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The euro was seen trading weaker after developments since Friday saw the region of Catalonia declaring independence. This comes amid Spanish government seeking a resolution to impose direct authority over the region.

On the economic front, data on Friday showed that the preliminary GDP in the US for the third quarter beat estimates, rising 3.0% in the three months ending September. The report briefly sent the US dollar higher on the day before the greenback settled back to close at the open.

Looking ahead, the economic calendar is relatively quiet today ahead of what could be a busy week. The US core PCE price index data is forecast to rise 0.1% on the month, but personal income and spending are both expected to risestrongly.

The British pound has started to recover losses against the U.S dollar in Monday trading, with the GBPUSD pair hitting 1.3150 during the Asian session. The pair currently trades around the 1.3140 level, as the U.S dollar index continues to come under early selling pressure. GBPUSD traders will remain focused on the U.S dollar index and CORE PCE inflation data coming out from the United States on Monday.

The GBPUSD pair remains intraday bullish while trading above the key 1.3116 technical level. Further upside advancement can be expected towards the 1.3157 and 1.3201 levels.

Should the GBPUSD pair decline below the 1.3116 level, a further decline towards the 1.3086 and 1.3065 levels remains likely.

The euro has made modest gains against the U.S dollar as the new trading week gets underway, as the greenback comes under early selling pressure. The EURUSD pair has so far risen towards the 1.1620 level, ahead of a possible indictment in the investigation of the Trump campaign’s links to Russia, and speculation that Federal Reserve Governor Jerome Powell will be appointed to FED Chair. Governor Powell is seen by financial markets to be more dovish towards U.S fiscal policy.

The EURUSD pair is expected to continue to recover upside momentum while clearly trading above the 1.1610 level. Further advances towards 1.1644 and 1.1670 remain likely, with extended intraday resistance found at the 1.1713 level.

A sustained loss of the 1.1610 level for the EURUSD should lead to a further decline towards the 1.1580 and 1.1560 technical levels.

The bulls regained control of the cryptocurrency market this weekend, sending bitcoin prices to new all-time highs as concerns over regulatory risks faded.

The BTC/USD exchange rate briefly touched above $6,300 over the weekend, according to CoinDesk BPI. The Bitfinex exchange last had prices at around $6,128, reflecting a gain of more than 7%. At present values, bitcoin’s market cap is a staggering $102 billion on supplies of roughly 16.65 million.

Bitcoin’s technical outlook is strongly bullish, as investors continue to buy the dips in pursuit of higher prices. The world’s no. 1 cryptocurrency by market cap has surged more than 500% this year. That makes the Dow Jones’ 19% gain look paltry.

The relentless surge in bitcoin prices has driven the crypto market’s total cap to nearly $180 billion. Bitcoin Cash (BCH), which recently forked from the Bitcoin network, was up more than 7% on Monday to trade at more than one-month highs. Though unclear how long the latest uptrend will last, the bitcoin market is in a firm uptrend that has only strengthened over the past month.

Eurozone data are back in the spotlight on Monday ahead of an active week in the market that features central bank meetings and US nonfarm payrolls. Although Monday won’t be nearly as exciting, it does feature some important tidbits on the currency region.

The newswire begins at 07:00 GMT with a report on German retail sales. Receipts at retail stores are forecast to climb 0.5% in September, following a 0.4% drop the month before. Compared to a year earlier, sales are expected to rise 3.5%.

Spain will dominate the headlines at 08:00 GMT with preliminary reports on inflation and gross domestic product (GDP). The Spanish economy is projected to grow at a healthy 0.8% in the third quarter, following a 0.9% advance in Q2.

British consumer credit and mortgage approval data will make their way through the financial markets at 09:30 GMT.

A half-hour later, the European Commission’s statistics agency will release a deluge of sentiment indicators including industrial confidence, economic sentiment and consumer confidence.

Meanwhile, Germany will issue its preliminary CPI data at 13:00 GMT.

In US data, the Commerce Department will report on personal spending and outlays for the month of September. The monthly release is expected to show a 0.7% increase in personal spending. Income growth is forecast at 0.2%.

