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The Fed Chair Janet Yellen spoke last week as she revealed that the central bank might have overstated the strength of the labor market and inflation estimates. Speaking in Cleveland, Ms. Yellen said that the trends in the employment, wage and price pressures shifted from what officials had forecasted.

She said that this would mean a more dovish Fed when it comes to monetary policy tightening. At its meeting last week, the FOMC left interest rates unchanged and lowered its forecasts for inflation. Yellen, however, said that the pace of rate hikes is warranted.

Looking ahead, the economic data today will see the US durable goods orders followed by speeches from the BoC Governor, Poloz and Lael Brainard from the FOMC. Later in the evening, the RBNZ will be announcing its monetary policy decision. The RBNZ's OCR is expected to remain unchanged at 1.75%.

The effects of Hurricanes Harvey and Irma are still impacting US economic growth as evidenced by Tuesday’s Conference board data release. Confidence dropped from 120.4 in August to 119.8 in September, with confidence 'decreased considerably' in the ravaged states of Texas and Florida. In a separate report, the US Commerce Department released data that showed new home sales had decreased 3.4% to a seasonally adjusted rate of 560K units last month – the lowest level since December of last year.

On Tuesday, a South Korean lawmaker said that 'North Korea has boosted defenses on its east coast'. Apparently North Korea has moved military aircraft to its east coast following their claims that the US had declared war on Pyongyang. This follows after US Air Force B-1B Lancers, powerful conventional bombers, flew past North Korea on Saturday amid claims from South Korea’s National Intelligence Agency claiming the Korean People’s Army was moving warplanes and coastal defense units into position in the eastern part of the country. However, Chairman of the Joint Chiefs of Staff General Dunford stated on Tuesday that despite the heated war of words between Pyongyang and Washington, the US has not noticed any significant posture shifts on the part of the North Korean military that would signal that a war is on the horizon. Needless to say, the continued tensions are a concern to the markets which will be quick to move to safe-havens if the tensions escalate.

The EUR suffered a second day of selling pressure, as the markets are growing concerned that the rise in right wing nationalism witnessed in the recent German elections could spread to other Eurozone countries. Specifically, the focus has shifted towards both Spain and Italy and their political shift to a more right centric nationalist view, and how they could undermine the Eurozone community.

Fed Chair Janet Yellen warned in a speech on Tuesday that it would be 'imprudent' to keep US monetary policy on-hold until inflation is back to 2%. She stated that the Federal Reserve 'should also be wary of moving too gradually on rates'. Following her comments the CME FedWatch tool indicated the possibility of a December rate hike has risen to 78% from last month’s 40%. With the market digesting this likelihood, USD gained across the board. Markets will be keen to see the Tax Reform outline that will be presented by Trump’s administration and Republicans in Congress today. A reduction in corporation tax will help bolster profits of US corporations, whilst a reduction in individual income tax will help consumer spending.

EURUSD remains close to 5-week lows, currently trading around 1.1770.

USDJPY remains firm in early Wednesday trading. Currently, USDJPY is trading around 112.55.

GBPUSD gave up 0.45% in early trading to currently trade around 1.3400.

Gold once again came under pressure as risk-on sentiment gathered pace. Currently, Gold is trading around $1,293.

WTI is currently trading near Wednesday highs at $52.42.

Major economic data releases for today:

At 13:30 BST, the US Census Bureau will release Durable Goods Orders & Durable Goods Orders ex-Transportation for August. Durable Goods Orders are expected to see a significant improvement in August of 1%, compared to the previous release of -6.8%. The release excluding Transportation is forecast to come in at 0.2%, slightly lower than the previous release of 0.6%.

At 16:45 BST, Bank of Canada Governor Stephen Poloz is scheduled to speak before the St. John’s Board of Trade in St. John’s, Newfoundland. The topic of his speech is: The Meaning of 'Data Dependence': An Economic Progress Report. The speech will be followed by a Q&A session that may provide insight into any changes in Canadian Economic policy.

