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Price dropped and resumed the yesterday's bearish candle. The dollar has taken the lead on the short term again as the dollar index has managed to close much above the 93.81 horizontal resistance. USDX has jumped above the 94.00 psychological level and tries to reach new highs. A further USDX's increase forces the USD to dominate the currency market on the short term.

Personally, I'm still waiting for a retest of the 93.81 broken resistance before will climb much higher. I've said in the last weeks that only a valid breakout above the 93.81 obstacle will announce a larger rebound and a potential reversal. Is premature to talk about a reversal on the dollar index because is still trapped below some important resistance levels.

You should know that the rate will be driven by the fundamental factors in the afternoon, the US is to release the Unemployment Rate, Average Hourly Earnings, and the NFP.

Price drops after the retest of the median line (ml) of the descending pitchfork. EUR/USD has finally managed to close below the 1.1711 horizontal support and now moves towards the median line (ML) of the major ascending pitchfork. Technically, it is expected to drop further and to ignore the ML, but we'll see what impact will have the US data in the afternoon because a disappointment will send the pair higher again on the short term.

Technically, we may still have a Head and Shoulders pattern on the Daily chart, which could confirm a larger drop.

Sunrise Market Commentary

• Rates: Can payrolls pave the way for full retracement?
  The Fed indicated that Q3 eco data might be distorted by the impact from hurricanes. Therefore, we don't expect US Treasuries to strongly profit from disappointing payrolls. If, on the other hand, payrolls are strong, it should pave the way for a full retracement in the US note future towards 124-14+.
• Currencies: Payrolls to support further USD gains?
  The dollar received support from higher US yields and a new record race of US equities yesterday. Today's US payrolls will probably distorted by the impact of the hurricanes. Still, a decent report might support further USD gains. Rising uncertainty on the political fate of UK PM May kick-started a new down-leg of sterling

The Sunrise Headlines

• The S&P 500 (+0.5%) closed at its sixth consecutive record, its longest streak of highs since 1997. Asian stock markets trade with more or less similar gains this morning with China still closed.
• The second-largest bank based in Catalonia, Banco de Sabadell, has decided to move its legal headquarters out of the region as Catalan separatists and the Spanish authorities hurtle towards a showdown over independence.
• Theresa May faces rebellion among Tories. Grant Shapps, who served as Tory chairman, said he has a list of colleagues who want a new leader and prime minister. The plotters aren't yet numerous enough to push her out.
• Congressional Republicans moved to hasten an overhaul of the US tax code, while Federal Reserve officials warned in rare public remarks that President Trump's tax plan could lead to inflation and unsustainable federal debt.
• The global economy is enjoying its best growth spurt since the start of the decade, IMF Lagarde said, as she urged governments and companies not to “let a good recovery go to waste”.
• The US Senate approved Randal Quarles for a key banking oversight post on the Federal Reserve Board, marking President Donald Trump's first imprint on the central bank and his first full-time appointment of a banking regulator.
• The focus of today's agenda is on the US payrolls report. Average hourly earnings and unemployment rate will also be closely monitored. A number of European and US central bankers is scheduled to speak

Currencies: Payrolls To Support Further USD Gains?

Dollar profits from renewed reflation trade.

Initially, there was again no clear story to guide USD trading, yesterday. There were only second tier eco data in the US and Europe. Tensions on the Spanish markets eased, but it didn't support the euro. Later, the dollar was supported by some ‘hawkish' Fed comments. The US reflation trade also regained momentum with major US stock indices setting new record levels and interest rate differentials slightly widening in favour of the dollar. EUR/USD finished the day at 1.1711 (from 1.1759). USD/JPY closed session at 112.82 (from 112.76)

Overnight, Asian markets profited from positive spill-over effects from WS record race. Even so, the gains in USD/JPY are modest. The pair continues struggling to overcome the 113.00/26 resistance. Uncertainty on the outcome of the Japanese parliamentary elections might play a role. Overall USD strength finally pushed EUR/USD for the test of the recent lows below 1.17. The decline of the Aussie dollar accelerates after RBA-member Harper indicated that the economy isn't out of the woods and as he suggested that an additional rate cut isn't ruled out.

Today, the US September payrolls will be published. The tropical hurricanes likely impacted the payrolls negatively. How much is difficult to say. The consensus stands at a modest 80K net job growth. It compares to a trend growth of about 200K. Also other key metrics of the report like the unemployment rate (expected 4.4%) and the average hours earnings (expected 0.3% M/M and 2.5% Y/Y) might be distorted too.

