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Cable stands at the back foot in trading of Monday and fell near Friday's low (1.3356) at the beginning of European session, after recovery attempts stalled at 1.3431 (capped by broken 10SMA). Fresh weakness pressures strong support at 1.3354 (Fibo 38.2% of 1.3038/1.3549 rally) where last week's downside attempts were repeatedly rejected. Overall bullish structure is expected to stay intact while 1.3354 Fibo support and rising 20SMA (1.3338) hold corrective action of larger 1.3038/1.3549 rally. Break here would signal deeper correction and expose supports between 1.3300 and 1.3256 (provided by daily Kijun-sen/MA's). Weak near-term techs support this scenario.

Res: 1.3419,1.3431,1.3453,1.3520
Sup: 1.3354,1.3338,1.3300,1.3256

The Euro rose in early Monday's trading after Friday's action ended in long-tailed Doji, generating initial signal of near-term downtrend stall. Recovery attempts were so far limited under 1.1800 handle (top of falling hourly cloud) however, improved hourly studies suggest further correction of 1.1940/1.1730 bear-leg. Strong resistance zone between 1.1810/35 (Fibo 38.2% of 1.1940/1.1730/daily cloud top, reinforced by Tenkan-sen) is expected to cap as downtrend is still intact on daily chart and correction is expected to precede final push towards targets at 1.1716/09 (daily cloud base/Fibo 61.8% of 1.1553/1.1961 ascend). Near-term action is supported at 1.1760 (converged 30/55 SMA's) which guards Friday's spike low (1.1730). Falling hourly cloud top (currently at 1.1790) marks initial barrier, guarding strong resistance zone above 1.1800. Bullish scenario requires firm break above daily cloud to signal higher low at 1.1730 and open way for stronger correction.

Res: 1.1790, 1.1810, 1.1835, 1.1860
Sup: 1.1760, 1.1730, 1.1716, 1.1709

EURUSD's recent decline has paused around the 50-day moving average. Downside pressure has eased for now but the medium-term neutral phase that started a few months ago remains intact.

Looking at the daily chart, EURUSD was falling for five consecutive days and breached the 50-day MA before pulling back. Immediate resistance is expected at 1.1791 – the 23.6% Fibonacci of the rise from 1.0820 to 1.2091. A successful break to the upside would target 1.1900 and open the way for a re-test of the 1.2091 peak. From here there would be a resumption of the long term uptrend.

Momentum signals have dropped into bearish territory, suggesting there is not enough strength to push much higher for now. Dips are expected to find support in the 1.1600 zone, which is a round figure and also near the 38.2% Fibonacci level. Further downside risk is expected to be limited.

The short-term bearish phase has stalled but the overall outlook remains neutral and EURUSD is expected to trade sideways between 1.16 – 1.19. Only a drop below the 20-day MA would start to shift the positive bigger picture.

XAUUSD (1248.79): Gold prices continue to extend their declines following last Thursday's close below the 1262 handle. Price action fell to a 5-month low. The Stochastics oscillator on the daily chart is however, in the oversold level including the 4-hour time frame. This suggests a near term retracement. The gains in gold prices could be limited to the price level of 1262 where resistance could be established. Any upside gains can be expected only on a strong close above this level. To the upside, 1285 resistance will be back in focus. A reversal near the 1262 area could however spell more declines for gold prices in the near term.

USDJPY (113.61): USDJPY continued to extend it’s gains, which come after the strong bullish engulfing pattern that was formed. The upside momentum is expected to see USDJPY pushing towards the previous resistance level near 114.00. In the short term, any pullback is likely to be limited to the 113.00 region. The upside bias will shift on a bearish close below the 113.00 region. In this case, we can expect USDJPY to push lower to test the previous support level formed at 112.00.

EURUSD (1.1776): The EURUSD extended declines on Friday as price fell to a fresh one month low on an intraday basis. However, price action managed to pullback before the close. Price action on EURUSD suggests near term upside as we expect a retest of the resistance level near 1.1822 level. Establishing resistance here could potentially pave way for the euro to resume its declines down to the 1.1710 level of support. However, a short term higher low needs to be formed for this bias to be validated. In the event that the declines continue, EURUSD could be seen pushing lower to the support level without any retracement.

The U.S. dollar index firmed on Friday following a broadly positive jobs report for November. Data from the U.S. Labor department showed that the economy added 228,000 jobs during the month which was higher than forecasts. The U.S. unemployment rate was steady at 4.1% while job wages grew slightly but below forecasts.

The payrolls report comes ahead of this Wednesday's FOMC meeting where interest rates are set to rise by 25 basis points. Last week, the U.S. government shutdown was also averted as President Trump signed the legislation to fund the government for two more weeks. The Congress is expected to negotiate a long term budget deal during the period.

The economic calendar is quiet today, ahead of a busy week that will see the FOMC, ECB, BoE and the SNB holding their respective monetary policy meetings.