EUR/USD

The euro has been in freefall since the European Central Bank (ECB) announced it would likely extend its bond-buying program beyond September 2018. The announcement confused the bulls, who had just cheered the ECB’s decision to cut its monthly bond purchases in half from €60 billion to €30 billion. The EUR/USD exchange rate was last seen trading at 1.1600. The pair fell roughly 200 pips on Friday. The technical picture is bearish following a breakdown of support near 1.1660. The pair’s next support level is located at 1.1585. On the opposite side of the ledger, the initial resistance target is located at 1.1720.

GBP/USD

Cable was trading steady on Monday, as markets stabilized following a sharp breakdown on Friday that drove prices to three-week lows. The GBP/USD is currently trading around 1.3140, where it was up slightly from the previous close. The pair is expected to rally later this week as the Bank of England (BOE) signals for higher interest rates. With inflation at 3%, the central bank is widely expected to hike rates. The bulls are eyeing the 1.3160 resistance for signs of upward momentum. That level represents the high from Friday. ON the opposite side of the ledger, immediate support is located at 1.3187, which represents the 50-DMA.

US OIL

Oil prices are riding a wave of optimism now that OPEC appears to be committed to extending its supply cut well into next year. US crude is trading near six-month highs, with prices briefly surpassing $54.00 a barrel. The market looks poised for further gains as investors rally behind supply-side optimism. Optimism is also being supported by expectations of higher crude demand.

Key Highlights

• The Euro moved down sharply this past week and traded below 1.1700 against the US Dollar.
• There was a break below a crucial triangle support at 1.1735 on the 4-hours chart of EUR/USD.
• The US Gross Domestic Product (Q3 2017) (Annualized) (Prelim) posted a growth of 3%, more than the forecast of 2.5%.
• Today, the Euro Zone Economic Confidence for Oct 2017 will be released, which is forecasted to increase from 113.0 to 113.4.

EURUSD Technical Analysis

The Euro started a new downside wave from 1.1835 against the US Dollar. The EUR/USD pair is now below 1.1700 and eyeing further declines in the near term.

Looking at the 4-hours chart, there was a break below a crucial triangle support at 1.1735. The pair is now placed well below 1.1700, the 100 simple moving average (4-hour, red) and the 200 simple moving average (4-hour, green).

These are bearish signs and might put a lot of pressure on EUR/USD for a move towards 1.1500. Any major corrections in the short term towards 1.1640 and 1.1700 might be considered as selling opportunities for bears.

US Gross Domestic Product

This past Friday, the Gross Domestic Product Annualized figure for Q3 2017 (prelim) was released by the US Bureau of Economic Analysis. The forecast was slated for a rise of 2.5% compared with the last increase of 3.1%.

The actual result was better than the forecast, as there was a rise in the GDP by 3%. Looking at the GDP Price Index, there was an increase of 2.1%, which was more than the forecast of +1.8%.

The report stated:

Current-dollar GDP increased 5.2 percent, or $245.5 billion, in the third quarter to a level of $19,495.5 billion. In the second quarter, current-dollar GDP increased 4.1 percent, or $192.3 billion.

Overall, the EUR/USD pair remains in a downtrend and might extend its declines towards 1.1500 in the near term.

Economic Releases to Watch Today

Euro Zone Consumer Confidence Oct 2017 – Forecast -1, versus -1 previous.

Euro Zone Services Sentiment Oct 2017 – Forecast 15.0, versus 15.3 previous.

Euro Zone Industrial Confidence Oct 2017 – Forecast 7.0, versus 6.6 previous.

Euro Zone Economic Sentiment Indicator Oct 2017 – Forecast 113.4, versus 113.0 previous.

US Personal Income for Sep 2017 (MoM) – Forecast +0.4%, versus +0.2% previous.

US Core Personal Consumption Expenditure for Sep 2017 (MoM) – Forecast +0.2%, versus +0.1% previous.

