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XAUUSD (1281.86): Gold prices edged higher yesterday as price hit a 3-week high near 1285 region. Price action, however, quickly retreated from these levels. However, the breakout of the trend line and the test of resistance could suggest a short-term consolidation with the potential upside breakout in price. This scenario would potentially turn bullish for gold prices which could see extending the gains towards the next main resistance level of 1320 region. To the downside, price action is limited to testing the previous lows of 1262 for now.

USDJPY (113.98): The USDJPY fell to a 5-day low yesterday, but price action managed to pullback subsequently. The currency pair continues to consolidate near the resistance level of 114.05 - 114.31 level. The rising wedge pattern remains in pay on the daily chart. On the 4-hour chart, USDJPY was seen breaking the minor rising trend line with today's price action retracing the losses. As long as the trend line acts as dynamic support, USDJPY could be seen pushing lower towards the 113.00 handle.

EURUSD (1.1591): The EURUSD continues to trade range bound following the bounce off the previous support low at 1.1573. Price action remains subdued overall and this could suggest a balanced bias. The common currency continues to maintain the range within the lows of 1.1573 and resistance level of 1.1674. Multiple attempts to break past the 1.1600 handle failed to keep price action muted as a result. Today's EU forecasts could, however, see some volatility coming into the currency pair.

The Reserve Bank of New Zealand left the overnight cash rate unchanged at its monetary policy meeting. The central bank acknowledged that the outlook for the economy was somewhat improving. The Kiwi dollar was seen posting some modest gains on the back of the interest rate decision.

The US dollar was seen trading mixed as rumors of possible tax reform delays by President Trump hit the sentiment. EURUSD was seen posting some modest gains although the GBPUSD weakened. The British pound closed lower as ongoing uncertainty in the PM May's cabinet and the Brexit deal saw investors selling the pound sterling.

Looking ahead, the economic calendar today will see the SNB Chairman Thomas Jordan speaking. On the economic front, the ECB will be releasing its economic bulletin, and the EU commission will be releasing its economic forecasts.

EUR/JPY - 131.75

Original strategy:

Sold at 132.70, Target: 130.70, Stop: 133.30

Position: - Short at 132.70
Target: - 130.70
Stop: - 133.30

New strategy :

Hold short entered at 132.70, Target: 130.70, Stop: 132.30

Position: - Short at 132.70
Target:  - 130.70
Stop:- 132.30

Although the single currency rebounded after finding support at 131.40, as renewed selling interest emerged at 132.26 and price has retreated again, retaining our bearishness for recent fall from 134.50 top to resume after consolidation, below said support at 131.40 would extend this decline for a correction of early upmove to 131.00, then towards 130.50-60.

In view of this, we are holding on to our short position entered at 132.70. Above said resistance at 132.26 would defer and risk rebound to 132.50-60 but only break of resistance at 133.12 would defer and suggest first leg of corrective decline from 134.50 top has ended, risk a stronger rebound to 133.50-60 but still reckon upside would be limited to 133.95-00, price should falter well below said last week’s high at 134.50, bring another selloff later.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

Sunrise Market Commentary

• Rates: Will Japanese stock volatility spread to Europe?
  Stock markets could influence core bond markets today if the overnight volatility on Japanese equity markets spreads to Europe and the US. Don't forgot that the German Dax already showed a bearish engulfing pattern on Tuesday. Safe haven flows are positive for bonds in this scenario and could trigger a new test of 163.43 resistance in the Bund.
• Currencies: Will volatility unlock stalemate in major FX cross rates?
  Of late USD/JPY and EUR/USD were confined to tight ranges. There are again few important eco data today. A rise in global market volatility might weigh on USD/JPY and EUR/JPY. We see little upside for EUR/USD in such a scenario. Sterling traders keeps a close eye on the next round of the Brexit negotiations

