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Sunrise Market Commentary

• Rates: US political developments weigh on US Treasuries
  The US Note future loses ground this morning after the successful US Senate tax vote and the erroneous Flynn report. We expect the Bund to move back in its sideways range after the European opening. The eco calendar is empty today, but heats up later this week in the US with payrolls on Friday.
• Currencies: USD gains only modestly after approval of Senate tax bill
  US political headlines sent the dollar in a roller-coaster ride on Friday. This morning, markets react mostly positive to the approval of the US tax bill in the Senate. The approval could help to put a ST floor for the dollar. However, ongoing political noise might prevent a sustained USD rebound ahead of next week's Fed meeting.

The Sunrise Headlines

• US stock markets closed 0.2% to 0.4% lower on Friday, nervously awaiting the outcome of the US Senate vote on tax reforms. Asian markets show a very mixed picture overnight, with daily changes ranging between -0.5% and +0.5%.
• US Senate Republicans narrowly approved the most sweeping rewrite of the US tax code in three decades, slashing the corporate tax rate and providing temporary tax-rate cuts for most Americans.
• Congressional GOP leaders hope to pass a two-week spending bill before the federal government runs out of money by Saturday, but resistance among conservative Republicans and some Democrats could derail their plans with little time to spare.
• Major central banks must ensure their efforts to gradually lift interest rates prove effective enough to cool some already "frothy" financial markets, the Bank for International Settlements (BIS) said in its latest report.
• Britain and the EU are on the brink of sealing a Brexit divorce deal on Monday, as Theresa May travels to Brussels with potential solutions in sight for the two biggest political obstacles to opening trade talks.
• A coalition of movements pushing for greater autonomy for Corsica looks likely to dominate a newly constituted assembly on the French Mediterranean island of Corsica, returns from the first round of voting show.
• Today's eco calendar is uneventful with EMU PPI data, the UK construction PMI and US factory orders

Currencies: USD Gains Only Modestly After Approval Of Senate Tax Bill

Dollar cautiously higher on Tax bill approval

The dollar initially held up well on Friday even as sentiment in Europe was outright risk-off. The dollar rebounded further early in US dealings, but fell off a cliff on headlines that Michael Flynn admitted to have lied to the FBI on contacts with Russia, potentially resulting in further trouble for the US president. The decline was short-lived as the debate on the Tax bill in the US Senate made progress. USD/JPY closed the session at 112.17 (from 112.54). EUR/USD finished the session at 1.1896 (from 1.1904 on Thursday).

Asian equity markets trade mixed this morning after the approval of the Tax bill in the US Senate. Investors remain cautious as the House of Representatives and the Senate still have to the make a reconciliation on their two proposals. US yields are modestly higher and so is the dollar. USD/JPY profits most and trades in the high 112 area. Japanese equities underperform despite the rise of USD/JPY. EUR/USD trades in the 1.1865 area, within the range that reigned for most of last week. Ongoing noise on the Russia investigation against aides of President Trump might prevent a bigger positive reaction to the Senate Tax bill.

The eco calendar is thin today. EMU PPI is no market mover. US factory orders will be published, but the cyclical component of the report (durable orders) is already available. Any FX reaction should only be of intraday significance, at best. The reaction of global markets to the US tax bill will be an important driver for USD-trading. At the same time, there will remain plenty of political noise from the US (fall-out from the investigation on contacts of Trump's aides/campaign team with Russia; solution for the debt ceiling). The US calendar is interesting later this week with the non-manufacturing ISM, ADP labour market report and payrolls. We expect the US eco data to confirm the positive drive in the economy.

The dollar showed a mixed picture last week, rebounding against the yen but holding relatively soft against the euro. Even after the approval of the Tax bill, this pattern apparently continues. Markets are still looking forward for the Fed's rate hike intentions in 2018. This week's US eco data might be USDsupportive, but we don't expect a really big directional move ahead of next week's Fed policy decision/statement

EUR/USD might continue last week consolidation pattern. Unless in case of high profile negative news from the US (or negative risk sentiment) we see no reason for EUR/USD to rise beyond the 1.1961/1.20 area. USD/JPY's momentum looks a bit more constructive, but the rebound might slow if it isn't supported by developments on other markets.