The US Commerce Department released Q3 GDP data on Friday, showing the US economy expanded at an annual pace of 3%. With the back-to-back Hurricanes during the quarter many had expected Q3 GDP to be lower than the previous, robust, release of 3.1% – consensus forecasts had called for a release of 2.5%. The effects of the Hurricanes appear to have been smaller and less impactful on economic growth than had been previously expected. However, much can be attributed to the disruptions caused by Harvey & Irma, as consumer spending declined to 2.4% from the strong 3.3% rate seen in Q2. The Commerce Department cautioned that the data did not capture all the losses caused by the storms, which caused shutdowns of many businesses in Florida and Texas. The back-to-back growth of >3% is the first time since 2014 and is likely to keep the Federal Reserve on track to hike interest rates one more time in 2017. The data helped push USD higher against its peers.

In Spain on Friday, Catalonia's parliament defiantly declared independence in a vote boycotted by three parties, claiming an Oct. 1 referendum, that was ruled illegal under Spanish law, had given them a mandate. Following the vote, Spain's central government fired Catalonia's President Puigdemont, dissolved the region's parliament and dismissed the local government after the Spanish Senate approved the use of article 155 of the constitution. At the same time, Spanish Prime Minister Rajoy called for an election on December 21st. On Sunday, in Catalonia's capital Barcelona, hundreds of thousands of demonstrators rallied to show that not everyone is in favor of independence. The United States and the European Union also rejected the results of the referendum and support a united Spain. Without Catalonia, Spain would continue to be the fourth largest economy in the eurozone, after Germany, France and Italy, but it would be much weakened. An independent Catalonia becomes a threat not just to Spain but to the EU as a whole, in some ways a greater threat than Brexit. EUR had been under downward pressure following the slow and gradual reduction of QE and the Catalan issue is not helping the single currency.

EURUSD is little changed in early trading at around 1.1615.

USDJPY is trading close to Friday's close at around 113.62.

GBPUSD is 0.15% higher in early Monday trading at around 1.3145.

Gold is slightly lower, due to USD strength, currently trading around $1,271.

WTI is 0.5% lower in early trading at around $54pb.

Major data releases for today:

At 09:30 GMT, the Bank of England will release Consumer Credit for September. The forecast is expected to come in at GBP 1.5 billion compared to the previous months GBP 1.583 billion. We can expect to see volatility in GBP if the release is wildly different from expectations.

At 10:00 GMT, the European Commission will release Industrial Confidence, Economic Sentiment Indicator, Business Climate, Consumer Confidence and Services Sentiment for the month of October. Industrial Confidence is forecast at 7.0 (prev. 6.6), Economic Sentiment at 113.4 (prev. 113), Consumer Confidence unchanged at -1 and Services Sentiment at 15.0 (prev. 15.3). Whilst all of these data releases should indicate relatively good sentiment, any release that is significantly different from forecast will likely see EUR volatility.

At 12:30 GMT, the US Bureau of Economic Analysis will release Core Personal Consumption Expenditure – Price Index (YoY & MoM) for September. The previous year-on-year reading of 1.3% is expected to be beaten, as upward inflationary pressure should start to be evident in the US economy. The month-on-month releases is expected to come in at 0.2%, beating the previous release of 0.1% – again pointing to upward inflationary pressure.

Sunrise Market Commentary

• Rates: Upward bias core bonds to start new trading week
  The US, 10-yr and 30-yr yields failed to close above key resistance levels last week, suggesting some downward correction this week with event risk looming and a likely positive impact on core bonds (next Fed chair, main US eco data, Russian probe, tax reforms, Catalunya,…). The US Note future could outperform the German Bund.
• Currencies: Euro remains weak and loses support versus dollar and sterling
  The post-ECB euro selling continued on Friday but its intensity eased. Some technical supports were broken, suggesting that the market may still a bit too long euro. We think the correction might have somewhat further to go. However, sterling and the dollar have issues too. Therefore, we prefer a euro sell-on-upticks ST and a euro buy at lower, key euro supports

