as confirmed by the Average Directional Index (ADX). The MACD is in the lowest level since Monday last week. Lacking an important support, the pair is likely to continue moving lower.

Daily Pivots: (S1) 1.1562; (P) 1.1626; (R1) 1.1667; More.....

Intraday bias in EUR/USD remains neutral at this point. As long as 1.1529 minor support holds, another rise cannot be ruled out. However, in that case, we'd continue to expect strong resistance from 38.2% retracement of 1.2555 to 1.1300 at 1.1779 to limit upside, at least on first attempt, to bring near term reversal. On the downside, break of 1.1529 minor will indicate completion of the rebound and turn bias to the downside for retesting 1.1300 low. After all, consolidation from 1.1300 will likely extend for a while before completion.

In the bigger picture, a medium term bottom should be in place at 1.1300, on bullish convergence condition in daily MACD and some consolidations would be seen. But still, note that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. That carries some long term bearish implications. Thus, we'd expect fall from 1.2555 high to resume after consolidation completes. Below 1.1300 should send EUR/USD through 61.8% retracement of 1.0339 to 1.2555 at 1.1186. And, in that case, EUR/USD would head to retest 1.0339 (2017 low).

Rates: Risk sentiment will set the tone in absence of US investors

US markets are closed for Labour Day, suggesting low volume trading especially given the thin calendar. Development in emerging markets could set the tone for risk sentiment today. Italian BTP's could undo some of last week's losses as rating agency Fitch didn't pull the trigger on the BBB rating (yet).

Currencies: Dollar gains a few ticks as trade uncertainty persists

The dollar regained some ground on Friday after president Trump again made aggressive comments on the trade relations between the US and its trading partners including China, the EU and Canada. Trade remains a key issue for FX trading in the first half of the week. Last week's short-squeeze in sterling looks like easing

The Sunrise Headlines

• US stock markets closed Friday's session with small gains, with the exception of the Dow (-0.09%). Today, US markets are closed (Labour Day). Asian markets opened in red this morning with China underperforming.
• The US and Canada failed to reach an agreement on Friday for Canada to re-join Nafta. Negotiators announced a five-day break in negotiations. President Trump repeated that there is no political necessity to keep Canada in the deal.
• EU's top brexit negotiator Barnier said he strongly opposes key parts of May's proposals for a future trade deal. He added that 80% of negotiations are done and a solution for the Irish border is the key remaining element.
• Brazil's electoral court decided that the imprisoned Lula da Silva is banned from running for President in October. The ex-president and country's most popular politician was sentenced to 12 years in prison for corruption in April.
• Rating agency Fitch has changed Italy's credit outlook from stable to negative, but kept its long-term credit rating at BBB. The agency said the fiscal plans of the new government risk a degree of fiscal loosening.
• US President Trump has announced he will skip two major summits in Asia in November. The move raises concerns about the US reliability as a counterweight to China in Asia Pacific.
• Today's eco calendar is skinny, with US markets closed (Labour Day). In the UK and EMU, the August manufacturing PMI's will be published

Currencies: Dollar Gains A Few Ticks As Trade Uncertainty Persists

Dollar succeeds cautious risk-off rebound

On Friday, global (FX) markets tried to assess the consequences of the latest harsh trade comments from US president Trump against the EU and China. Initially, EUR/USD held up well, but finally returned south, amongst other on a softer than expected EMU CPI (2.0% Y/Y). The pair even dropped temporarily below the 1.16 mark as European investors were cautious going into the weekend. EUR/USD closed the session at 1.1602. Gains of the yen were very modest. USD/JPY closed the session little changed at 111.03. A late session comeback of US equities reversed earlier yen gains. This morning, a broad riskoff sentiment reigns on most Asian equity markets. Uncertainty on EM/on several EM currencies persists. The dollar remains in the driver's seat on FX markets. The trade-weighted USD (DXY) regained the 95 mark. EUR/USD hovers in the low 1.16 area. USD/JPY is losing a few ticks (110.5 area). Later day, US markets are closed in observance of the Labour Day holiday. In EMU, the final manufacturing PMI is expected to confirm a modest further slide to 54.6. Investors will continue to keep a close eye at all kinds of comments for president Trump and other US policy makers on the US global trade policy (Canada, China tariffs, EU). The risk of a further escalation in the China-US trade conflict will probably cause equity investors outside the US to hold a cautious approach. This might be slightly USD supportive. The USD reversed an early August rebound in the second half of the month, but the USD decline slowed last week. The EUR/USD rebound was blocked in the low 1.17 area. Eco fundamentals and uncertainty on trade are in theory USD supportive. Of late, the USD performance was not impressive. Even so, we assume that a EUR/USD break beyond 1.1791/1.1850 might be difficult as long as trade tensions persist. We start the week we a cautious negative bias on EUR/USD.

