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The Euro came under pressure early Monday, falling more than 0.4% against the USD, after preliminary results from the weekend's Catalonia referendum showed that 90% of Catalans are in favor of independence.

There's a high chance that Spain may be headed towards a new crisis, especially if Catalonia's President, Carles Puigdemont, declares independence as he has promised to do in the next 48 hours. This will lead to more violence and probably an intervention from EU leaders, who will come under pressure to take action.

Traders should be monitoring spreads between Spanish and German bond yields in the next couple of days. If spreads widen significantly, investors will become seriously worried about the outcome of the referendum vote, leading to a further selloff in the Euro, but this is not evident yet.

Catalan's referendum is not the only reason for the fall in EURUSD. In fact, the dollar is rising across the board, as the U.S. Treasury's yield curve shifted upwards. Given that there wasn't any new fundamental information released over the weekend, reports that former Federal Reserve Governor Kevin Warsh had met with President Trump and Treasury Secretary Steven Mnuchin, for a possible nomination to chair the Fed, is the only explanation for the shift in the yield curve. We do not yet know how Warsh would lead the Fed in the Trump Era, but given the reaction seen in bond markets, investors see him as a more hawkish candidate than Yellen.

Speculation around the Fed Chair appointment will keep fixed-income traders busy in the days to come, and currency traders will benefit from the moves in yields. However, this speculation should end, when the President announces the name of his nominee in two to three weeks.

The European economic calendar is relatively light this week. Traders will be focusing on PMI data from the U.K., the jobs reports from the U.S. and Canada, and the Reserve Bank of Australia interest rate decision. The U.S. NFP is likely to deviate hugely from this year's average. Economists are currently anticipating a figure less than 100K. However, I do not think this will have a negative impact on the dollar, given that investors know Hurricanes Harvey and Irma will distort the data.

Fed speak will likely continue guiding traders, and Janet Yellen will again appear on Wednesday to deliver the opening remarks at the 21stCentury Conference in St. Louis. Fed officials Robert Kaplan, Jerome Powell, Patrick Harker, and Bill Dudley, are all due to speak this week.

USDJPY (112.83): The USDJPY managed to post some gains although price action struggles to breakout from the resistance level of 112.88. The 4-hour chart shows the ascending wedge pattern from which price broke out briefly before retracing these losses. As long as price does not breakout from the resistance level, we can expect to see some downside price action. The rising wedge pattern will be validated on a decline towards the support level of 111.74. A breakout above 112.88 could, however, invalidate the bearish wedge pattern with price action likely to test further highs.

GBPUSD (1.3368): GBPUSD is seen opening on a weaker note this morning following the downside breakout in prices below 1.3483. We expect the declines to continue towards the lower support level at 1.3236. Price action has broken to the downside following the failure of the bullish flag pattern. The correction to 1.3236 marks a retest of the previously breached resistance level. Establishing support here could keep prices range bound, but further downside cannot be ruled out. The next lower support is seen at 1.3161 which could potentially be tested as well.

EURUSD (1.1774): Although the EURUSD managed to post some gains towards Friday, price action stalled near the resistance level of 1.1822. Initial signs show a reversal at this level, but this could be confirmed only on a daily bearish close off the 1.1822 resistance level. The next support level is seen at 1.1688, followed by a decline to 1.1440. The decline to 1.1688 will mark the 161.8% measured move of the descending triangle. Thus, we could expect price action to potentially at this level before moving into a sideways range for the near term.

The US dollar was seen trading close the week on a mixed note. Economic data released on Friday showed that the personal consumption expenditure rose at a weaker than expected pace.

The headline PCE index rose just 0.1% on the month, below estimates of 0.2%. On a year over year basis, the PCE rose 1.3%, slightly below 1.4% that was registered the month before while the core PCE grew at the same pace of 1.4% as the previous month.

Over the weekend, the Catalonian referendum was the major event. Despite the courts calling it unconstitutional, the referendum went ahead with the results showing over 90% of the voters backing for statehood. The weekend referendumwas met with chaos and violence.