The Sunrise Headlines

• US stock markets closed slightly higher yesterday with Nasdaq outperforming (+0.3%). Asian stock markets are volatile overnight with Japanese stocks revering a 2% gain in a sudden slide.
• The RBNZ kept its policy rate unchanged at 1.75%, but revised up its inflation forecasts and signalled it may have to start tightening earlier than previously expected.
• EU is giving UK an informal deadline of two to three weeks to set out how much it is prepared to pay in the Brexit divorce settlement, the Financial Times reports, citing an unidentified senior EU negotiator.
• Chinese CPI picked up unexpectedly last month (1.9% Y/Y from 1.6% Y/Y)) as pork price falls eased and fuel costs rose at a quicker clip, while a recent run of acceleration for PPI appeared to lose some of its steam (stable at 6.9% Y/Y).
• President Trump said China is taking advantage of American workers and companies with unfair trade practices, but he blamed his predecessors rather than China for allowing the massive US trade deficit to grow.
• Record high prices combined with more risky corporate bond supply is creating 'increasing uncertainty' and raising the chances of a sharp turnaround in the European high-yield credit market, Fitch has warned yesterday.
• Today's eco calendar contains US weekly jobless claims. Ireland and the US tap the bond market. ECB Nouy, Coeuré, Mersch, Constancio, Villeroy, Weidmann and Lautenschlaeger are all scheduled to speak

Currencies: Will Volatility Unlock Stalemate In Major FX Cross Rates?

Will global (FX) trading become more volatile?

Trading in the major USD cross rates was technical in nature yesterday in absence of eco data. Risk sentiment eased temporary. This ‘risk correction' kept core yields near recent lows and caused an intraday setback in the likes of USD/JPY and EUR/JPY. EUR/USD was little affected and kept a very narrow range near 1.16. However, US equities soon resumed the established record race, reversing the intraday gains of the yen. USD/JPY finished the session at 113.87 (from 114.01).

Asian equities show wild swings this morning. The record race initially simply continued. However, several indices including the Nikkei fell off a cliff in afternoon trading. We didn't see a specific reason. The decline occurred as US president Trump spoke tough on the US trade deficit in a meeting with Chinese President Xi Jinping. It's not sure whether his comments triggered the correction (intraday losses in China are more modest than e.g. in Japan). At the time of writing, the sell-off stalls. The impact on EUR/USD (1.16 area) is again negligible. USD/JPY returned to the mid 113 area. Late yesterday, the RBNZ left its policy rate unchanged at 1.75%. The RBNZ was a bit more hawkish than expected. NZD/USD rebounded slightly after the policy announcement (currently 0.6955). RBNZ's McDermott considers the level of kiwi dollar about right.

EMU and US eco data (German trade balance, US jobless claims and Wholesale data) are unlikely to have a lasting impact on core yields or on the major FX cross rates. There are plenty of ECB speakers and the EC will publish its autumn forecasts. The developments in the set-up of the US tax bill remain a wild card for global risk sentiment and the dollar.

The US currency showed a mixed/diffuse picture over the previous days. USD/JPY failed to break above the MT range top (114.49/114.73). EUR/USD held a tight range close to the post-ECB low. A high absolute interest rate differential and the prospect that any ECB tightening is still very far away forced some EUR/USD longs to scale back exposure, keeping EUR/USD under (modest) downside pressure. We assume that any sustained EUR/USD rebound will be difficult short-term, unless there is high profile negative news from the US (e.g. no agreement on a tax bill). The jury is still out whether this morning's volatility on Asian markets will filter through into European and/or US markets. A less positive risk sentiment will evidently be negative for USD/JPY. However, we doubt that it will be of much help for EUR/USD. (Risk of EUR/JPY selling weighing on EUR/USD, too ?).We maintain a EUR/USD sell-on-upticks bias.

From a technical point of view, EUR/USD dropped below 1.1670/62 support, the subsequent follow-through price action occurred very slowl. Still the pair dropped to a new post-ECB low on Tuesday. A sustained break would confirm that the recent EUR/USD uptrend is broken. EUR/USD 1.1423 (38% retracement of 2017 rise) is the next downside target on the charts. USD/JPY's momentum was positive in past months. The pair regained 110.67/95 resistance and tested the 114.49 MT range top, but the attempt failed. A sustained break would improve the technicals. We remain cautious to preposition for further USD/JPY gains. This week's price action remains unconvincing.

EUR/USD: no follow-through losses, for now

EUR/GBP

Brexit again in focus for sterling trading

On Friday and earlier this week, sterling reversed most of the decline after last week's soft BoE policy statement. However, UK politics again came to haunt sterling yesterday. There were plenty of press reports that International Developments Secretary Patel could be fired on unauthorized contacts with Israeli officials. She finally resigned yesterday evening, the second removal of a UK Cabinet member within a week. At the same time, EU policy makers continued to stress the need for more clarity on the UK separation bill. Cable dropped temporary below 1.31, but closed the session off the intraday low (1.3116). EUR/GBP rebounded to the 0.8860 area, but a modest sterling comeback made the cross rate close at 0.8840.