At 21:00 BST, the Reserve Bank of New Zealand will announce their rate Decision and their Rate Statement. Consensus is forecasting for New Zealand interest rates to remain at 1.75%. Any increase will cause volatility for NZD currency pairs. As always, the markets will be looking to see if there is any change in monetary policy as that will also create market volatility.

Sunrise Market Commentary

• Rates: Can Trump revive reflationary spirits?
  Today's eco calendar won't impact trading. Trump's tax plan is the biggest wildcard which could revive some reflationary spirits on markets. Together with the US Treasury's supply operation, it suggests and underperformance of the US Note future vs the German Bund.
• Currencies: 'Trends' of euro softness and dollar rebound to continue?
  EUR/USD finally dropped below 1.1823 support. The euro continues to trade soft after the German election. At the same time, the dollar is supported by a growing market belief on a December Fed rate hike. These trends might continue today. The Trump tax cut plans are a wild card. The recent sterling short squeeze shows tentative signs of slowing.

The Sunrise Headlines

• A modest rebound in tech stocks and remarks from Fed Yellen did little to budge US equities indices, leaving the Dow Jones down for the day and the S&P 500 and Nasdaq with very slight gains. Asian risk sentiment is mixed overnight
• Federal Reserve chair Janet Yellen said policymakers ought to be careful of “moving too gradually” on monetary policy despite “significant uncertainties” over inflation.
• President Trump warned North Korea that any US military option would be "devastating" for Pyongyang, but said the use of force was not Washington's first option to deal with the country's ballistic and nuclear weapons program.
• Annual profits at China's industrial companies rose 24% in August, accelerating from the previous month in an indication economic growth remains in good shape even as signs emerge of fading momentum following a robust first half.
• Emmanuel Macron made an impassioned appeal to EU leaders to be “bold” against the threat of populism as he presented a cascade of initiatives to overhaul the bloc.
• Republicans' latest push to dismantle the Affordable Care Act sputtered to an end on Tuesday when Senate GOP leaders scrapped a vote on a bill that had failed to gain sufficient traction within their party.
• The eco calendar contains EMU M3 data, US durable goods orders and pending home sales. The RBNZ and CNB decide on rates, Fed Bullard & Brainard speak, US president Trump announces tax plans and the US Treasury taps the market.

Currencies: 'Trends' Of Euro Softness And Dollar Rebound To Continue?

Dollar extends cautious rebound

There was no distinct theme to guide FX trading yesterday. The euro extended Monday's correction and dropped below the EUR/USD 1.1823 support. The dollar was also better bid overall. Fed's Yellen defended the strategy of gradual rate hikes (see fixed income section). The dollar surprisingly lost a few ticks on her comments, but preserved most of its intraday gains. EUR/USD ended the day at 1.1793 (from 1.1848), below the 1.1823 support. USD/JPY finished at 112.24 (from 117.73). The trade-weighted dollar also rebounded off the lows.

There is no clear trend on Asian markets this morning. Japanese equities struggle to build out gains even as USD/JPY remains well bid. The pair trades in the mid 112 area. Chinese equities outperform. Industrial profits rose from 16.5% to 24.0% Y/Y. Brent oil holds just below $ 59 p/b after a modest correction yesterday. EUR/USD trades in the 1.1775 area, marginally lower from yesterday's close. So, the dollar is able to maintain yesterday's gains.

Today's EMU economic data releases (M3 Money supply and confidence data in France and Italy) are of second tier importance for FX. In the US, durable orders dived 6.8% M/M in July, largely a Boeing effect. Excluding transportation, orders were up a decent 0.6% M/M. The market expects a sluggish rebound in August (1% M/M), but we see risks on the upside. Fed governors Brainard and Bullard speak. Bullard didn't spoke recently, but he is concerned about too low inflation. The EMU data and Fed speaker won't be a dollar game-changer. A decent durable orders report might be slightly supportive for the dollar.