The Sunrise Headlines

• US stock markets ended last week on a positive note with a huge outperformance of Nasdaq (+2%) on strong earnings from bellwether tech companies. Asian stock markets are mixed overnight.
• Spain faces a crucial test of its authority over Catalonia today when regional government ministries open under the direct control of Madrid for the first time since the country's return to democracy 40 years ago.
• President Trump is likely to announce Federal Reserve governor Powell as his nominee to be the next chairman of the US central bank next week, according to a person familiar with the matter.
• The man in charge of the ECB's €2.5 tn stimulus programme, Benoit Coeure, hopes it will not be extended again when it expires in September, he told a French weekly newspaper.
• Some of the world's most powerful oil producers including Saudi Arabia are rallying behind an extension of a global supply cuts agreement, providing support to crude prices that have rebounded to $60/barrel.
• S&P unexpectedly upgraded the Italian rating from BBB- to BBB (stable outlook). The upgrade reflects Italy's firming economic recovery, driven by investment activity and improving labour market trends.
• Today's eco calendar is busy with German (CPI) and US (PCE) inflation readings. EC EMU confidence indicators are also on the agenda. Italy taps the markets and ECB Costa and Hansson are scheduled to speak

Currencies: Euro Remains Weak And Loses Support Versus Dollar And Sterling

EUR/USD extends decline. Dollar picture improves

EUR/USD extended its post-ECB decline on Friday, but the pace slowed. The move was mostly due to euro softness. The prospect of the dovish Mr. Powell eventually succeeding Ms. Yellen pushed US yields lower in mid US trading and narrowed the interest rate differential, but an attempt of the euro to rally was rapidly aborted and reversed. It suggests that the market is still too long euro. Mr. Draghi's dovish comments look to shed euro long exposure. EUR/USD eventually sluggishly moved higher on pre-weekend positioning to close at 1.1610 from 1.1650. USD/JPY traded north of opening levels, but could never really make headway. It briefly tested the key 114.50 resistance, but a break didn't occur despite broad-based equity gains. After the Powell rumours, USD/JPY slid even into negative territory, closing at 113.68 versus a 114 opening.

Overnight, FX markets traded subdued with EUR/USD and USD/JPY little changed from openings levels around 106.09 and 113.73 respectively. The Kiwi dollar remains under pressure as the government wants to change the RBNZ remit, which might mean including employment objective.

Eco calendar uneventful

Today in EMU, the attention will focus on the EC business indicators and the German HICP inflation (October). In the US, the personal income and spending for September is released. For details see the fixed income section. Summarizing: the data shouldn't be of importance for FX

Events plentiful this week

Five events may affect FX markets. First, President Trump is due to announce his nominee for Fed Chair. Fed governor Powell is the frontrunner and markets have at least partly already discounted his win. A surprise nomination of (hawk) John Taylor would likely hit US Treasuries and favour the dollar. Second, the November FOMC meeting concludes on Wednesday, but no surprises are expected and thus it should be neutral FX-wise. Third, the Republicans will unveil details of the tax reform bill. If the details show bigger tax cuts than recently suggested, it would be negative for US Treasuries and dollar positive. Fourth, the standoff between Spain and Catalonia. Until now, it didn't play a big role in EUR/USD trading, but as long as the impasse stays, it would be slightly dollar positive. Finally, the payrolls with too high? expectations

Dollar to make more corrective gains versus euro?

The euro traded strong in the run-up to the ECB decision. The dollar failed to gain against the euro despite widening interest rate differentials since early September. This trading dynamic was broken after the ECB decision and extended on Friday. Policy divergence between the ECB and the Fed is again on the radar of (FX) markets. A EUR/USD sell-on upticks bias remains favoured. Any additional interest rate support for the dollar will probably be modest near term, especially if Powell is nominated to succeed Yellen. So, any further EUR/USD decline might develop gradually. For today, we have a neutral bias.

Technicals: EUR/USD uptrend brokenFrom a technical point of view, EUR/USD dropped below 1.1670/62 support. If confirmed, it would signal that the uptrend in place since the turn of the year is broken, as the higher highs, higher lows pattern is shattered. EUR/USD 1.1423 (38% retracement of 2017 rise) is the next downside target on the charts. USD/JPY's momentum was positive in September. The pair regained 110.67/95 resistance, a positive. The 114.49 correction top is the next resistance. Sentiment improved last week, but the first test on Friday failed. We don't preposition for a sustained break higher.