From a technical point of view: EUR/USD set a post-ECB low mid-November, but dollar momentum wasn't strong enough. EUR/USD regained the 1.1880 MT correction top, opening the way for a full retracement to the 1.2092 top. A return below 1.1713 would signal that the rebound in EUR/USD is aborted. For now, there is no clear technical signal. The USD/JPY momentum deteriorated early November. USD/JPY dropped below the 111.65 neckline, but there was no aggressive follow-through selling. Last week, the pair even succeeded a nice rebound, calling off the downside alert. The pair again hovers in the 110.84/114.73 consolidation range. We amend our ST bias on the pair from negative to neutral.

EUR/USD: rally aborted, but no clear correction signal

EUR/GBP

Brussels meeting to set tone for Sterling trading

Sterling trading showed no clear trend Friday. The issue of the Irish border proves to be a hard nut to crack to make progress in the Brexit negotiations. Sterling lost slightly ground against the euro and the dollar. EUR/GBP hovered mostly in the lower half of the 0.88 big figure and finished the day at 0.8929. Cable traded with a negative bias even as dollar volatility was also visible in this cross rate. The pair closed the session at 1.3477. The UK November manufacturing PMI printed at a very strong 58.2 (from 56.6, 56.5 was expected), but the report had no lasting impact on sterling trading.

The UK construction PMI will be published today. However, the focus of sterling traders will be on Brussels as UK PM May meets with EU's Juncker. The EU initially set this meeting as the deadline to meet the UK propositions on the separation. However, for now it looks that a final agreement is still too far off. Signals on the progress this weekend were mixed. If there remain substantial obstacles today, sterling might cede some ground short-term.

MT view/technical picture: A BoE driven sterling rebound ran into resistance early this month. Sterling declined again as markets anticipated that the rate cycle would be very gradual and limited. EUR/GBP trades in a 0.8733/0.9033 consolidation range. Brexit headlines cause day-to-day gyrations. We changed our ST bias on EUR/GBP from positive to neutral mid-November. The 0.9015/33 area might be tough to break short-term. In case of more positive news on Brexit, return action to the 0.8733 (or below) level is possible ST.

EUR/GBP: decline slows as investors want positive news on Brexit

Download entire Sunrise Market Commentary

Daily Pivots: (S1) 1.5543; (P) 1.5656; (R1) 1.5736; More....

Intraday bias in EUR/AUD remains mildly on the downside. Pull back from 1.5770 short term top would extend lower to 1.5458 support or below. But, we'd expect strong support above 1.5226 key support to bring rebound. Medium term rally is still expected to resume later and break of 1.5770 will target 61.8% projection of 1.3624 to 1.5226 from 1.4949 at 1.5939 first.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term top (2015 high) has completed at 1.3624. Rise from 1.3624 is expected to extend to retest 1.6587. We'll hold on to this bullish view as long as 1.5226 resistance turned support holds. Firm break of 1.6587 will resume long term rise from 1.1602 (2012 low).

XAUUSD (1274.36): Gold prices remain volatile as price attempted to test the resistance level at 1285 before closing lower. The retest back to the support level at 1274.70 signals a possible move back to the upside. However, with the support level seen to be weak, there is a potential for gold prices to post a decline. Failure to bounce off 1274.70 region could keep gold prices weaker with the next test of support seen at 1262.83 region. In the near term, the volatile ranging price action in gold is expected to continue. Above 1285 resistance, gold prices could once again be seen targeting the previous highs near 1296 region with further gains likely to stretch price to test the 1300 level of resistance.

USDJPY (112.74): The USDJPY formed an outside bar on Friday and closed bearish. The intraday rally towards 112.65 was met with strong resistance as the U.S. dollar pared gains. Price action closed on Friday right near the lower support level at 112.04. We expect to see the broader range within 112.65 and 111.61 being maintained in the short. The currency pair also fell to this support level briefly before pulling back higher to settle at the next support level. There is also a possibility that USDJPY will be forming an inverse head and shoulders pattern with the neckline resistance seen at 112.65. Therefore, watch for potential reversals within 112.04 and 111.61 which could signal a move back to the neckline resistance

EURUSD (1.1868): The EURUSD was seen asrather volatile on Friday, as price action closed nearly flat and gapped lower at today’s open. The consolidation seen just below the 1.1954 level of resistance signals a potential change of sentiment in the short term. Unless EURUSD manages to close convincingly above 1.1954 we expect the bias to shift to the downside with the major support at 1.1704 in focus. In the short term, EURUSD will need to breach the initial hurdle. Strong intraday support is seen near 1.1843 - 1.1822. A break down below this level will however signal the declines to 1.1704. To the upside, the resistance level near 1.1920 will be critical for price action. However, watch the lower high that was formed last week which could signal a move to the downside.