Last week, sterling enjoyed a technical short squeeze after a protracted slide. Question is whether there is much further upside for sterling if there is no real progress in the brexit negotations. Comments this weekend at least suggest that there remains a lot of discord on Brexit both within the UK and between the EU and the UK. EUR/GBP already returned to the high 0.89 area this morning. We still assume a that break of EUR/GBP below 0.8850 is difficult unless there is real progress on Brexit. The GBP rebound/short-squeeze maybe has run its course.

USD (trade-weighted-DXY): dollar succeeds cautious rebound as uncertainty on trade persists

Daily Pivots: (S1) 1.2924; (P) 1.2976; (R1) 1.3009; More...

GBP/USD dips notably today but stays above 1.2844 minor support. Intraday bias remains neutral first. With 1.2844 minor support intact, rebound from 1.2661 could extend higher. But in that case, we'd expect strong resistance from 1.3316 fibonacci level to limit upside, at least on first attempt. On the downside, break of 1.2844 support will argue that the rebound is completed and bring retest of 1.2661 low.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA (now at 1.4099). The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

Daily Pivots: (S1) 0.9658; (P) 0.9683; (R1) 0.9713; More.....

Intraday bias in USD/CHF remains neutral for consolidation above 0.9651 temporary low. Upside of recovery should be limited by 0.9775 minor resistance to bring another fall. On the downside, break of 0.9651 will target 200% projection of 1.0067 to 0.9866 from 0.9981 at 0.8579 next.

In the bigger picture, current development suggests that rise from 0.9186 low has completed at 1.0067, after failing to sustain above 1.0037 resistance. Fall from 1.0067 could extend to 61.8% retracement of 0.9816 to 1.0067 at 0.9523 and below. But for now, we don't expect a break of 0.9186 low. On the upside, firm break of 0.9866 support turned resistance will suggests that fall from 1.0067 has completed and rise from 0.9186 is resuming.

Daily Pivots: (S1) 110.82; (P) 110.98; (R1) 111.27; More...

Intraday bias in USD/JPY remains neutral at this point. Fall from 111.82 might extend lower. But after all, price actions from 113.17 are viewed as a corrective pattern. Downside should be contained by 38.2% retracement of 104.62 to 113.17 at 109.90 to bring rebound. On the upside, above 111.82 will resume the rebound from 109.76 and target a test on 113.17 high.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.36 support holds. However, decisive break of 109.36 will mix up the outlook again. And deeper fall should be seen back to 61.8% retracement of 104.62 to 113.17 at 107.88 and below.

Daily Pivots: (S1) 143.41; (P) 144.05; (R1) 144.61; More...

Intraday bias in GBP/JPY remains neutral at this point. As long as 142.81 minor support holds, another rise is mildly in favor. Above 145.67 will target trend line resistance (now at 146.99). Firm break there will be a signal of bullish reversal and should target 149.30 resistance for confirmation. However, break of 142.81 will argue that the rebound from 139.88 has completed and turn bias back to the downside for 139.29/47 key support zone.

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).

Last week investors hoped that positive developments between the U.S. and Mexico would extend further to Canada, Europe and possibly China. However, this optimism faded when the U.S. failed to reach an agreement with its northern neighbour on Friday. President Donald Trump threatened that if no fair dealis reached, Canada will be out and if Congress interferes he will terminate NAFTA entirely.

Trump may also take the trade war to an unprecedented level if he goes ahead by imposing tariffs on $200 billion worth of Chinese good. This may come as soon as the public-comment period ends on Thursday. Beijing said it would retaliate with tariffs on $60 billion worth of US goods. If those actions go forward, almost 85% of U.S. goods heading to China would be subject to tariffs. Meanwhile, half of the $505 billion of Chinese imports would be impacted.

China's Shanghai Composite and CSI300 fell by more than 1% on Monday, and although valuations started looking relatively cheap, investors may continue to sell China's equities given the uncertainty surrounding the next stage of the trade war and its impact on economic growth. This may be a good opportunity for investors looking for long-term value investing. Markets should also expect to see a pullback in U.S. stocks when trading resumes on Tuesday as appetite to risk diminishes.