Sunrise Market Commentary

• Rates: Consolidation ahead of Fed meeting
  Today's eco calendar is empty apart from the start of the US refinancing operation. That could spark some underperformance of the US Note future vs the Bund, but we expect trading to occur within existing (sideways) ranges ahead of Wednesday's Fed meeting. Volumes are expected to decline. Risk sentiment is a wildcard.
• Currencies: USD awaiting guidance from the Fed after soft wage data
  The USD rebound slowed on Friday as US wage data outweighed strong job growth. More USD consolidation might be on the cards as investors await Wednesday's Fed policy statement. USD/JPY resilience might be an indication that dollar sentiment isn't too bad.

The Sunrise Headlines

• US stock markets closed around 0.5% higher on Friday with a new closing high for the S&P 500 after a solid US paryolls report. Asian stock markets record gains as well this morning with China outperforming (+1%).
• The White House is preparing to roll out a long-delayed infrastructure rebuilding plan in January, as President Trump's advisers bet that voters want a $1 tn road-and-bridge-building plan—even though it is opposed by some lawmakers
• China's producer price inflation slowed to a four-month low in November (5.8% Y/Y) as factory activity softened due to the government's efforts to curb pollution, cooling demand from factories for raw materials.
• New Zealand's government named pension fund chief Adrian Orr as the new governor of the nation's central bank, triggering a rally in the local dollar as markets prepared for changes to the monetary policy mandate.
• OPEC and its global allies including Russia may end their production cuts before 2019 if the crude market re-balances by June, Kuwait's oil minister said.
• President Trump plans to deliver his closing argument for the proposed Republican tax overhaul in a speech on Wednesday as House and Senate negotiators hammer out differences between their versions of the bill.
• Today's eco calendar is empty. The US starts its mid-month refinancing operation with a $24 bn 3-yr Note and a $20 bn 10-yr Note auction

Currencies: USD Awaiting Guidance From The Fed After Soft Wage Data

USD in wait-and-see modus ahead of the Fed?

Positive risk sentiment kept the dollar near recent highs against the euro and the yen on Friday ahead of the US payrolls. US job growth remained strong, but wages again disappointed. With markets giving more weight to prices rather than activity data, the dollar declined off the intraday peak. EUR/USD closed the session at 1.1773, unchanged from Thursday. USD/JPY was more resilient and reversed most of the post-Payrolls decline. The pair finished the session 113.48.

Asian equities mostly trade with gains of 0.5% to 1.0%+, extending last week's rebound. Volumes are below average. The (trade-weighted) dollar is cautiously ceding ground as investors are building in some caution ahead of Wednesday's Fed policy announcement. USD/JPY set a minor ST top this morning, but currently hovers again in the mid 113 area. EUR/USD extends its post-Payrolls' rebound and trades in the 1.1780 area. The New-Zealand government appointed Adrian Orr as new RBNZ governor. His appointment eased recent fears that the RBNZ would give less weight to the inflation target. NZD/USD rebounded to trade in the 0.69 area.

There are no data in the US today. EMU data are second tier and probably will have less impact on (global) FX trading. The eco calendar is better filled later this week with the US price data (CPI Wednesday) and retail sales (Thursday). In EMU sentiment data including the December PMI's (Thursday) will be published. However, the focus will be on the Fed's policy decision (Wednesday evening) and, to a lesser extent, on the ECB meeting and press conference (Thursday). Analyst expectations on the Fed rate hike intentions in 2018/2019 are quite divided/diffuse. Recent relatively soft price/wage data make some market participants wonder whether the Fed should consider a slightly slower pace of rate hikes. We don't think that this will be the case, but uncertainty on low wages/prices might prevent further USD gains going into Wednesday's Fed policy decision. Last week, we had a cautious positive bias on the dollar, but the payrolls were not strong enough to sustain the ST USD rebound. In this context we assume EUR/USD to consolidate in the 1.1730/1.1960 area. USD/JPY resilience might be an indication that underlying dollar sentiment is not too bad. US politics remains a wildcard for USD trading (more progress on a tax bill?).

From a technical point of view: EUR/USD set a post-ECB low mid-November, but the dollar's momentum wasn't strong enough. EUR/USD settled in a directionless sideways consolidation pattern in the 1.18/19 area. A return below 1.1713 would signal an improvement in the ST USD momentum. However, the payrolls were not able to force this break. So, EUR/USD still gives no clear directional signal. Next support comes in at 1.1554 (November low). USD/JPY's momentum deteriorated early November, dropping below the 111.65 neckline. No aggressive follow-through selling occurred though. Over the previous two weeks, the pair succeeded a nice rebound, calling off the downside alert and returning to the 110.84/114.73 consolidation range. We amended our ST bias from negative to neutral. We maintain the view that a sustained break north of 115 won't be easy.