Looking ahead, the new trading week and a month, as well as the quarter,is likely to see speculators focusing on the upcoming fundamentals. In the US, the ISM's manufacturing PMI is expected to be released this week.

Economists expect that index to fall to 58.0, down from 58.8 in August which marked a 6-year high. From the Eurozone, the services and manufacturing PMI will also be released today.

Sunrise Market Commentary

• Rates: Catalan headache for Spanish bonds?
  European markets showed a lot of resilience in the run-up to the Catalan secession vote. Madrid's impertinent behaviour and Catalan President Puigdemont's hint at a unilateral declaration of independence might change that today, resulting in Spanish spread widening and an outperformance of the Bund vs the US Note future.
• Currencies: EUR/USD modestly lower as Catalan tensions persist
  The dollar outperforms this morning, supported by higher US yields. EUR/USD returns south after a rebound at the end of last week. Tension in Catalonia might be slightly negative for the euro, but USD strength prevails. Will the US ISM be strong enough to reactivate the reflation trade and support further USD gains?

The Sunrise Headlines

• US equities had a good run Friday, closing the quarter with moderate gains (and new highs for S&P and NASDAQ). IT is still the outperformer. Asian stocks trade slightly positive too, but the Golden week keeps many bourses closed.
• Catalan separatist leaders signalled they may be moving toward unilateral independence as early as this week after many activists were injured as they tried to stop Spanish police from shutting down an illegal referendum.
• The Q3 Japanese Tankan report nurtured economic optimism. Large and small manufacturing firms were much more optimistic than expected about the current situation and the outlook. Large and small non-manufacturing firms' results were respectively slightly better and slightly worse than expected.
• The official Chinese PMI survey showed an improvement of sentiment. The manufacturing PMI was up to 52.4 from 51.7 in August and the non-manufacturing PMI rose to 55.4 from 53.4. The Caixin PMI (more private sector oriented) slowed though to 51 from 51.6 (51.5 expected).
• President Trump admonishment of Secretary of State Tillerson for 'wasting his time' in seeking negotiations with N-Korea highlighted differences within the administration on how best to get Kim Jong Un to halt his nuclear program
• President Trump met with former Fed governor Warsh to discuss potentially nominating him as the next Fed chairman. Warsh has a more hawkish instinct that current chairwoman Yellen. It moved bond markets with a bear flattening.
• EMU & UK PMI and the US ISM surveys are the key eco indicators today. ECB Praet, Fed Kaplan speak (little impact?) and UK PM May speak

Currencies: EUR/USD Modestly Lower As Catalan Tensions Persist

Dollar rebound to resume?

On Friday, the dollar corrected slightly further lower after eking out gains earlier last week. However, the move petered out as core/US yields rose later in the session. US eco data were mixed and had no lasting impact on USD trading. EUR/USD returned temporary north of the 1.1823 previous range bottom, but closed the session at 1.1814. USD/JPY finished the quarter at 112.51.

Overnight, several Asian markets including China are closed. Chinese PMI's were fairly strong. Still, the PBOC eased the reserve requirements from lending to small companies. This news helps regional sentiment. The Japan Tankan confidence report was constructive with especially manufacturing and smaller non-manufacturing firms more optimistic. . The headline manufacturing index improved from 17 to 22. There was no reaction of the yen. USD/JPY profits from overall USD strength. Markets are pondering the chances/potential impact of a US tax cut. There is also speculation that Trump might choose a more hawkish new Fed-chairman. EUR/USD declines to the 1.1775 area. USD strength prevails, but there might also a minor fall-out from the tensions in Catalonia.

In EMU, the manufacturing PMI is to be confirmed at a very strong 58.2. The EMU unemployment rate is expected to have declined to 9% in August from 9.1%. In the US, the manufacturing ISM is expected to have declined to 58 from August's 58.8, which was near the peak of the previous cycle (2007). Regional surveys, including Friday's Chicago PMI, were strong. So, the risks are on the upside of consensus.