Data on Monday showed China's manufacturing sector grew at the slowest pace in 14-months in August. The Caixin/Markit Manufacturing PMI fell to 50.6 last month dragged down by export orders which shrank for a fifth consecutive month. With the PMI index moving closer to contraction, it will be interesting to see what steps policy makers will take to boost growth.

In Europe, investors will also be looking for evidence as to whether trade tensions will drag down the final PMI readings after the slight pickup seen last month in Germany and France. However, it's U.K. manufacturing PMI that will attract most investor's attention as the Sterling fell back below 1.3 against the U.S. dollar.

General Trend:

• Chinese automakers decline as the NDRC commented on industry investment
• Shanghai Composite Property index drops over 1.5%
• HK casino names decline following release of Aug Macau gaming revenues
• Aussie declines after weaker than expected retail sales
• Australia CoreLogic housing prices decline for 11th straight month
• Japan 10-yr JGB yield hits the highest since early Aug
• Japan Q2 Capex rises at the fastest y/y pace since late 2006
• China Caixin Manufacturing PMI hits 14-month low, new export orders continue to contract
• Reminder: The public comment period related to the US’ proposed tariffs on $200B in China goods is due to end on Sept 6th (Thursday).
• Emerging market currencies remain under pressure
• Canadian Dollar declines, US President Trump said a trilateral NAFTA deal with Canada is not necessary
• US and Canada are closed on Monday in observance of holiday
• Reserve Bank of Australia (RBA) rate decision expected on Tuesday
• Fast Retailing expected to report Aug SSS on Tuesday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%
• ASX Consumer Discretionary index +0.2%, REIT +0.2%; Resources -0.3%, Telecom -1.8%, Utilities -0.5%, Energy -0.2%, Financials -0.1%
• (AU) AUSTRALIA JUL RETAIL SALES M/M: 0.0% V 0.3%E
• (AU) Australia Q2 Company Operating Profit Q/Q: 2.0% v 1.3%e; Inventories SA Q/Q: 0.6% v 0.2%e
• (AU) Australia Aug CoreLogic House Price M/M: -0.4% v -0.6% prior (11th straight decline)
• (AU) Australia new PM Morrison said he is open to ordering a judicial inquiry into pricing in the energy industry – US financial press
• (AU) According to Rabobank, the drought in eastern Australia has pushed confidence in the agricultural sector to the lowest since 2006 – US financial press
• (NZ) NEW ZEALAND Q2 TERMS OF TRADE INDEX Q/Q: 0.6% V 1.0%E
• (NZ) New Zealand Treasury: Maintains forecast for 0.7% GDP growth in Q2, private consumption may exceed forecast in Q2 - Monthly Economic Indicators Report
• (NZ) The market is now pricing in an ~50% chance of a rate cut by the Reserve Bank of New Zealand (RBNZ) by mid-2019 – US financial press

China/Hong Kong

• Shanghai Composite opened -0.3%, Hang Seng -0.3%
• Hang Seng Info Tech index -2.7%, Consumer Goods -2.2%, Materials -2.1%, Services -1.8%, Property/Construction -1.5%, Energy -1.3%, Industrial Goods -1.1%, Financials -0.6%; Telecom +0.4%
• (CN) CHINA AUG CAIXIN PMI MANUFACTURING: 50.6 V 50.7E (14-month low)
• (HK) Macau Aug gaming revenue MOP26.6B v MOP25.3B m/m, +17.1% y/y
• (CN) On Aug 31 China legislative branch passed the e-commerce law, due to take effect from Jan 1 2019, according to Australia’s A2 Milk
• (CN) China NDRC said to strictly prevent haphazard investment and low-level redundant development in the auto industry - financial press
• (CN) China Agriculture Ministry: Confirmed the 6th outbreak of African Swine Fever in China; has culled more than 38K hogs by Sept 1st due to the outbreak
• (CN) China Communist Party journal (Qiushi) said the country may see near-term pain from trade friction with the US, including a negative impact on financial stability; reiterates stability growth trend would not change – financial press
• (CN) China said to consider revision to law in order to allow issuance of dual-class shares - US financial press
• (CN) China PBoC Deputy Gov reiterates to firmly push forward deepening of reform and further opening up - local press
• (CN) China PBoC set yuan reference rate: 6.8347 v 6.8246 prior
• (CN) China PBoC Open Market Operation (OMO): Skips OMO (9th straight skip)