The markets closed on Friday on a rather sombre note. However later in the night, the U.S. Senate approved the tax bill which was passed by a narrow vote. The latest hurdle being crossed places the much talked about tax reforms one step closer. Both the Senate and the House are now expected to craft a joint bill.

On the economic front, the ISM's manufacturing PMI released on Friday showed that the U.S. manufacturing activity slipped slightly to 58.2. This was lower than forecasts and down from 58.7 in October. Friday was also data heavy from Canada. The monthly employment report showed Canadian unemployment rate falling to 5.9% from 6.3% the month before. GDP data for the month also showed a modest increase of 0.2% which was higher than the forecasts.

Looking ahead, Monday starts off with the UK's construction PMI. Forecasts point to a modest increase to 51.2 in November, up from October's 50.8. This comes after Friday's manufacturing PMI showed strong gains. The Eurozone Sentix investor confidence data is also expected to come out later followed by the factory orders report from the U.S. later in the day.

EURUSD

The EURUSD was indecisive last week. Price attempted to push lower bottomed at 1.1808 but closed higher at 1.1898 after bounced-off the lower line of the bullish channel as you can see on my H1 chart below. The bias is neutral in nearest term but as long as stay inside the bullish channel and above 1.1800 price is still in a bullish phase. Immediate resistance is seen around 1.1960. A clear break and daily close above that area would expose 1.2000 – 1.2090 region. On the downside, a clear break below 1.1800 would expose 1.1690 or lower. Overall I remain neutral.

GBPUSD

The GBPUSD continued its bullish momentum last week topped at 1.3549 but closed a little bit lower at 1.3472. The bias is neutral in nearest term. Immediate support is seen around 1.3445. A clear break below that area could trigger further bearish pressure testing 1.3385 area. Immediate resistance is seen around 1.3550. A clear break above that area could trigger further bullish pressure retesting 1.3615 key resistance. Overall I remain bullish.

USDJPY

The USDJPY was volatile but indecisive last week.The bias is neutral in nearest term. Overall I still prefer a bearish scenario at this phase as a part of the bearish pin bar scenario on daily chart, but need a clear break below 111.65 to continue the bearish run with nearest target seen at 110.65 area. Immediate resistance is seen around 112.50. A clear break above that area could trigger further bullish pressure testing 113.20 which remains a good place to sell. Overall I remain neutral.

USDCHF

The USDCHF was indecisive last week. Price attempted to push higher, topped at 0.9882 but whipsawed to the downside and closed lower at 0.9759. The bias is bearish in nearest term testing 0.9700 region. Immediate resistance is seen around 0.9780 followed by 0.9818 but key resistance remains at 0.9875 which remains a good place to sell with a tight stop loss. On the downside, a clear break and daily close below 0.9700 would expose 0.9600 region. Overall I remain neutral.

EURUSD is consolidating recent gains after a strong rally from the 1.1600 area to 1.1900. A neutral phase is expected in the near-term as the market became overextended and the daily RSI indicator is indicating momentum has weakened after reaching near overbought levels at 70.

EURUSD is expected to be supported on dips at key Fibonacci levels. The first level is at 1.1790, which is the 23.6% Fibonacci retracement level of the uptrend from 1.0820 to 1.2091. Below this, there is a support zone between 1.1553 (November 7 low) and 1.1606 (38.2% Fibonacci). Any further extension lower would target 1.1455 and the key 1.1300 area. From here the trend would start turning bearish.

The overall bullish undertone is expected to remain strong as long as EURUSD stays above the 50-day moving average (currently at 1.1776). Breaking key resistance at 1.1900 would open the way for a re-test of 1. 2091.This is a level not seen since the end of 2014 and so rising above it would propel the market towards the 1.2600 handle.

The broader uptrend remains in progress with no signs of a reversal. The 50 and 200-day moving averages are positively aligned and supporting the bullish outlook.