The dollar rallied last week, as investors realised that the chances on a Dec. Fed rate hike have risen and as the US government stepped up its efforts to put the tax reform on the rails. Both factors propelled US yields and the dollar, but the dollar rebound ran into resistance at the end of last week. The dollar clearly needs good eco news and higher US yields. A strong US manufacturing ISM and a constructive risk sentiment might be slightly supportive for US yields and for the dollar. We also keep an eye on the developments in Catalonia/Spain. The tension won't help the euro, but for now we think it won't be a source of substantial euro losses. It looks like the dollar might start the week with a cautious positive bias

From a technical point of view EUR/USD hovered in a consolidation pattern between 1.1823 and 1.2070. It took time to break below the 1.1823 range bottom, but the break occurred earlier last week. There was some hesitation in the USD rebound at the end of last week, but EUR/USD closed below the 1.1823 previous range bottom. The rise in US yields looks solid and may support the USD rebound. Next support in EUR/USD comes in at 1.1662. The day-to-day momentum in USD/JPY was constructive recently, but it was primarily due to yen weakness. USD/JPY regained the 110.67/95 previous resistance, a short-term positive. The day-to-day momentum remains constructive. The 114.49 correction top is the next important reference.

EUR/USD revisits 1.1823 range bottom, but test rejected

EUR/GBP

Sterling still looking for a clear trend.

On Friday, markets focused on two negative eco topics. UK Q2 Y/Y figure was reduced from 1.7% Y/Y to 1.5% Y/Y due to downward revisions in Q3 and Q4 of 2016. At same time, output growth in the key services sector declined in July. Sterling already felt some headwinds in the run-up to the data and the move accelerated afterwards. EUR/GBP extended its rebound north of 0.88. Admittedly, part of this move mirrored an overall rise of the euro. EUR/GBP closed the session at 0.8820. Cable closed the session at 1.3398.

In the weekend, the rift between UK PM May and foreign Secretary Boris Johnson on Brexit flared up. For now, the issue has no big negative impact on sterling. Overnight, sterling is losing slightly ground against an overall strong dollar, but gains a few ticks against the euro. The topic will remain in the spotlights during the conference of the Tories that ends Wednesday. Today, the UK manufacturing PMI is expected to decline from 56.9 to 56.2. However, this is still a good level that allows the BoE to raise rates if deemed necessary. So, the market context looks neutral for sterling (EUR/GBP) at the start of the week.

EUR/GBP made an impressive uptrend from April to set a MT 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. However, the prospect of (limited) withdrawal of BOE stimulus puts a solid floor for sterling ST term. We look how far the current correction goes. EUR/GBP is nearing support at 0.8743 and 0.8652, which we consider difficult to break. We gradually look to buy EUR/GBP on dips.

EUR/GBP: downtrend shows tentative signs of slowing

Download entire Sunrise Market Commentary

Daily Pivots: (S1) 0.8772; (P) 0.8806; (R1) 0.8849; More...

EUR/GBP dips mildly today but it's staying above 0.8745 temporary low. Intraday bias remains neutral first. Below 0.8745 will target 61.8% retracement of 0.8312 to 0.9305 at 0.8691 and below. Fall from 0.9305 is seen as the third leg of consolidation pattern from 0.9304. We'll look for bottoming signal again at it approaches 0.8303 support. On the upside, break of 0.8898 will indicate near term reversal and turn bias back to the upside for 55 day EMA (now at 0.8945) first.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's still in progress with fall from 0.9305 as the third leg. Break of 0.8303 could be seen. But even in that case, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes.

Euro opens the week broadly lower as the Catalonian referendum for independence on Sunday turned into chaos. Legally recognized or not, preliminary results show that 90% votes were in favor of independence with a turnout rate of 42.3% (2.3M votes). What shocked the world is that the the peaceful campaign had met with violent suppression of the Spanish government, with brutal attack by the national police (firing rubber bullets, seizing ballot boxes from polling stations, etc). It's believed the violence of the government provoked more "yes" vote for independence.

