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Sunrise Market Commentary

• Rates: Profit taking on short positions ahead of the weekend?
  North Korea threatened to detonate an H-bomb in the Pacific. Risk aversion reigns in Asia and will dominate at the start of European trading, offering investors the opportunity to take some profit on short positions in the German Bund and US Note future. Central bank speakers (both ECB and Fed) are wildcards.
• Currencies: Risk-off blocks post-Fed USD comeback
  Yesterday, the dollar failed to extend the gains recorded after the Fed decision on Wednesday. Overnight, sentiment turned risk-off on North Korea, weighing on the dollar. The dollar currently suffers more from a decline in core yields than the yen and even the euro. Sterling traders look out for the Brexit speech of UK PM May.

The Sunrise Headlines

• A slight risk-off tone swept through markets, with the yen and gold drifting higher, and Treasury yields nudging down. Asian equities and US equity futures are all in the red. Tensions on North Korea are the main reason.
• US president Trump ramps up pressure on North Korea. He ordered fresh sanctions on individuals, companies and banks doing business with the country. Kim Jong Un may consider testing a hydrogen bomb, Yonhap reported.
• Brent's premium to WTI hit the widest since August 2015 as OPEC meets in Vienna. There's mixed signals on whether they'll discuss deeper or longer cuts. Russia said it's too early to talk specifics. Brent trades close to $57.30 key level.
• The UK will pay into the EU until 2020 (€20B or more), Theresa May will say in a landmark speech in Florence, a person familiar said. The BBC reported May will seek a transition of 2 years and go for a bespoke trade arrangement.
• Mario Draghi said the ECB isn't in the business of raising rates just to tame local bubbles. If financial and business cycles diverge, imbalances can arise even when inflation is muted, but "monetary policy is not the right instrument" to correct the situation, he said
• Poland's central bank may consider a "small hike" in early 2018 to offset inflationary and wage pressures, MPC Gatnar told Reuters. MPC Minutes showed a majority expects stable interest rates in the coming quarters.
• Today, beside the increased geopolitical tensions with North-Korea, attention goes to the US & EMU PMI business confidence and to Fed & ECB speakers. OPEC meets in Vienna.

Currencies: Risk-Off Blocks Post-Fed USD Comeback

Risk-off to block any post Fed-USD comeback

Yesterday, the dollar failed to build on Wednesday’s post-Fed gains. This was a disappointment for USD bulls. Investors clearly didn’t buy into the Fed’s “hawkish” stance on policy normalisation. The US yield rally also fell apart. Strong US eco data didn’t support further USD gains. EUR/USD finished the day at 1.1941 (from 1.1892). USD/JPY was more resilient. The pair hovered in a tight range close to the recent top and at 112.48.

Overnight, risk sentiment soured in Asia. Press reports said that North Korea might retaliate on Trump’s speech and trade measures, testing a hydrogen bomb in the pacific (see headlines). The renewed geopolitical tensions caused a modest risk-off repositioning. Asian equity indices show losses, bonds gain and the Yen outperforms. USD/JPY declined from the mid 112 area to the 111.84 area. The dollar is also losing slightly against the euro (EUR/USD currently at 1.1960). Even post-Fed, the dollar remains most vulnerable to a decline in core yields.

Today, the US & EMU September PMI’s will be published. Both are expected to show only minor changes compared to August. US manufacturing PMI is expected slightly higher (53). The weaker dollar hadn’t yet a substantial impact. The US nonmanufacturing PMI confidence has gone steadily up in the past months and consolidation is expected (55.7). The EMU manufacturing PMI reached a cyclical high in August at 57.4 despite a stronger euro. Consensus expect a minor decline to 57.2. The EMU Services PMI is expected marginal higher at 54.8 (from 54.7). We see risks on the upside of consensus for the latest measure. After the Fed meeting, any USD reaction to good US data would be interesting, but the US PMI is no strong market mover. There are also plenty of ECB members scheduled to speak, including Draghi, Coueré and Constancio. The discussions on the fate of the APP programme in 2018 are ongoing. However, tensions on North Korea probably will dominate trading. Of late, the risk-off reaction to geopolitical tensions was mostly modest and short-lived. However, investors will probably refrain from picking-up risky assets ahead of the weekend. This lingering risk-off feeling is mostly negative for the dollar; in the first place for USD/JPY, but to a lesser extend also for EUR/USD.