We see an asymmetrical risk. If payrolls are indeed weak, markets may discard them as unreliable. Better than expected job growth and, maybe even more important, a positive surprise in wage growth will be seen as confirming recent strong US data. It might reinforce the reflation trade, including the rise of the dollar. A weak figure might have only a modest negative impact on the dollar. The central bank parade continues today with Fed governors Dudley, Kaplan and Bullard and ECB governor de Galhau. Uncertainty on Spain/Catalonia remains a wild card for the euro, but currently we don't see a big impact on the single currency.

From a technical point of view EUR/USD hovered in a consolidation pattern between 1.1823 and 1.2070, but broke below last week. There was some hesitation in the USD rebound, but the pair holds below the 1.1823 previous range bottom. Higher US yields are needed to support additional USD gains. Next support in EUR/USD comes in at 1.1662, while 1.1423 marks the 38% retracement from the 2017 rally. EUR/USD is captured in a sell-on-upticks pattern. The USD/JPY momentum was constructive of late, but for an important part due to yen weakness. USD sentiment recently also improved though. USD/JPY regained 110.67/95 (previous resistance), a short-term positive. The 114.49 correction top is the next important resistance. The rally lost momentum this week and underperformance the overall USD rebound. So a break beyond 144.49 probably is not evident.

EUR/USD: nears 1.1662 support. Will the payrolls force the break?

EUR/GBP

Sterling sell-off accelerates

Yesterday, sterling came under more pressure after the failed key note speech of UK PM May. The ‘event' brought additional uncertainty on the political support for PM May and weighed on sterling. The EUR/GBP short-squeeze accelerated as the pair broke the 0.8900/07 resistance area. BoE ‘s McCafferty, as expected, spoke hawkish. He expects economic slack to disappear quickly and saw CPI persistently overshooting the target. His view iss well-know and was ignored. EUR/GBP closed the session at 0.8927. Cable finished the day at 1.3119, a substantial additional loss from Wednesday's close (1.3248).

Today, UK Halifax House prices and the Q2 unit labour costs will be published. However, the focus for sterling trading will be on the internal political developments. According to rumours, up to 30 lawmakers already support a campaign to replace May as prime minister. The risk of a political vacuum causes further sterling losses this morning. The pound will probably remain vulnerable as long as this topic dominates to financial and political headlines. Sterling again looks like a falling knife, especially the decline of cable is becoming quite impressive…

EUR/GBP made an strong uptrend since April to set a top at 0.9307 late August. UK price data amended the dynamics and hawkish BoE comments reinforced a sterling rebound. Medium term, we maintain a EUR/GBP buy-on-dips approach as we expect the mix of euro strength and sterling softness to persist. The prospect of (limited) withdrawal of BOE stimulus triggered a good sterling countermove. However, this rebound has apparently run its course. EUR/GBP supports at 0.8743 and 0.8652 are probably difficult to break. We look to buy EUR/GBP on dips. Yesterday's rebound above the 0.89 area improved the ST technical picture of EUR/GBP.0.9026 is 50% retracement of the recent countermove.

EUR/GBP: clears 0.89 resistance area

Download entire Sunrise Market Commentary

Daily Pivots: (S1) 0.7765; (P) 0.7815; (R1) 0.7844; More...

AUD/USD's strong break of 0.7807 support indicates that rise from 0.7328 has completed at 0.8124. More importantly, whole medium term rise from 0.6826 is possibly completed too. Intraday bias is now on the downside for 382% retracement of 0.6826 to 0.8124 at 0.7628 first. Decisive break there will target 0.7328 key cluster support (61.8% retracement at 0.7322) next. On the upside, break of 0.7874 minor resistance is need to indicate completion of the decline. Otherwise, outlook will now be cautiously bearish.

In the bigger picture, rise from 0.6826 medium term bottom is seen as corrective pattern. In case of further rally, strong resistance should be seen at 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside. Meanwhile, firm break of 0.7807 is the first signal that such correction is focused. Break of 0.7328 will bring retest of 0.6826 low.

Dollar traders broadly higher today and remains as the strongest major currency for the week. The greenback is boosted by news that US President Donald Trump's administration is finally moving a procedural step on the tax plan. Optimism was also seen in the stocks markets as DOW, S&P 500 and NASDAQ all extended the record runs. Elsewhere, Sterling remains the weakest one for the week as troubled by political uncertainties in UK, and weak economic data. Nonetheless, Australian Dollar is sold off sharply in Asian session after RBA board member Ian Harper said he won't rule out a rate cut.