Catalan President Carles Puigdemont declared that "the citizens of Catalonia have won the right to have an independent state". He pledged to act in line with the referendum law, which could lead to a unilateral declaration of independence within 48 hours after notifying the regional parliament of the voting results. Calling the referendum illegal, the Spanish prime minister, Mariano Rajoy, noted that the vote "only served to cause serious harm to coexistence" among Spaniards. The EU leaders have yet to comment on the results, as well as the act of Spanish national police. A huge strike has been called across Catalonia on October 3 in response to the violence.

Tankan large manufacturers index hit decade high

In Japan, the quarterly Tankan survey painted a positive picture for the economy. The large manufacturers index jumped to 22 in Q3, up from 17 and beat expectation of 18. That's also the highest reading in a decade since 2007. Large manufacturers outlook rose to 19, up from 15 and beat expectation of 16. That is seen as a result from a weaker Yen, that helped exports. However, non-manufacturing index was unchanged at 23, missing expectation of 24. Non-manufacturing outlook improved to 19, missing expectation of 21. All industrial capex rose 7.7%, slowed from 8.0% and missed expectation of 8.4%. The overall upbeat data could provide Prime Minister Shinzo Abe a mild lift going into the snap election on October 22.

China PBoC cut RRR, PMI upbeat

In China, PBoC announced targeted cuts to the reserve requirement ratio (RRR) ranging from 0.5% to 1.5%. The moves should apply to the majority of banks (90% of city commercial banks, and 95% of rural commercial lenders) in order to spur lending to small firms. This is the first reduction in RRR since February 2016. An RRR cut is regarded as an accommodative monetary policy in nature and the PBOC's move is estimated to release around RMB300-400B to the market. But the central bank claimed that it has not derailed from the prudent and neutral policy stance.

The official manufacturing PMI added 0.7 points to 52.4 in September, highest since April 2012. Looking into the details, the new orders index gained 1.7 points to 54.8 while the new export orders index added 0.9 point to 51.3. The input prices index jumped 3.1 points to 68.4, highest since December 2016. The Caixin manufacturing PMI, however, slipped -0.6 points to 51 for the month. On the non-manufacturing sector, official PMI added 2 points to 55.4, highest since May 2014.

Economic data return to spotlights

Looking ahead, focus will be back on economic data this week. US ISM indices and non-farm payroll will be part of the features. UK will release PMIs too. Canada will also release job data. Meanwhile, Australia will release retail sales and trade balance. On central bank activities, RBA is widely expected to stand pat on Tuesday. ECB will release monetary policy meeting accounts on Thursday. A number of Fed officials will also speak this week including Fed Chair Yellen, regional Fed presidents Kaplan, Powell, Williams, Harker, George, Bostic, Dudley, Bullard and Rosengren. Here are some highlights for the week ahead:

• Monday: Swiss retail sales, SVME PMI; Eurozone PMI manufacturing final, unemployment rate; UK PMI manufacturing; US ISM manufacturing
• Tuesday: Japan monetary base; RBA rate decision, Australia building approvals; Japan consumer confidence; UK construction PMI; Eurozone PPI
• Wednesday: Eurozone PMI services final, retail sales; UK PMI services; US ADP employment, ISM non-manufacturing
• Thursday: Australia retail sales, trade balance; Swiss CPI; ECB meeting accounts; US jobless claims, trade balance, factory orders; Canada trade balance
• Friday: Japan average cash earnings, leading indicators; German factory orders; Swiss foreign currency reserves; Canada employment, Ivey PMI; US non-farm payroll

EUR/GBP Daily Outlook

Daily Pivots: (S1) 0.8772; (P) 0.8806; (R1) 0.8849; More...

EUR/GBP dips mildly today but it's staying above 0.8745 temporary low. Intraday bias remains neutral first. Below 0.8745 will target 61.8% retracement of 0.8312 to 0.9305 at 0.8691 and below. Fall from 0.9305 is seen as the third leg of consolidation pattern from 0.9304. We'll look for bottoming signal again at it approaches 0.8303 support. On the upside, break of 0.8898 will indicate near term reversal and turn bias back to the upside for 55 day EMA (now at 0.8945) first.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's still in progress with fall from 0.9305 as the third leg. Break of 0.8303 could be seen. But even in that case, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes.