EUR/USD broke below 1.1662 support. If confirmed, the year-long euro uptrend would be finished

EUR/GBP

EUR/GBP returns below 0.89 on euro weakness

On Friday, EUR/GBP initially returned to the 0.89 area, despite EUR/USD staying near the post-ECB lows. Ongoing diffuse comments on the Brexit process from inside and outside the UK weighed on sterling. However, the sterling fought back and gained even some more ground versus the euro (and dollar) after 16 CET when the rumour that Trump leans towards the nomination of dovish Powell couldn't push EUR/USD sustainably higher. EUR/GBP closed around 0.8840.

The UK eco calendar contains the money supply and lending data, but these are unlikely to make the difference, while EMU data won't affect the overall euro trading either. The key for sterling might be on Thursday when the market expects a BoE rate hike to 0.50%. There is a strong majority of economists expecting a rate hike and markets price a 88.4% chance of a rate hike. This means asymmetrical risks for sterling. Slight gain in case of rate increase, but heavy losses in case of an unchanged decision. We don't expect that the rate hike will be the start of a genuine rate cycle and neither does the market. Ahead of the BOE we expect sideways trading in the 0.8743 to 0.9033 range maybe with slight sterling gains on the basis of the technicals. We maintain a EUR/GBP buy-on-dip bias, but are in no hurry to add exposure until we see signs that euro correction is over.

EUR/GBP staged a strong uptrend from April till late August with a top at 0.9307. Rising UK inflation and the BoE preparing markets for a rate hike caused a sterling rebound, but it has run its course. EUR/GBP recently tried to regain the 0.90 area, but there were no follow-through gains. The drop below the 0.8855 area (neckline minor double top) on Friday may, if confirmed, open the way for a return to the 0.8743 or even 0.8652 supports. This area will be tough to break.

EUR/GBP: minor double top, if confirmed, may push sterling correction a bit further. Still sell sterling on up-ticks.

Download entire Sunrise Market Commentary

• We expect the Bank of England (BoE) to hike the Bank Rate by 25bp to 0.50% from 0.25% with a vote count of 7-2.
• We think this is more about taking back the emergency cut from August 2016, just after the Brexit vote, and not the beginning of a new hiking cycle for now.
• We expect the BoE to repeat that it will hike at only 'a gradual pace and to a limited extent'.
• The direction for EUR/GBP from here will crucially depend on whether the BoE signals that the November hike is a one-off or not

Not the beginning of a new hiking cycle for now

After the surprisingly hawkish shift in tone at the latest Bank of England (BoE) meeting in September, we think the BoE is going to hike the Bank Rate by 25bp from 0.25% to 0.50% at its meeting on Thursday (in line with consensus and market pricing). The shift is due to a combination of low unemployment rate and high inflation. We think the vote count is likely to be 7-2, as Sir David Ramsden and Sir Jonathan Cunliffe have indicated that they think it is too early to hike. However, even Gertjan Vlieghe, who was previously considered very dovish, now seems to support a hike and we think most BoE members are inclined to vote with the majority.

As we believe the hike is relatively certain, the bigger question is whether this is the beginning of a new hiking cycle or not. We are in the camp believing this is more about taking back the emergency cut from August last year just after the Brexit vote and do not forecast another rate hike in 2018. In this regard, it is worth noting what the BoE says about the current market pricing of BoE, as the BoE has a tendency to compare the current market pricing to the consensus view among BoE members. This is going to be very important for whether or not this is just a 'one and done hike', as markets have priced in a second hike by autumn 2018, which we think is too hawkish. If we are right, the BoE may say that markets are overestimating the number of rate hikes, although the BoE may try to keep its flexibility here. Regardless, we expect the BoE to repeat that it will hike at only 'a gradual pace and to a limited extent'.

There are multiple reasons why we do not believe this is the beginning of a new cycle despite the current situation with low unemployment and high inflation: we still believe the BoE is too optimistic on the growth outlook, as it projects a pickup in private consumption growth due to higher wage growth, which we are having a hard time seeing in the current situation. The still subdued wage growth also means that domestically generated inflation is not as high as actual inflation, which is pushed higher temporarily by the big fall in GBP, which again passes through to consumer prices only slowly. By the end of the day, it is the underlying inflation pressure that is important for the BoE. Finally, but not least, the ECB is not expected to hike before 2019 and has just extended QE by nine months (although slowing the buying pace) and we do not believe the BoE wants to tighten monetary policy too much relative to the ECB

This is one of the big meetings, so we will also get updated projections and a press conference. We expect inflation to be revised higher in the short-term but to be unchanged further out on the forecast horizon. Although GDP growth is weaker now than previously, we think the BoE will continue signalling a pickup in GDP growth due to higher wage growth. The unemployment rate has continued to turn out lower than expected and hence we expect another downward revision of the projections.