Trump's tax plan moved a procedural step

The Republican controlled House approved a fiscal 2018 spending blueprint yesterday, by 219-206 vote. It's a procedural step forward for US President Donald Trump's tax plan. With the blueprint, Republicans can now pass the tax bill by a simple majority vote in the Senate. As there are 52 out of 100 Republicans there, the Democrats could be bypassed. The move is seen by the markets that Trump's administration is finally taking the job of tax cut (or reform) seriously.

Fed Williams criticized the tax plan

However, there are still a loud voice of opposition of Trump's tax plan. San Francisco Fed President John Williams criticized that slashing tax rates could only boost short-lived growth. He pointed to analysis of Trump's proposals and said they "mostly boost demand and tend to have relatively small" impacts on labour supply and productivity.

Without targeting to raise productivity and growth potential, the tax cut could only promote "unsustainable" growth. And, such unsustainable could be easily undone by asset price bubbles, inflation and even recessions. He emphasized that "having policies that don't kind of maintain this sustainable path, stable inflation, will just end up, we know from history, creating potential recessions or high inflation or other problems and that doesn't benefit anybody."

Fed officials support another hike this year

Regarding monetary policy Williams said that "favorable employment numbers, combined with the findings on inflation and the steady pace of growth, are all behind my confidence that rates will need to rise to their new normal levels." Meanwhile, he noted that "conventional monetary policy has less room to stimulate the economy during an economic downturn." And, in those cases, Fed could need to "lean more heavily" on unconventional tools.

Kansas City Fed President Esther George said that it is "appropriate" to move interest rate "cautiously" at "this stage of expansion". She added that "moving interest rates at a gradual pace toward a level consistent with longer-run growth is the best step to help promote a continuation of the economic expansion." And there, "further gradual rate adjustments will be needed."

Philadelphia Fed President Patrick Harker said that US GDP growth will be "slightly above" 2%. And "until we see some other changes on the fiscal side of the house, we're not going to move that growth rate too much." Meanwhile, he is still supporting another rate hike this year and three more for next. Though he added that policymakers will "have to see how the inflation dynamics play out".

Upside risks for NFP, downside risks for wage

Non-farm payroll report is the main feature for today. NFP is expected to show 77k growth in the job market in September. That would be less than half of August's 156k, mainly due to the impact of hurricanes. Unemployment rate is expected to be unchanged at 4.4%. Expectation on wage growth is high as average hourly earnings could grow 0.3% mom.

The 77k expectation could have overestimated the impact of the hurricanes. After all, ADP report showed 135k private job growth, which wasn't too bad. Employment component of ISM manufacturing rose to 60.3, up from 59.9. Employment component of ISM non-manufacturing rose slightly to 56.8. Both are rather respectable numbers. 4-week average of initial claims rose 18k to 268k, still a very low number historically. Continuing claims was relatively unchanged at around 1.94m.

There are rooms for an upside surprise in today's NFP. Meanwhile, the biggest downside risk is on wage growth.

Elsewhere

Japan labour cash earnings rose 0.9% yoy in August. Leading indicator rose to 106.8 in August. German factory orders rose 3.6% mom in August. Swiss foreign currency reserve will be released in European session. Later today, in addition to US NFP, Canada will also release job data and Ivy PMI.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7765; (P) 0.7815; (R1) 0.7844; More...

AUD/USD's strong break of 0.7807 support indicates that rise from 0.7328 has completed at 0.8124. More importantly, whole medium term rise from 0.6826 is possibly completed too. Intraday bias is now on the downside for 382% retracement of 0.6826 to 0.8124 at 0.7628 first. Decisive break there will target 0.7328 key cluster support (61.8% retracement at 0.7322) next. On the upside, break of 0.7874 minor resistance is need to indicate completion of the decline. Otherwise, outlook will now be cautiously bearish.

In the bigger picture, rise from 0.6826 medium term bottom is seen as corrective pattern. In case of further rally, strong resistance should be seen at 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside. Meanwhile, firm break of 0.7807 is the first signal that such correction is focused. Break of 0.7328 will bring retest of 0.6826 low.

Economic Indicators Update

AUD/USD resumed the yesterday’s impressive sell-off. Is moving down after the false breakout above the median line (ml) of the minor descending pitchfork. The downward was paused by the 0.7755 horizontal support, but the US figures can send it towards the next major downside target (WL1).