From a technical point of view EUR/USD hovers in a consolidation pattern between 1.1823 and 1.2070. It was disappointing for EUR/USD bears that last week’s correction didn’t reach the range bottom. More confirmation is needed that the bottoming out process in US yields and in the dollar might be the start of more sustained USD gains (against the euro). In case of a break, next support in EUR/USD comes in at 1.1774 and 1.1662

The day-to-day momentum in USD/JPY is (was?) more constructive. The yen traded weak across the board and the dollar might be in better shape post-Fed. USD/JPY regained the 110.67/95 previous resistance. This a short-term positive. If current event risk on north Korea is again temporary in nature, the yen might remain in the defensive. The 114. 49 correction top is the next important reference.

EUR/USD: dollar fails to extend gains post-Fed. North Korea risk-off is also no help

EUR/GBP

Sterling well bid going into May’s Brexit speech

Yesterday, sterling initially stabilized after Wednesday’s strong performance. UK August public finance results were better than expected but played no role. Sterling found again a stronger bid late in Europe. We didn’t see any specific reason. A further repositioning ahead of May’s Brexit speech was probably in play. EUR/GBP finished the session at 0.8792. Cable closed the day at 1.3580. The recent highs against the euro and the dollar are again within reach

Today, the CBI trends orders will be published. However the focus will be on the Brexit speech of UK PM May. PM May is expected to sound a bit more conciliatory on key issues as the Brexit bill and will aim for a transition period. Question is whether these ‘concessions’ will be enough to unlock the stalemate at the next round of formal negotiations. A more constructive environment might be slightly sterling supportive. However, we don’t expect today’s speech to clear the horizon in a profound way. EUR/GBP is again close to the recent lows. A break could cause some extension of the recent GBP-comeback.

EUR/GBP made an impressive uptrend since April and set a MT top at 0.9307 late August. The euro was strong and UK price data were soft enough to keep the BoE side-lined. Recent UK price data amended this story 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 has to go. EUR/GBP is nearing support at 0.8743 and 0.8652, which we consider difficult to break. We start looking to buy EUR/GBP on dips.

EUR/GBP: near recent lows going into May’s Brexit speech

Download entire Sunrise Market Commentary

Weekly
    •    Last Candlesticks pattern: Window
    •    Time of formation: 24 April 2017
    •    Trend bias: Up

Daily
    •    Last Candlesticks pattern: Hammer
    •    Time of formation: 18 May 2017
    •    Trend bias: Up



EUR/JPY – 134.00




The single currency has continued moving higher throughout this week after breaking above previous resistance at 132.01, adding credence to our bullish view that recent upmove is still in progress and may extend further gain to 134.55-60, then 135.00, however, near term overbought condition should limit upside to 136.00-10 and reckon 136.90-00 would hold from here, price should falter well below 138.45-50 (1.618 times extension of 109.49-124.10 measuring from 114.85), risk from there has increased for a much-needed correction to take place next month.

On the downside, whilst initial pullback to 133.65-70 cannot be ruled out, reckon support at 133.26 would limit downside and bring another rise later. Below previous resistance at 133.09 would bring correction to 132.35-40 and then test of the Tenkan-Sen (now at 132.06) but only a daily close below this level would suggest a temporary top is possibly formed, bring retracement of recent rise to 131.40-50 and possibly towards the Kijun-Sen (now at 130.87) but previous support at 130.62 should remain intact. 

Recommendation: Buy at 132.50 for 135.00 with stop below 131.50.

On the weekly chart, after last week’s rally to 133.09, the single currency has moved higher again this week and another white candlestick looks set to be formed, adding credence to our bullish view that the erratic upmove from 109.49 (2016 low) is still in progress for gain to indicated upside target at 134.40 (61.8% Fibonacci retracement of entire fall from 149.79-109.49), then 135.00, however, reckon upside would be limited to 136.00-10 and 136.95-00 should hold, price should fatter below 138.45-50 (1.618 times extension of 109.49-124.10 measuring from 114.85), bring retreat later.

On the downside, expect pullback to be limited to 132.38 support and bring another rise to aforesaid upside targets. Below said support would bring minor correction to 131.90-00, then 131.40-50 but a weekly close below the Tenkan-Sen (now at 130.87) is needed to suggest a temporary top is possibly formed, bring test of 130.62 support, only a drop below this level would add credence to this view and signal retracement of recent upmove has commenced for further decline to 128.90-00, then towards 128.00-10 but previous support at 127.56 should remain intact.