Japan

• Nikkei 225 opened -0.2%
• TOPIX Real Estate index -2%, Iron & Steel -1.8%, Electric Appliances -1.6%, Marine Transportation -1.3%, Securities -0.5%, Info & Communications -0.3%; Retail trade +0.3%
• Automakers trade generally lower
• (JP) On Saturday, Bank of Japan (BoJ) Gov Kuroda reiterated the central bank's forward guidance, unlikely to raise interest rates for 'quite some time' - financial press
• (JP) JAPAN Q2 CAPITAL SPENDING (CAPEX) EX SOFTWARE: 14.0% V 7.4%E; CAPITAL SPENDING Y/Y: 12.8% V 6.5%E
• (JP) Japan Aug Final Manufacturing PMI: 52.5 v 52.5 prior
• (JP) Follow Up: At talks held in Beijing last week, top finance officials from China and Japan agreed to work expeditiously on initiatives agreed to in May 2018, including the resumption of currency swap agreement - Japanese Press
• (JP) Japan PM Abe said relations with China are back on normal track - Press
• (JP) Japan Chief Cabinet Sec Suga: PM Abe to visit Russia for economic forum on Sept 11th

Korea

• Kospi opened -0.2%
• (KR) South Korea Aug Trade Balance: $6.9B v $7.3Be
• (KR) South Korea Aug Manufacturing PMI: 49.9 v 48.3 prior
• (KR) South Korea sells KRW1.2T v KRW1.2T indicated in 5-year bonds: yield 2.105%
• (KR) South Korea President Moon said to have floated the idea of a 4-way summit which would include the two Koreas, in addition to the US and China - South Korean press

Other

• Indonesia Rupiah currency (IDR) continues to trade at lowest levels in more than 20 years
• (ID) Indonesia 10-yr bond yield trades near 8.22% (highest since Nov 2016)
• (ID) Indonesia Central Bank: To remain a stand-by buyer of bonds
• (ID) Fitch affirms Indonesia sovereign rating at BBB; Outlook Stable
• (ID) Indonesia Aug CPI M/M: -0.1% v 0.1%e; Y/Y: 3.2% v 3.3%e
• (TH) Thailand Aug CPI M/M: 0.3% v 0.2%e; Y/Y: 1.6% v 1.5%e

North America

• (US) Pres Trump tweets that a trilateral NAFTA deal with Canada is not necessary and Congress should not "interfere" with trade negotiations; Canada must agree to new terms or US will terminate and "go back to pre-NAFTA"
• (AR) Follow Up: Argentina Treasury Minister is expected to speak on Monday at 9:45 AM (local time) - US financial press
• Ford: Said to plan to end production of certain automobile models as part of its previously announced operational restructuring plan - UK Press

Europe

• (UK) UK PM May said there will be no compromise with EU on Brexit plan, reiterates will not give in to those calling for a second referendum on Brexit - UK Press
• (IT) Fitch revises Italy sovereign debt rating outlook to Negative from Stable; affirms BBB rating (from Aug 31st)
• (IT) Italy Interior Min Salvini: Italy will touch the 3% EU budget deficit limit without breaching it - Local Media
• (DE) Qatar said to plan to invest billions of dollars in Germany - German Press

Levels as of 01:30ET

• Nikkei 225, -0.6%, ASX 200 +0.1%, Hang Seng -1%; Shanghai Composite -1.1%; Kospi -0.8%
• Equity Futures: S&P500 flat; Nasdaq100 flat, Dax -0.2%; FTSE100 -0.4%
• EUR 1.1606-1.1589 ; JPY 111.20-110.85 ; AUD 0.7196-0.7166 ;NZD 0.6622-0.6593
• Aug Gold -0.2% at $1,204/oz; Sept Crude Oil -0.3% at $69.62/brl; Sept Copper -0.2% at $2.659/lb

Daily Pivots: (S1) 0.8932; (P) 0.8960; (R1) 0.8985; More...

EUR/GBP's breach of 0.8992 minor resistance suggests that pull back from 0.9097 has completed at 0.8937, after drawing support from near term rising channel. Intraday bias is turned back to the upside for retesting 0.9097 first. Break will extend the larger rally from 0.8620 towards 0.9305 high. Over all, outlook will remain bullish as long as 0.8895 support holds. However, sustained break of channel support, followed by break of 0.8895, will argue that whole rise from 0.8620 has completed. And consider that it's not clearly impulsive in structure, break of 0.8895 will also suggest reversal and turn outlook bearish.

In the bigger picture, EUR/GBP is staying in long term range pattern from 0.9304 (2016 high). The corrective structure of the fall from 0.9305 to 0.8620 is raising the chance that rise from 0.8312 to 0.9305 is an impulsive move. But we're not too confident on it yet. In any case, 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.