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Daily Pivots: (S1) 150.07; (P) 150.83; (R1) 151.53; More

With 150.12 minor support intact, intraday bias in GBP/JPY remains on the upside. Current medium term rise from 122.36 should target 61.8% projection of 122.36 to 148.42 from 139.29 at 155.39 next. On the downside, below 150.12 minor support will turn intraday bias neutral and bring consolidation before staging another rally.

In the bigger picture, the consolidation from 148.42 should have completed and medium term rebound from 122.36 is resuming. Firm break of 38.2% retracement of 196.85 to 122.36 at 150.43 will carry long term bullish implications. In that case, GBP/JPY could target 61.8% retracement at 167.78. For now, the bullish scenario is preferred as long as 139.29 support holds.

Sunrise Market Commentary

• Rates: Flattening US yield curve on Fed verdict?
  We expect the FOMC to announce the start of its BS run-off, hang on the 2017/2018 rate projections (1-3) and potentially lower its neutral rate forecast. That would cause a flattening of the US yield curve. The front end of the US yield curve will in this scenario rise further as the market implied probability of a 2017 rate hike currently stands at 53%.
• Currencies: Will Fed help to put a floor under the dollar?
  Today's Fed policy assessment might be key for the dollar. The start of reducing the BS will probably give the dollar only limited additional interest rate support short-term. The new Fed dots will signal substantial additional rate rises to come. In theory this should be USD positive, but will the FX market believe the Fed more than it did until now?

The Sunrise Headlines

• US stock markets eked out small gains yesterday (+0.1%) in an uneventful session. Overnight, Asian risk sentiment is mixed but changes remain small.
• Trump warned that America would “totally destroy” North Korea if forced to defend itself or its allies, as the US president used his debut address to the UN general assembly to issue stark threats to a “wicked few” oppressive regimes.
• Theresa May will offer a €20B Brexit payment to the EU when she lays out her divorce strategy Friday, according to the FT. She hopes it will break a threemonth deadlock over negotiations and allow talks to include a future trade deal.
• Shipments of cars and electronics in August drove up Japan's exports at the fastest pace in nearly 4 years (18.1% Y/Y), evidence that overseas demand is strong enough to support healthy economic growth. Imports rose 15.2% Y/Y.
• Iraq's oil minister said OPEC and other crude producers were considering extending or even deepening a supply cut to curb a global glut, while a report showed a smaller-than-expected increase in U.S. inventories.
• Two key US senators said they had reached a pact on the parameters of a critical budget resolution, removing an obstacle on the complex path towards Republican-led tax cuts.
• Today's calendar contains UK retail sales, US existing home sales and a German 30-yr Bund auction. However, these will all be overshadowed by tonight's FOMC meeting and press conference by chair Yellen.

Currencies: Will Fed Help To Put A Floor Under The Dollar?

Will Fed put a floor under the dollar?

USD trading remained technical in nature yesterday as investors counted down to tomorrow's FOMC decision. Data were second tier and had little impact on trading. USD/JPY set a new ST top, but reversed gains later. EUR/USD traded close to mostly slightly below 1.20.

Overnight, Asian equities are narrowly mixed after WS closing at again new record levels. Japan August trade data were stronger-than-expected, but doesn't change to broader picture going into tomorrow's BOJ policy announcement. The BOJ is largely expected to keep course, lagging the normalisation process in other major economies. This prospect weighs on the yen, especially if rates in the US or Europe would rise further. The overall picture for the dollar stays unchanged. USD/JPY holds in the mid 111 area, within reach of the ST correction top. The dollar continues to trade weak against the euro. EUR/USD tries to regain the 1.20 barrier. EUR/JPY trades near the highest levels since December 2015.