Yesterday's price action in the major dollar cross rate far from spectacular. However, the 'trends' of a gradual dollar rebound and tentative euro softness persisted. These trends might continue today. The announcement of a new 'tax plan' of the Trump administration is wildcard. Question is how concrete the plan will be and whether it has a chance of Congressional approval. If the market see progress on this key issue, it might be USD supportive

From a technical point of view EUR/USD hovered in a consolidation pattern between 1.1823 and 1.2070. It took time for the pair to break below the 1.1823 range bottom, but the break occurred yesterday. More confirmation is needed that the bottoming out process in US yields and in the dollar against might be the start of more sustained EUR/USD gains. Even so, yesterday's move is encouraging for USD bulls. Next support in EUR/USD comes in 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 114.49 correction top is the next important reference. The cross rate remains sensitive to changes in overall risk sentiment

EUR/USD dropped below 1.1823 support as 'trends' of a USD rebound and euro softness persist

EUR/GBP

Sterling short-squeeze to slow?

EUR/GBP set a minor new correction low the 0.8755 area yesterday morning driven by a large order and an overall euro decline. However, EUR/BP gradually decoupled from the EUR/USD decline and some sterling selling kicked in. The recent sterling short-squeeze might be losing momentum. EUR/GBP closed the session at .0.8763, near the recent low. Cable traded with a negative intraday bias and closed the session at 1.3458. The Brexit negotiations restarted, but comments from EU's Barnier suggested not much progress despite the modestly positive comments after PM May's speech last week.

Today, the CBI September retail data will be published. Reported sales are expected to rebound from -10 to 8. Official retail sales were strong in July and August. Another strong figure might reinforce the case for BoE rate hike. However, the FX reaction to the CBI data is usually modest. We look out after yesterday's disappointing sterling performance for more signs that the sterling short-squeeze loses momentum. Overnight price action suggests some GBP softness.

EUR/GBP made an impressive uptrend since April and set a MT top at 0.9307 late August. Recent UK price data amended the dynamics and the reversal of sterling was reinforced by hawkish BoE comments. Medium term, we maintain a EUR/GBP buy-on-dips approach as we expect the mix of relative euro strength and sterling softness to persist. However, the prospect of (limited) withdrawal of BOE stimulus put 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

EUR/GBP: near recent lows, trends shows tentative signs of slowing.

Download entire Sunrise Market Commentary

The currency pair increased in the Asian session and tries to recover after the yesterday’s growth. It seems like that the bulls are a little exhausted on the short term. The next upside target will be at the median line (ml) of the blue ascending pitchfork, a failure to reach it will send the rate towards the LML again.

Price drops on the short term and should reach the first warning line (wl1) of the ascending pitchfork. Actually, it could be attracted by the confluence area formed at the intersection between the warning line (wl1) with the upside line of the ascending channel.

The perspective remains bullish on the daily chart despite the current drop, only a drop below the 250% Fibonacci line will confirm a broader drop.

The currency pair dropped further and reached another target, we'll see how will react now because a rejection will send the rate higher in the upcoming days. Technically, it should drop much deeper in the upcoming period, so the bias remains bearish. AUD/USD resumed the bearish momentum as the USDX stays higher and tries to approach the 93.30 yesterday's high.

The dollar index closed the yesterday's session right above the 93.00 psychological level, signaling that the bulls are strong on the short term. USDX has finally managed to jump in the green territory, is located above a dynamic support (resistance turned into support) and could approach new highs after a minor consolidation.

You should know that the US session is expected to bring a high volatility as the United States is to release high impact data.

Price accelerate the sell-off after the impressive breakdown below the lower median line (LML) of the major ascending pitchfork. Right now is pressuring the median line (ml) of the minor descending pitchfork, a valid breakdown will confirm a further drop in the upcoming period. Support can be found at the 0.7835 static support as well. The major downside target will be at the first warning line (WL1) of the ascending pitchfork, it could also be attracted by the lower median line (lml) of the minor descending pitchfork if the USDX will jump much higher in the upcoming weeks.