Overnight, the RICS house price balance was softer than expected at 1% (from 6%, 4% was expected).There was no lasting negative impact on sterling. The focus for sterling trading will be on the next round of Brexit negotiations. Sterling is regaining a few ticks across the board this morning. Markets apparently still hope for some progress or at least that the negotiating parties will avoid negative comments. We don't preposition for a positive breakthrough yet. We expect EUR/GBP to stabilize/look for a bottom. A further decline of EUR/USD might hamper a EUR/GBP rebound short-term.

MT technical: Sterling rebounded in September as the BoE prepared markets for a rate hike. This rebound ran into resistance as markets anticipated that any rate hikes would be very gradual and limited. This view was confirmed at last week's BoE policy meeting. EUR/GBP currently trades in a 0.8733/0.9033 consolidation range. A downside test of this range was rejected last week. We maintain the view that the 0.8733 -0.8652 support area will be tough to break in a sustainable way. A EUR/GBP buy-on-dips approach is favoured. EUR/GBP 0.9023/33 is the first important resistance.

EUR/GBP: off recent low, but no sustained rebound, yet

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Daily Pivots: (S1) 1.1577; (P) 1.1594 (R1) 1.1610; More...

Intraday bias in EUR/USD is turned neutral first with current recovery. Overall, with 1.1689 resistance intact, fall from 1.2091 is in progress for 38.2% retracement of 1.0569 to 1.2091 at 1.1510. We'd be cautious on strong support from there to bring rebound. But sustained break of 1.1510 will pave the way to next support zone at 1.1118/1267. On the upside, break of 1.1689 resistance is needed to confirm short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, rise from 1.0339 medium term bottom is seen as a corrective move for the moment. Therefore, in case of another rally, we'd be cautious on 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 to limit upside and bring reversal. Meanwhile, sustained trading below 55 week EMA will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.

Daily Pivots: (S1) 1.3076; (P) 1.3125; (R1) 1.3165; More....

Intraday bias in GBP/USD remains neutral at this point. Consolidation from 1.3026 is still in progress. In case of stronger rise, upside should be limited below 1.3337 resistance to bring fall resumption. Break of 1.3038 will now resume decline from 1.3651 to 1.2773 key support level. However, decisive break of 1.3337 will indicate that pull back from 1.3651 is completed and medium term rise from 1.1946 is resuming.

In the bigger picture, as noted before, GBP/USD hit strong resistance from the long term falling trend line. Current development is starting to favor that corrective rebound from 1.1946 low has completed at 1.3651. Decisive break of 1.2773 will confirm this bearish case and target a test on 1.1946 low next, with prospect of resuming the low term down trend. Nonetheless, break of 1.3320 resistance will restore the rise from 1.1946 for 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466.

Daily Pivots: (S1) 0.9986; (P) 0.9996; (R1) 1.0012; More....

Intraday bias in USD/CHF stays neutral at this point as consolidation from 1.0037 is extending. In case of deeper retreat, downside should be contained above 0.9835 resistance turned support and bring rally resumption. On the upside break of 1.0037 will resume whole rally from 0.9420. And with sustained trading above 61.8% retracement of 1.0342 to 0.9420 at 0.9990, USD/CHF should then target a test on 1.0342 key resistance.

In the bigger picture, current development suggests that USD/CHF has defended 0.9443 (2016 low) key support level again. Rise from 0.9420 could is a medium term up move and should target a test on 1.0342 high. This represents the upper end of a long term range that started back in 2015. On the downside, break of 0.9736 support is now needed to indicate completion of the rise from 0.9420. Otherwise, further rally will remain in favor in medium term.

Daily Pivots: (S1) 113.51; (P) 113.75; (R1) 114.12; More...

Intraday bias in USD/JPY remains neutral this point. With 112.95 support intact, near term outlook stays bullish and further rally is in favor. Sustained trading above 114.49 key resistance will pave the way to retest 118.65 high. However, break of 112.95 support will now indicate rejection from 114.49 and turn bias to the downside for 111.64 support and below.

In the bigger picture, medium term rise from 98.97 (2016 low) is not completed yet. It should resume after corrective fall from 118.65 completes. Break of 114.49 resistance will likely resume the rise to 61.8% projection of 98.97 to 118.65 from 107.31 at 119.47 first. Firm break there will pave the way to 100% projection at 126.99. This will be the key level to decide whether long term up trend is resuming.