Today, the eco data (German PPI, US existing home sales) will be largely ignored as investors will forward to the Fed policy decision. For an in depth preview of the Fed decision, see the fixed income part of this report. The start of the reduction of the balance sheet is a symbolic step in the normalisation process. The move was extensively pre-announced and the initial impact on market liquidity is limited. In this context, the new Fed rate dots might be more important for the dollar. We don't see changes in the median dot for 2017 (one additional hike) and for 2018 (3 extra hikes), but chances of a downward revision of the 2019 median dot (2.5 extra rate hikes) and the long run (3%) are high. The Fed's ongoing intention to normalize policy should be USD supportive given that hardly any further tightening is discounted. However, are there reasons for the market to believe the Fed more after today's meeting than it did till now? For that to happen, the Fed dots probably need ‘confirmation' from good eco data and higher inflation. We won't get that today. In this context, the defuse/fragile picture for the dollar might persist for some time. We assume more USD consolidation near the recent lows, maybe with room for some modest USD gains, but we dare not anticipate on it.

From a technical point of view EUR/USD hovers in a ST 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 recent bottoming out process in US yields and in the dollar might be the start of more sustained USD gains (against the euro).

The day-to-day momentum in USD/JPY is more constructive. The yen trades weak across the board. USD/JPY regained the 110.67/95 previous resistance. This a short-term positive. EUR/JPY shows a similar positive picture. So, the yen might stay under pressure at least until the next event risk pops up.

EUR/USD: nearing correction top ahead of the FOMC decision

EUR/GBP

UK retail sales in focus

Sterling traded with a slightly negative intraday yesterday following a sharp rally last week, when the BoE warned that it was likely to raise its policy rate in the coming months. BoE governor Carney confirmed that view on Monday, but sterling started to lose ground. The political bickering between UK PM May and UK Foreign Secretary Johnson was also a slight sterling negative. EUR/GBP closed the session at 0.8881 (from 0.885). Cable hovered around the 1.35 pivot.

Today, the UK August retail sales take centre stage. A very modest rise of 0.2% M/M and 1.2% is expected A soft figure questions the viability of the recent hawkish BoE speak. However, the BoE is temporary giving more weight on prices than on activity data. Even so, the sterling rally might lose further momentum in case of a poor report. Markets will also look forward to PM's Brexit speech. A more conciliatory PM May would be a ST sterling positive. The recent GBP rebound is losing momentum. Even so, we look out whether sterling can return to the recent correction top (EUR/GBP low). If that move fails, the easiest part of the sterling rebound might be behind us.

EUR/GBP made an impressive uptrend since April and set a new MT top at 0.9307 late August on the back of euro strength. Simultaneously, UK price data were soft enough to keep the BoE side-lined. Recent price data amended this story and the ST-trend reversal of sterling was reinforced by recent BoE hawkish 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 out 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: GBP-rebound rebound slows

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Daily Pivots: (S1) 133.33; (P) 133.74; (R1) 134.27; More...

At this point, intraday bias remains on the upside for further rally. Firm break of 134.20 fibonacci level will pave the way to 141.04 resistance next. On the downside, below 132.94 minor support will turn intraday bias neutral and bring consolidations. But firm break of 131.39 resistance turned support is needed to be the first sign of near term reversal. Otherwise, outlook will remain bullish in case of retreat.

In the bigger picture, current rise from 109.03 is seen as at the same degree as the down trend from 149.76 (2014 high) to 109.03 (2016 low). as long as 124.08 resistance turned support holds, further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. On the downside, break of 127.55 support is needed to be the first signal of medium term reversal. Otherwise, outlook will remain bullish.

Daily Pivots: (S1) 0.8846; (P) 0.8872; (R1) 0.8901; More

Intraday bias in EUR/GBP remains neutral for consolidation above 0.8773 temporary low. Near term outlook stays bearish as long as 0.8981 cluster resistance holds (38.2% retracement of 0.9305 to 0.8773 at 0.8976). Fall from 0.9305 is seen as the third leg of consolidation pattern from 0.9304. Below 0.8773 will target 61.8% retracement of 0.8312 to 0.9305 at 0.8691 and below. We'll look for bottoming signal again at it approaches 0.8303 support.