Price goes down after the minor retreat and is seems poised to approach and reach the next major downside target from the lower median line (LML) of the ascending pitchfork. I’ve drawn a black descending pitchfork hoping that I’ll catch a downside movement, the rate could be attracted by the confluence area formed between the LML with the median line (ml) of the descending pitchfork.

The EUR/CHF dropped further and resumed the bearish momentum. It has touched fresh new lows, but the downside momentum was paused by the confluence area formed between the upper median line (uml) of the minor ascending pitchfork with the fourth warning line (WL4). Technically, it should drop further after the failure to stay above the dynamic obstacles.

The currency pair dropped further today and touched new lows. It has dropped as much as 131.74 level, but failed to stay there and now is trading above the 132.3o level. EUR/JPY is into a corrective phase on the short term, but this could end up as the Nikkei stock index could jump much higher again. Price has squeezed in the last hours because the JP225 has managed to increase and to stay above the 20320 static support (resistance turned into support).

The Nikkie consolidates the latest gains and should resume the upside movement. Technically, it is expected to climb towards new peaks after the breakout above the 20320 previous high. I've said in the last articles that it could come down the 20058 horizontal support, but could increase further if the USDX will increase as well.

Price has dropped significantly since Friday and ignored the support from the median line (ml) of the black ascending pitchfork. Now is pressuring the sliding parallel line (sl) of the major red ascending pitchfork. A valid breakdown will confirm a further drop towards the upper median line (UML) of the major red ascending pitchfork. I've drawn a Rising Wedge pattern on the daily chart, but this needs confirmation before we take action.

However, it could find support at the downside line (up sloping red line) of the potential Rising Wedge pattern.

We'll have a larger drop only after a valid breakdown from the Rising Wedge and below the upper median line (UML) of the major ascending pitchfork.

Yellen Says Fed Needs Gradual Rate Hike Despite Soft Prices. The U.S. dollar was underpinned by remarks from Fed Chairperson Yellen on the need to continue with rate hikes, she also clarified that it wouldn't make sense to keep monetary policy unchanged until inflation reaches the actual 2% target, adding that the FOMC should be careful about moving too slowly. The dollar's index stood at 93.07 in early Wednesday after it reached a high of 93.286 the previous day, its highest in almost a month.

Euro Hampered by Political Worries in Europe. The euro still struggles weighed down by political uncertainty following the German election at weekend. The euro weakened against other currencies on Tuesday, hitting a five-week low of $1.1756 US Dollars, a 10-week low of 0.87545 British pound and two-week low of 1.14075 Swiss franc.

Morneau Says Canada Can Do Well with Higher Dollar. Even with the dip in crude oil, the positively-correlated Loonie managed to hold its ground and pocket a few pips during Canadian FM Bill Morneau's speech. Morneau assured that the economy could continue to do well even with the Loonie's current exchange rate levels and higher interest rates. Morneau explained that the currency's strength is a reflection of the economy's strong performance and even with the BOC's recent hikes, interest rates remain at historically low levels.

Risk Appetite Still Shaky. North Korea and the Donald seem to have paused from hurling harsh words at each other for the time being, allowing U.S. equity indices to score a few gains from the tech sector bounce.

Gold Prices Steady After Hawkish Yellen Comments. Gold prices were steady early Wednesday after falling over 1.3 percent in the previous session on hawkish comments from U.S. Federal Reserve Chair Janet Yellen. Spot gold rose to $1,296.00 per ounce.

Oil Prices Fall from 26-Month High. Oil prices have ended in red after investors took profits following a rally to 26-month highs spurred largely by threats from Turkey to cut crude exports from Iraq's Kurdistan region. On Tuesday, the market was also under pressure ahead of weekly US oil inventory data that was expected to show a fourth straight week of crude builds.

Watch Out Today for:

15:45 pm GMT: CAD BoC Governor Poloz Speech

20:00 pm GMT: NZD RBNZ Interest Rate Decision