Weekly
    •    Last Candlesticks pattern: Shooting doji
    •    Time of formation: 01 May 2017
    •    Trend bias: Sideway

Daily
    •    Last Candlesticks pattern: Bearish engulfing
    •    Time of formation: 5 May 2017
    •    Trend bias: Down



USD/CAD – 1.2300




As the greenback found support at 1.2197 and has rebounded again, suggesting further consolidation above recent low at 1.2061 would be seen and near term upside risk remains for the corrective rise from there to bring retracement of recent decline, hence gain to 1.2415 resistance and then test of previous support at 1.2441, above latter level would bring a stronger rebound to 1.2500 and then 1.2520-25, however, near term overbought condition should prevent sharp move beyond 1.2560-70 and price should falter well below resistance at 1.2663, bring retreat later.

On the downside, expect pullback to be limited to 1.2270 and the Tenkan-Sen (now at 1.2237) should hold, bring another rebound later. A daily close below said support at 1.2197 would suggest the rebound from 1.2061 has ended, bring further fall to 1.2140-50, then test of support at 1.2121 but break of latter level is needed to signal recent decline has resumed and bring retest of 1.2061. Looking ahead, below 1.2061would extend downtrend to psychological level at 1.2000, having said that, loss of momentum should prevent sharp fall below 1.1920-25 (61.8% projection) and 1.1900 should hold. 

Recommendation: Take profit on our short position entered at 1.2340 and stand aside for this week.


On the weekly chart, this week’s rebound looks set to form another white candlestick and further consolidation above this month’s low at 1.2061 would take place and another corrective bounce to 1.2414-20 (previous support and current level of the Tenkan-Sen) cannot be ruled out, however, reckon upside would be limited to 1.2500 and 1.2600 should hold. Only a weekly close above resistance at 1.2663 is needed to signal a temporary low has been formed at 1.2061, bring retracement of recent decline towards resistance at 1.2778 which is likely to hold from here.

On the downside, whilst pullback to 1.2270 cannot be ruled out, reckon 1.2220-30 would hold and bring another rebound, below this week’s low at 1.2171 would suggest the rebound from 1.2061 has ended, bring test of 1.2121, break there would signal decline from 1.3794 top has resumed for retest of 1.2061, break there would extend weakness towards psychological support at 1.2000, however, reckon downside would be limited to 1.1920-25 (61.8% projection of 1.3794-1.2414 measuring from 1.2778) and reckon 1.1840-50 would hold from here, price should stay above 1.1750-60, bring rebound later. 

USD/CHF - 0.9683

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9689

Kijun-Sen level                    : 0.9708

Ichimoku cloud top                 : 0.9678

Ichimoku cloud bottom              : 0.9654

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

The greenback retreated after rising to 0.9748 earlier this week and consolidation below this level would be seen and pullback towards the lower Kumo (now at 0.9654) cannot be ruled out, however, reckon previous minor resistance at 0.9630 would limit downside and price should stay well above indicated support at 0.9589, bring rebound later.

On the upside, whilst recovery to the Kijun-Sen (now at 0.9708) cannot be ruled out, reckon upside would be limited to 0.9720-25 and said resistance at 0.9748 should hold, bring retreat later. In the event dollar is able to penetrate said resistance at 0.9748, this would revive bullishness and extend recent rise from 0.9421 low to 0.9761-66 (50% Fibonacci retracement of 1.0100-0.9421 and previous resistance), then another previous resistance at 0.9773. As near term outlook is still mixed, would be prudent to stand aside for now.

USD/CAD drops after another failure to reach the upper median line (uml) of the minor ascending pitchfork. A retest of the median line (ml) will signal a drop towards the lower median line (lml) of the same minor ascending pitchfork.

Support can be found at the lower median line (LML) of the red descending pitchfork and at the median line (ML) of the blue descending pitchfork.

The NZD/USD drops further and should hit the 38.2% retracement level, which represents a very important static support. Remains to see if will break this or will bounce back and will try once again to take out the major dynamic resistance from the third warning line (WL3). Will drop much deeper if will stay trapped below the third warning line (WL3).

The currency pair has dropped sharply in the morning and seems poised to start a corrective phase. The Yen has taken the lead again as the Nikkie stock index plunges after the impressive rally. Technically, the currency pair maintains a bullish perspective, despite a minor retreat.

USD/JPY moves in range on the short term, so we’ll have a clear direction once will escape from this extended sideways movement. The Japanese currency could dominate the currency market in the upcoming days as the JP225 could come to retest the 20058 former horizontal resistance. I’ve said in the last reports that the index is expected to retreat a little after the upside momentum.

Surprisingly or not, the USD is losing ground versus all its rivals even if the United States data have come in better on Thursday.