EUR/GBP: downside risks if BoE hesitant that hike is a one-off

The direction for EUR/GBP from here will crucially depend on whether BoE signals that the November hike is a one-off. With the market priced some 90% for the hike, this should in itself deliver only limited GBP strength but a knee-jerk reaction in EUR/GBP to test the 0.88 level could be on the cards. If the BoE manages to convince the market that the hike is a one-off, then the cross should stick to the 0.87- 0.90 range but we emphasise that there is a significant risk the BoE will fail to conjure up speculation on further nearterm tightening. Coupled with negative EUR momentum post the ECB's dovish tapering, this heightens the risk of a move below 0.88 on the announcement. However, we still target this level (0.88) in 1-3M, as we think the BoE will be keen to stress its data and Brexit dependence, which we deem limits the scope for further policy tightening on a 12M horizon. We still expect EUR/GBP to edge only a little lower on a six to 12M horizon

Market movers today

Globally, we do not have many important data releases due today but the week is going to be interest ing. US PCE inflat ion data may at tract some at tention today but note that we implicitly got t he dat a in connect ion wit h Friday's first estimat e of Q3 GDP . Assuming no revisions to previous months, both CPI and GDP figures indicate PCE core rose 0.1% m/m in September (unchanged at 1.3% y/y).

In Europe, confidence indicators for consumers and businesses is due out .

In the Scandies, Norwegian retail sales and Swedish wage growth data are due out this morning.

After last week's ECB meet ing (see ECB review: ECB opts for ‘lower-for-longer’ QE extension, 26 October 2017), focus turns to the Fed on Wednesday and Bank of England on Thursday. We do not expect Fed to send any new signals (see FOMC preview: No new signals, while Trump is set to announce new Fed chair soon, 25 October 2017) but the bank of England will most likely hike the Bank rate by 25bp from 0.25% to 0.50%. See Bank of England Preview: Taking back emergency cut from 2016, 30 October 2017.

Selected market news

The Spanish political crisis continues to develop as a test of strength looms today. On Sunday, hundreds of thousands of Catalans marched in the st reet s of Barcelona, calling for the region to remain part of Spain in the biggest show of force so far for a united Spain since the crisis began. T he demonst rat ion followed t he regional parliament 's declarat ion of independence on Friday, which led Madrid to act ivate Art icle 155, dissolving the Catalan government and calling for new elect ions in the region for 21 December. Today, Catalan regional minist ries will reopen under direct cont rol by Madrid, which could be a real test of st rength for both sides. Former Catalan leader Carles Puigdemont is calling for peaceful opposit ion and some Catalan ministers have refused to accept the direct ives from the central government removing them from power. Hence, there is a risk that Madrid could st ruggle to enforce its rule.

Decision on Fed Chair imminent. According to a video President Trump has posted on Instagram, he is set to announce the next Fed Chair this week. Our base case scenario is that Trump will nominate Jerome H. Powell (current Fed Board Governor nominated by President Bush) as Janet Yellen's successor. Republicans can support Powell while he at t he same t ime is a guarantor of the status quo (i.e. to cont inue the gradual hiking cycle and quant itat ive t ightening programme). The other favourite is John B. Taylor, who would be the hawkish choice.

Russia's central bank cut its key rate by 25bp to 8.25% on Friday, following a decline in inflat ion to 2.7% y/y.

Equity markets ended the week on a positive note. In the US, S&P500 closed 0.8% up at a new record high, while most European bourses also closed in the green. In Spain, however, the IBEX index closed 1.5% lower, reflecting the polit ical turmoil in the country. This morning, Asian stocks are trading higher, boosted by solid earnings from US tech companies.