EUR/USD:USD rebound blocked after soft US wage data

EUR/GBP

EUR/GBP test of 0.8693 support rejected

Sterling developed some kind of buy-the-rumour, sell-the-fact reaction Friday. The UK currency rallied on Thursday evening and early on Friday on headlines that the EU and the UK agreed to move to the second stage of the Brexit negotiations. Sterling touched a ST top during (cable) or soon after (GBP/EUR) the press conference of EU Juncker and UK PM May, but markets soon realized that the hard work still has to be done. The sterling rally ran into resistance and the UK currency returned some of the earlier gains. The trade deficit was smaller than expected, but data were not the focus of markets. EUR/GBP finished the session at 0.8792 (from 0.8737). Cable closed the day at 1.3390.

During the weekend, political analyses from different parties involved in last week's agreement suggested that further progress in the negotiations will remain difficult. Regarding the eco data, Rightmove House prices this morning showed a further cooling in the UK prices (-2.6% M/M and 1.2% Y/Y). Sterling is gaining a few ticks this morning. Friday's agreement/statement is buying the UK some time as the start of negotiations on new trade relationship is/was urgent. In this respect it can be considered as slightly sterling supportive. However, Friday's GBP price action indicates that markets are well aware that the big works still has to be done. In this context we expect more ST consolidation of EUR/GBP in the 0.87/0.89 area. EUR/GBP 0.8693 (62% retracement) support was tested on Friday, but the test was rejected. We assume that this level won't be easy to break short-term.

EUR/GBP downside test rejected despite 'Brexit deal

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Trading bitcoins entered a new phase today, after Chicago's CBOE listed the first futures contract on the cryptocurrency. The initial reaction was beyond expectations with the futures contract climbing more than 20% and triggering two trading halts. CBOE's website experienced unprecedented traffic which may well have sent a new benchmark; the frenetic activity led to delays and outages. So far, it seems professional investors aren't willing to bet against the bitcoin, despite the many warnings of a bubble that will burst soon. Many traders aren't even interested in the price direction, but the listing of the futures contract on CBOE and later next week on the CME, will provide them an arbitrage trading opportunity due to the vast pricing differences. However, the arbitrage trading will lead to improved price efficiency and probably less volatility. After volatility settles down, the focus will return to the price direction.

Central Banks Meetings

Currency markets were trading in tight ranges early Monday with the dollar slightly weaker against its major peers. Expectations of the Fed hiking rates on Wednesday, stands at 90.2% according to CME's Fedwatch tool which means the disappointment in wage growth won't shift the needle for US monetary policy. However, it isn't the rate hike that will move the dollar on Wednesday, it's the tone, economic projections and the dot plot. Given that we're getting closer to a deal on tax reforms, the Fed might become slightly more hawkish. It remains to be seen whether this will shift up the Fed's dots for future interest rate expectations.

The European Central Bank and Bank of England are also meeting this week. Despite no substantive monetary policy changes expected, the language might still move the Euro and the Pound.

Will the Fed support further rotation in stocks?

Tech shares have been in focus over the past two weeks after the S&P tech index plunged more than 4% between 29 November and 05 December, before recovering last week. The fall in Teck stocks wasn't accompanied by a selloff in other sectors, particularly the financials which have been on the rise. This is a classic type of rotation with active managers balancing their portfolios before year end. Tax reforms don't seem to be of great support to Tech firms, given that their effective tax rate is considered to be the lowest in the US Meanwhile, it's a big deal for the rest of the US, with financials having an effective tax rate of more than 30%. The new Fed Chair, Jerome Powell will likely speed up deregulation for the financial sector which will drive more inflows. And of course, higher interest rates for 2018 will further support the banks profit margins. That's why the trajectory of interest rates in 2018 will likely lead to more portfolio balancing before year end.

EU Summit

The breakthrough in Brexit talks on Friday was a great relief for policymakers, who can now move to phase-2 of the talks. Interestingly though, Sterling instead of rising sharply, dropped on the news. Investors seem reluctant to buy Sterling as they view the next phase more complicated than the first. They want to see details of the transition agreement and trade talks concluded before buying Sterling. I don't think the EU summit on Friday will reveal much, but blessings from EU leaders might lend some support to the Pound.

The euro has started the new trading week higher against the U.S dollar after monthly wage date inside Friday’s Non-farm payrolls job report disappointed investors. The EURUSD pair currently trades around the 1.1780 level, after regaining bullish momentum back above the key 1.1750 technical level. Traders remain focused on both the euro and the U.S dollar, as the Federal Reserve and European Central Bank interest rate decisions nears. The release of the JOLTS job opening survey is the main market moving event on the macro-economic docket later today.

The EURUSD pair will turn intraday bullish above the 1.1790 level, further buying towards the 1.1815 and 1.1860 technical levels now seems possible.

Should the EURUSD pair move below the 1.1750 technical level, intraday sellers will then likely target the 1.1713 support level.