Price is still trapped within the extended sideways movement, it was expected to climb towards the 23.6% retracement level, but has fond strong resistance at the confluence formed between the median line (ml) of the minor ascending pitchfork with the first warning line (wl1). USD/JPY was rejected by the mentioned confluence and now will hit the 38.2% retracement level. Could come down to retest the third warning line (WL3) to validate this dynamic support (resistance turned into support).

A further Nikkei retreat will send the rate towards the 250% Fibonacci line and towards the lower median line (lml) of the minor ascending pitchfork.

Euro Soars Higher After Draghi's Comments. The mood was a bit cheerier in the European markets, with ECB head Draghi declaring that the financial sector no longer poses a threat to the economy. The bullish sentiment around the Eurozone currency is going strong, suggesting it has some more room to rally.

Aussie Tumbled Across the Board After Governor Lowe's Speech. The Australian dollar bears painted the forex town red on Thursday as the commodity currency was weighed down by the RBA's shaky tightening bias, the credit rating downgrade on China, and the sharp drop in gold prices.

Kiwi Slips to 72.81 US Cents as Fed's Rate Hike. The New Zealand dollar fell as the US Federal Reserve signals on balance sheet unwinding and interest rate hikes outweighed gains made earlier in the week after a poll showing the National Party in the lead ahead of tomorrow's vote.

Traders Looking Forward to How Prime Minister May's Speech Might Turn Out. All eyes and ears are on U.K. Prime Minister Theresa May as she prepares to deliver her Brexit speech in Florence today. She is expected to propose a two-year transition period for both parties to hash things out, during which the U.K. can retain access to the single market even after the official split happens on March 2019.

Gold Falls on Dec Rate Hike Expectations. Gold fell in reaction to a rising US dollar, losing over 1% and falling back under the $1,300 level after the Fed signaled it was on track to raise US interest rates again in December. The metal is highly sensitive to rising US rates, which boost the cost of holding non-yielding bullion relative to other assets.

Oil Prices Steady Ahead of OPEC Meeting on Supply Cut Extension. Oil prices held steady in early Asian trade on Friday as the market waited to see whether major oil producers would extend supply cuts beyond March at a meeting in Vienna later in the day.

Watch Out Today for:

09:00 am GMT: EUR ECB President Draghi's Speech

GBP UK Prime Minister Theresa May speech

GBP/USD - 1.3565

Most recent candlesticks pattern   : N/A

Trend                                 : Up

Tenkan-Sen level                 : 1.3580

Kijun-Sen level                    : 1.3534

Ichimoku cloud top              : 1.3555

Ichimoku cloud bottom        : 1.3523

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although cable has retreated after edging higher to 1.3596 and consolidation with mild downside bias is seen for weakness towards the Kijun-Sen (now at 1.3534), below 1.3500 is needed to revive near term bearishness and signal the rebound from 1.3452 has ended, bring further fall to 1.3470, then test of said support. Looking ahead, only a drop below 1.3452 would add credence to our view that top has been formed at 1.3658 earlier this week, bring retracement of recent rise to 1.3400-05 (50% Fibonacci retracement of 1.3153-1.3658).

On the upside, above 1.3600 would extend gain to 1.3620-25, however, still reckon said this week’s high at 1.3658 would hold from here, bring retreat later. Only a break above said resistance at 1.3658 would signal recent upmove has resumed and extend gain to 1.3690-00 later. As near term outlook is still mixed, would be prudent to stand aside for now.

EUR/USD - 1.1965

Most recent candlesticks pattern   : N/A

Trend                      : Sideways

Tenkan-Sen level              : 1.1956

Kijun-Sen level                  : 1.1925

Ichimoku cloud top             : 1.1948

Ichimoku cloud bottom      : 1.1916

Original strategy  :

Sold at 1.1970, Target: 1.1870, Stop: 1.2005

Position : - Short at 1.1970

Target :  - 1.1870

Stop : - 1.2005

New strategy  :

Hold short entered at 1.1970, Target: 1.1870, Stop: 1.2005

Position : - Short at 1.1970

Target :  - 1.1870

Stop : - 1.2005

As the single currency found good support at 1.1861 and has staged a strong rebound, suggesting consolidation above this level would be seen, however, as long as 1.2000 holds, mild downside bias remains for another decline, below 1.1915-20 would bring test of 1.1885-90 but break of latter level is needed to signal the rebound from 1.1861 has ended, bring another fall to this level, then retest of previous support at 1.1838 which is likely to hold on first testing.

In view of this, we are holding on to our short position entered at 1.1970. Above 1.2000 would dampen our bearishness and risk test of this week’s high at 1.2035 but only break there would shift risk back to upside and extend the rebound from 1.1838 to 1.2060-70 first.