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 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.

Daily Pivots: (S1) 1.4932; (P) 1.4982; (R1) 1.5024; More....

EUR/AUD lost momentum after hitting 1.5031 and intraday bias is turned neutral again. Above 1.5031 will target 1.5173/5226 resistance zone first. Break will resume medium term rally from 1.3624. On the downside, below 1.4811 will turn bias to the downside and extend the fall from 1.5173 to retest 1.4421 support.

In the bigger picture, we're holding on to the view that corrective decline from 1.6587 medium term has completed at 1.3624. Rise from 1.3624 is expected to extend to retest 1.6587. The corrective structure of the price actions from 1.5226 is affirming this view. Above 1.5226 will target a test on 1.6587 key resistance. However, break of 1.4421 support will dampen our view and would drag EUR/AUD lower to retest key support zone around 1.3624.

XAUUSD (1312.44): Gold prices were slightly bullish yesterday, but price action suggests cautious trading. The modest reversal off the lows near 1305.00 suggests a minor correction to the upside. Resistance is seen at 1320 - 1324 which will need to be breached in order for further gains to be logged. A breakout above this resistance will signal a move towards 1345.87. However, in the event that gold prices fail to break the resistance, the downside could see gold prices falling to 1300.00 support level.

GBPUSD (1.3522): GBPUSD has been seen consolidating after price touched highs of 1.3566. The consolidation in price action suggests a bullish flag pattern that has formed. A range has also been established with support at 1.3483 and 1.3589. A breakout from this level will suggest further direction in the currency pair. The bias is for an upside breakout. This will potentially suggest further gains to come with the price likely to target 1.3670 followed by 1.3830. In the event that the bullish flag fails, we can expect the downside to test 1.3236.

EUR/JPY - 133.72

Original strategy:

Buy at 132.00, Target: 134.00, Stop: 131.40

Position: -
Target: -
Stop: -

New strategy :

Buy at 132.40, Target: 134.40, Stop: 131.80

Position: -
Target:  -
Stop:-

As the single currency has maintained a firm undertone after recent rally, adding credence to our view that recent upmove is still in progress and bullishness remains for further gain to 134.50-60, then towards 135.00-10, however, near term overbought condition should limit upside and reckon 135.55-60 would hold from here, risk from there is seen for a retreat to take place later. 

In view of this, we are looking to reinstate long on pullback as 132.30-40 should limit downside and bring another rise. Below support at 132.27 would defer and risk test of previous resistance at 132.01 (should turn into support) but only break there would signal a temporary top is formed, bring correction to 131.40-50 first. 

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

EURUSD (1.2008): The euro currency posted steady gains for the past five consecutive days with price action breaking above 1.1954. On the 4-hour chart, the inverse head and shoulders pattern that was formed has been validated and price action is likely to rally towards 1.2060 which marks the measured move. However, the rally to 1.2060 will be critical as it coincides with the resistance level that was previously tested. Failure to break out above this level could keep EURUSD trading in the range. To the downside, price action will need to push lower towards the 1.1882 support level. A break down below this support will push EURUSD to new lows and possibly the correction. To the upside, 1.2200 will be the next target on a successful breakout above 1.2060.

Daily Pivots: (S1) 1.1498; (P) 1.1531; (R1) 1.1576; More... .

Intraday bias in EUR/CHF remains on the upside for the moment. Prior break of 1.1537 resistance indicates resumption of medium term rise. Further rally should be seen to the upside for 61.8% projection of 1.0830 to 1.1537 from 1.1355 at 1.1792 next. However, considering weak upside momentum so far, break of 1.1438 will turn focus back to 1.1355 support instead.

In the bigger picture, long term rise from SNB spike low back in 2015 is still in progress. EUR/CHF should now be heading back to prior SNB imposed floor at 1.2000. For now, this will be the favored case as long as 1.1087 resistance turned support holds.