Price is going down very fast and ignores all support levels. I’ve said in the previous reports that the NZD/USD should drop further and should take out the dynamic support from the wl5. Now is pressuring the 61.8% retracement level, could ignore this as well if the USDX will reach new highs. The pair is trapped between the WL3 and WL2, but is could develop a Falling Wedge pattern if will fail to reach the 0.7053 horizontal support.

The yellow metal dropped significantly in the yesterday’s trading session and reached new lows. Price changed little today, but maintains a bearish bias on the short term. Gold is trading right above an important dynamic support, a valid breakdown will announce a further drop.

The price is into a corrective phase as the USDX has finally managed to rebound on the short term. Gold should drop further if the USDX’s breakout above the 93.81 will be validated. The greenback is expected to dominate the currency market in the upcoming period if the United States data will come in better today as well.

The economic calendar is filled with high impact data, the US Unemployment Rate is expected to remain steady at 4.4% for the second month in September, while the Average Hourly Earnings could increase by 0.3%, more versus the 0.1% in the former reading period. Moreover, the NFP will be released as well and is expected to be reported at 82K. You should keep an eye on the economic calendar to see what will move the price.

Gold dropped much below the $1270 per ounce and is almost to reach the sliding line (SL) of the ascending pitchfork, where he may find support again. Support can be found at the 61.8% retracement level. However, a breakdown below the mentioned support levels will confirm a reversal on the short term and a drop much below the $1250 per ounce.

Currency pair GBP/USD

The GBP/USD has broken below the important long-term support trend line (dotted blue), the 1.3250 round level, and the potential 50% Fibonacci level of wave 4 mentioned yesterday. This bearish breakout invalidates the bullish wave structure and changes the structure to bearish with currently a wave 3 (blue).

The GBP/USD break below the support trend lines (dotted lines) and is showing strong bearish momentum ever since the first breakout (dotted green).

Currency pair EUR/USD

The EUR/USD will most likely soon break below the support trend line (blue) due to the strong bearish momentum. A bearish breakout below it and the 23.6% Fibonacci level of wave 4 (blue) could see price fall towards the 38.2% Fibonacci level near 1.15.

The EUR/USD will probably soon invalidate the bullish wave 1-2 (green), which also would mean that wave C (purple) has not yet been completed and is still open. A more likely wave scenario is indicating by the bearish 5 wave pattern (grey), which would be confirmed if price breaks below support.

Currency pair USD/JPY

The USD/JPY is in a triangle pattern, which is indicated by the support (blue) and resistance (red) trend lines. The triangle pattern could indicate a pause with the uptrend and a bullish breakout above resistance (red) could take price up towards 114.50-115.

The USD/JPY broke above the resistance trend lines (dotted lines). The next bullish breakout could confirm a potential wave 3 (orange). In that case price has most likely expanded the wave 4 (purple) via a larger ABC (orange).

Asia Summary

Following the gains in the US equity markets, Asian indices are generally higher. Markets in Hong Kong have traded at an intraday 10-year high, while record highs have been seen for the equity markets in the Philippines. Equity markets in New Zealand trade at record high for 5 straight sessions. Markets in China and South Korea are still closed in observance of national holidays.

In Hong Kong, the banking sector has traded mostly higher. Shares of Standard Chartered have however underperformed, following reports that UK regulators are probing $1.4B in client fund transfers.

The gaming sector in Hong Kong has been weighed down amid the release of Macau tourism data for the Golden Week period.

Following yesterday’s retail sales induced declines, the Aussie has further weakened on today’s session. Earlier today, RBA official Harper did not rule out a rate cut amid the weaker retail sales data. The RBA last cut rates in Aug 2016.

Looking ahead, the US monthly payrolls report is in focus. Fed speakers are expected to include Bostic and Dudley. China’s Sept Caixin Services PMI may be released on Sunday Oct 8th, while Chinese markets will reopen next week

Key economic data

(HK) Hong Kong Sept Nikkei PMI: 51.2 v 49.7 prior

(JP) Japan Aug Labor Cash Earnings Y/Y: 0.9% v 0.5%e; Real Cash Earnings; 0.1% v 0.1%e

(JP) Japan Sept Official Reserve Assets: $1.27T v $1.27T prior

Speakers and Press

China

(CN) S&P: Amid the government’s deleveraging efforts, asset growth in the domestic banking sector has lagged growth of nominal GDP for the first time since 2012.