Economic Indicators Update

For the 24 hours to 23:00 GMT, the AUD declined 0.1% against the USD and closed at 0.7841 on Friday.

LME Copper prices rose 1.3% or $80.0/MT to $6485.0/MT. Aluminium prices rose 0.4% or $8.0/MT to $2110.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7822, with the AUD trading 0.24% lower against the USD from Friday's close, after overnight data indicated that Australia's AiG performance of manufacturing index fell to a level of 54.2 in September, compared to a reading of 59.8 in the prior month.

Elsewhere in China, Australia's largest trading partner, the NBS manufacturing PMI recorded an unexpected rise to a level of 52.4 in September, expanding at its fastest pace in five years. Markets were expecting the PMI to fall to a level of 51.6, compared to a reading of 51.7 in the prior month. Moreover, the nation's non-manufacturing PMI rose to a level of 55.4 in September, after recording a level of 53.4 in the previous month.

Also, the nation's Caixin/Markit manufacturing PMI eased to a level of 51.0 in September, compared to a reading of 51.6 in the prior month, while markets were anticipating the PMI index to ease to a level of 51.5.

The pair is expected to find support at 0.7808, and a fall through could take it to the next support level of 0.7794. The pair is expected to find its first resistance at 0.7845, and a rise through could take it to the next resistance level of 0.7868.

Going ahead, traders would closely monitor the Reserve Bank of Australia's (RBA) interest rate decision, due in the early hours of tomorrow. Additionally, Australia's HIA new home sales and building permits, both for August, slated to release overnight, will be on investors' radar.

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

For the 24 hours to 23:00 GMT, the EUR rose 0.3% against the USD and closed at 1.1816 on Friday.

In economic news, the Euro-zone's flash consumer price index (CPI) climbed less-than-anticipated by 1.5% on an annual basis in September, indicating that economic expansion across the common currency region has yet to translate in stronger inflation dynamics. The CPI had registered a similar rise in the prior month, while market participants had expected for an advance of 1.6%.

Separately, Germany's seasonally adjusted unemployment rate unexpectedly declined to a new record low of 5.6% in September, painting a robust picture of the nation's labour market. Markets had expected the unemployment to remain steady at 5.7%. On the other hand, the nation's retail sales registered an unexpected drop of 0.4% MoM in August, defying market consensus for a gain of 0.5%. In the previous month, retail sales had fallen 1.2%.

Macroeconomic data released in the US indicated that personal income rose 0.2% in August, meeting market expectations and compared to a revised advance of 0.3% in the previous month. Moreover, the nation's personal spending registered a rise of 0.1% in August, in line with market expectations. In the prior month, personal spending had advanced 0.3%. Moreover, the nation's Chicago Fed purchasing managers index unexpectedly rose to a three-year high level of 65.2 in September, confounding market consensus for a drop to a level of 58.7. The index had registered a reading of 58.9 in the prior month.

In other economic news, the US final Reuters/Michigan consumer sentiment index fell more than initially estimated to a level of 95.1 in September, compared to a preliminary print indicating a fall to a level of 95.3. In the previous month, the index had registered a reading of 96.8.

In the Asian session, at GMT0300, the pair is trading at 1.1777, with the EUR trading 0.33% lower against the USD from Friday's close.

The pair is expected to find support at 1.1754, and a fall through could take it to the next support level of 1.1732. The pair is expected to find its first resistance at 1.1816, and a rise through could take it to the next resistance level of 1.1856.

Moving ahead, investors will focus on the final Markit manufacturing PMI for September across the Euro-zone along with the region's unemployment rate for August, slated to release in a few hours. Moreover, in the US, the ISM manufacturing and the final Markit manufacturing PMI, both for September along with the nation's construction spending data for August, all set to release later today, will garner significant amount of market attention.

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