This week will be dominated by Geo-Politics as the US Tax Bill needs to be reconciled between the Senate and House, whilst UK Prime Minister May meets Jean-Claude Juncker, the President of the European Commission, Brexit Secretary, David Davis, and his opposite number Michel Barnier, plus, in an all-important oversight role, the President of the European Council, Donald Tusk, who represents the leaders of the 28 EU member states, to move the Brexit process forward.

Early on Saturday saw the US Senate approve the tax overhaul bill. The approval marks a first significant “win” for President Trump and his Republican Party after months of failed proposals. The Bill is a sweeping overhaul of the US tax code that would cut individual rates and slash the corporate tax rate from 35% to 20% starting in 2019. Congress now needs to reconcile both the House and Senate bills this week – a task that should be relatively simple, as the Senate and House Bills are very similar with only minor amendments needed. The news has reinforced risk-on sentiment in the markets. However, the Trump administrations' celebrations might be short-lived as reports suggest that former US National Security Adviser Michael Flynn pleaded guilty to lying to the FBI and said he would cooperate with the probe into Russian meddling in the U.S. presidential election.

UK Prime Minister Theresa May is hoping her talks with Jean-Claude Juncker today will ensure the EU will open the second phase of Brexit negotiations concerning relations after Britain's withdrawal on March 30, 2019. The challenge being that the EU will only do that if there is “sufficient progress” in agreeing “divorce” terms, notably on three key issues: a financial settlement, guaranteed rights for EU citizens in Britain and a “soft border” with Ireland. Reports suggest the financial settlement has been agreed and sources close to the process have suggested that there were indications of agreement on citizens' rights and of an understanding of how at least to move forward on the Irish border issue to avoid holding up the rest of the package. As a result of the talks today, there is hope from May that the EU Commission could then say there is sufficient progress to move to Phase 2. The markets are likely to see GBP volatility on any statements/comments coming out of these discussions.

EURUSD is little changed from Friday's close, currently trading around 1.1870.

USDJPY is unchanged in early Monday trading at around 112.80.

GBPUSD is 0.2% higher in early session trading at around 1.3465.

Gold is unchanged, trading around $1,274.50.

WTI is 0.6% lower, currently trading around $57.93.

Major data releases for today:

At 09:30 GMT: the UK Chartered Institute of Purchasing & Supply and Markit Economics will release PMI Construction for November. The previous release of 50.8 is likely to see an improvement following the recent reports that the UK has come to an agreement on the Brexit divorce payout.

At 10:00 GMT: Eurostat will release Eurozone Producer Price Index for October (MoM & YoY). Month-on-Month data is expected to come in at 0.3% (prev. 0.6%) and Year-on-Year data is expected at 2.6% (prev. 2.9%), both data sets slightly worse than previous. If there is significant deviation from the forecasted data the markets will see EUR volatility.

At 15:00 GMT: the US Census Bureau will release Factory Orders (MoM) for October. The previous reading of 1.4% is unlikely to be touched with this release. Forecasts are calling for 0.6%. Any significant deviation from the forecast will see USD volatility.

Gold gaps lower this morning as U.S. tax progress and higher yields put the boot into Friday's failed recovery.

Gold traded in a very choppy and impressive 20 dollar range on Friday but finished with a whimper, settling mid-range 1280.00. It did not pass go at the open this morning in Asia, with gold starting trading four dollars lower at 1276.00 before falling to support at 1272.50 before staging a dead cat bounce to 1274.70.

The street is ignoring President Trump's political woes and concentrating on firming U.S. yields as the U.S. tax reform bill passed its Senate vote. The House and Senate will now meet to horse trade their respective versions and come up with a workable version the President can sign into law. The rapid progress and intent on completing the exercise in the new two weeks while avoiding a government shutdown have had traders scrambling to reassess the Fed's interest rate trajectory for 2018. With potentially higher yields (always our thesis), precious metals prices have continued to suffer.

The failure last week at 1300.00 and the rapid unwinding of the multi-week gold recovery, has set a negative tone from a technical perspective. Gold has resistance at the 100-day moving average at 1286.50, the scene of its failure on Friday. Behind this, the 1300.00 area looms as formidable now capping gold rallies.

Support appears at 1272.50, the days low today and the two-month trendline support. The 200-day moving average is just behind this at 1267.00 with a daily close below setting up an attack on critical long-term support at 1260.00. A break of this region may well see longer-term gold positioning exit the market en-masse.