(CN) US Commerce Dept defers anti-dumping decision on imports of aluminum foil from China; to issue decision no later than Nov 30th

(HK) Macau Number of Mainland China Tourists from Oct 1-4 at 363.4K, -5.1% y/y

(HK) Hong Kong Securities and Futures Commission (SFC) plans to begin investor identification (ID) mechanism in early 2018 - HK Press

Other

(AU) Australia Senator Xenophon (independent) to quit and move to state politics

(AU) RBA Harper: Should a wider stalling of consumption occur, that could warrant rates response; NOT ruling out rate cut

(JP) Japan Fin Min Aso: Confirms to hold 2nd economic dialogue with US in Washington DC on Oct 16th**Note: On Sept 24th, it was reported that Aso was expected to skip the G20 and IMF meetings in Washington due to be held in Oct, as the US and Japan are expected to hold their 2nd economic dialogue on Oct 16th in Washington.

(JP) Tokyo Gov Koike (Party of Hope): Should freeze planned sales tax hike in 2019; To carry out 'Yurinomics' based on private-sector led economic revitalization, not relying excessively on monetary easing and fiscal spending.

(PH) BoJ signs $12.5B bilateral currency (FX) swap agreement with the Philippines, effective today

(TW) Taiwan said to consider raising electricity prices - Taiwanese Press

(SA) Saudi Arabia King: Remains keen on stability of global oil market

(SG) Singapore Central Bank (MAS): To issue semiannual monetary policy statement and Q3 GDP data on Oct 13th

IMF Lagarde: IMF supports accommodative policy for ECB and BoJ; more optimistic about global recovery

Asian Equity Indices/Futures (00:30ET)

Nikkei +0.3%, Hang Seng +0.4%, Shanghai Composite closed, ASX200 +0.9%, Kospi closed

Equity Futures: S&P500 flat ; Nasdaq flat, Dax +0.1% , FTSE100 +0.1%

FX ranges/Commodities/Fixed Income (00:30ET)

EUR 1.1686-1.1716; JPY 112.76-113.02; AUD 0.7743-0.7799; NZD 0.7091-0.7118

Aug Gold -0.2% at 1,270/oz; Aug Crude Oil -0.2% at $50.70/brl; Sept Copper -0.1% at $3.041/lb

GLD SPDR Gold Trust ETF daily holdings -0.4% to 851.1 metric tons

(AU) Australia sells A$700M in 2028 Bonds, avg yield 2.8410%, bid to cover 4.56x

US markets on close: Dow +0.5%, S&P500 +0.6%, Nasdaq +0.8%, Russell +0.3%

Best Sector in S&P500: Financials and Tech +1%

Worst Sector in S&P500: Utilities -0.1%

At the close: VIX 9.19 (-0.44pts); Treasuries: 2-yr 1.495% (+2bps), 10-yr 2.35% (+2.5bps), 30-yr 2.891% (+2.5bps)

US Market Summary

US equities continued to extend gains today. The S&P 500 closed at a record high, hitting its longest streak of all-time closing highs since 1997. The Stoxx 600 turned positive and the IBEX popped higher after a news report from Spain indicated that Catalan representatives could stall their efforts for independence due to leadership divisions. The Dollar Index approached $94 as Brexit concerns and Canadian trade data weighed on Cable and the Loonie, respectively. The VIX ended down 2%, below the 9.50 level. Tech and financials outperformed, while telecom was in the red.

US Afterhours Movers

SNCR Provides update on strategic alternatives process; enters exclusivity agreement with Siris; +26.0% afterhours

YUMC Reports Q3 $0.52 v $0.55e, Rev $2.04B v $2.00Be (2 est); sets new dividend of $0.10 (1% indicated yield), increases share buyback; +3.5% afterhours

COST Reports Q4 $2.08 v $2.02e, Rev $42.3B v $41.7Be; E-commerce surging; -1.8% afterhours

NLY Files to sell 65M shares of common stock via CS, Merrill, GS, WFC (6.0% of shares outstanding); -2.3% afterhours

For the 24 hours to 23:00 GMT, the AUD declined 0.89% against the USD and closed at 0.7791.

LME Copper prices rose 0.9% or $58.0/MT to $6511.0/MT. Aluminium prices declined 0.7% or $15.5/MT to $2124.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7761, with the AUD trading 0.39% lower against the USD from yesterday's close.

Overnight data indicated that Australia's AiG performance of construction index declined to a level of 54.7 in September, after recording a reading of 55.3 in the prior month.

The pair is expected to find support at 0.7735, and a fall through could take it to the next support level of 0.7708. The pair is expected to find its first resistance at 0.7813, and a rise through could take it to the next resistance level of 0.7864.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.