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Sunrise Market Commentary

• Rates: Stronger EMU PMI finally relevant for markets
  Risks for EMU PMI's are on the upside of expectations which is a negative for the Bund. As the ECB's normalization process slowly takes off, EMU eco data will gain importance for markets. Bunds can underperform US Treasuries. We also continue to monitor oil prices given this month's sharp sell-off.
• Currencies: Dollar in limbo and no signs of change anytime soon
  For the third consecutive session, dollar trading was confined to a very tight range. Asian trading suggest that the stalemate may be prolonged, but the EMU business sentiment report might bring at least a bit more suspense. However, even if our upside risk is confirmed and the euro profits, it is unlikely key technical levels will be broken.

The Sunrise Headlines

• Asian equities are ending the week mixed. Chinese stocks started with losses a day after word of a probe into potential systemic risk posed by large enterprises in China. Dow Jones, Nasdaq and S&P closed around zero change.
• After weeks of speculation ignited by his own tweets, US President Donald Trump said that he does not have recordings of his conversations with James Comey, the FBI director he fired.
• Republican internal struggle continues in the US. Four republican senators said not to support the new Senate reform bill that ends the obligation to have health insurance, cut Medicaid for the poor, and repeal taxes on the rich.
• Fed member Bullard, a non-voter in 2017, said the projection to raise rate to 3% over 2.5 years was unnecessarily aggressive. He added that the central bank should start shrinking the asset portfolio sooner rather than later.
• The biggest US banks cleared a Fed stress test of their ability to withstand economic shocks. Next week, the Fed will release findings from its Comprehensive Capital Analysis & Review.
• UK PM May's proposal to safeguard residency rights of EU-citizens currently living in the UK met a tepid reception. The EU-partners' main objection is that questions on EU-citizen rights would be handled in British courts.
• The main events on the eco-calendar today are the June PMI figures for the eurozone and the US. This evening, Fed members Bullard, Mester and Powell speak and the summit of EU leaders comes to a close.

Currencies: Dollar In Limbo And No Signs Of Change Anytime Soon

Dollar remains in limbo

Days come and days go, but the dollar cannot find direction. The decline of the oil price and the potentially negative impact on interest rates weighed marginally on the dollar yesterday morning. However, the decline of oil halted and even reversed modestly in the afternoon, allowing the dollar to gradually eke out small gains. The eco data were ignored.

Overnight, listless trading in Asian equity markets following the unchanged closure of WS yesterday. Brent crude is modestly higher in an unconvincingly sluggish rebound after steep price falls. The US T-Note barely budged. In this context, the lethargic FX trading of the majors continued. EUR/USD trades insignificantly higher at 1.1162. USD/JPY is unchanged at 111.34.

Eco calendar heats up, Fed speakers take the stage

The eco calendar is more interesting for the first time this week. Markets expect a marginal decline of the EMU PMI business sentiment, but at high levels suggesting the upside momentum is still intact. An upward surprise is possible after yesterday's unexpectedly strong EMU consumer confidence. French INSEE business confidence was marginally stronger in June versus May. US manufacturing and services PMI are expected mixed. The former a tad stronger and the latter a bit weaker than in May. However, at levels well below the EMU ones. US New Home sales fell sharply in May and we side with consensus in expecting a moderate rebound. After the European close, Fed governors Bullard (dove), Mester (hawk) and Powell (moderate who speaks on clearing) will give speeches. The WSJ reports already today that Bullard finds the Fed's rate path unnecessarily aggressive, but he backs the speedy start of the Fed's balance sheet tapering, to create policy for eventual “rainy” days

Given the eco calendar, stronger EMU PMI's could help EUR/USD higher, but we think that after May's sharp rise of the euro, the consolidation period is not over. Therefore, any EUR favourable upward surprise would give only a modest, technical insignificant boost for EUR/USD. The downside of the pair is limited too until the USD gets better eco news, signs that trump's pro-growth agenda get again traction or interest rate support. We don't see this happening in the next few days. The sluggish oil recovery is, if anything, slightly dollar negative. We maintain a neutral stance on EUR/USD today

Technical picture still negative for EUR/USD

Early May, EUR/USD failed to break below the 1.0821/1.0778 support (gap). Poor US data and US political upheaval propelled EUR/USD north of the 1.1023 range top. The pair tested the 1.1300 area going into the FOMC decision, but the test was rejected. So the Trump top/correction top at 1.1300/1.1366 proved to be a solid resistance. USD sentiment will have to become really negative to clear this hurdle. EUR/USD 1.1110 is a first minor support (tested yesterday but no break). A return below 1.1023 would indicate that the upside momentum has eased.

The USD/JPY rally ran into resistance in early May. A mini sell-off mid-May made the short-term picture negative, driving the pair further down in the 108.13/114.37 range. The post-Fed USD rebound pushed the pair beyond a first minor resistance at 110.81. A break beyond the 112.13 correction top would improve the ST-picture. The day-to-day sentiment improved slightly of late, but we remain cautious to forecast a U-turn.

EUR/USD: test off 1.1300/66 resistance rejected, but correction remains modest. First support at 1.1110 holds

EUR/GBP

EUR/GBP drops below the 0.88 pivot

After Wednesday's soft BoE Haldane comments inspired swings, sterling shifted yesterday in wait-and see modus. The CBI trends orders were again stronger than expected, but with no lasting impact on sterling trading. In late afternoon, EUR/GBP followed EUR/USD lower and sterling even outperformed the dollar maybe due to MPC Forbes. The Outgoing MPC member made her case for policy tightening one last time. EUR/GBP dropped below 0.88 to close at 0.8794 (from 0.8813 on Wednesday). Following a steep rise since mid-May, EUR/GBP looks ready for a pause or even a correction, but that may only be a temporary respite. A technical relevant break lower (see below) is needed for us to become more sterling optimistic. Cable held an extremely tight range before closing at about 1.2682 (from 1.2671).

Today, the UK calendar is empty. Strong EMU business sentiment might be a euro positive, but recent price action suggest the euro rally has become tired and thus the upside should be limited. Weaker EMU data could push EUR/GBP lower, but sterling gains should be corrective in nature. From a technical point of view, EUR/GBP extensively tested the 0.8854 area (2017 top), but a real break didn't occur. BoE comments caused some intraday volatility recently. In the end, the 0.8854/66 resistance remains within reach. A break would open the way to the 0.90 area. A return below the 0.8655 correction low would indicate easing pressure on sterling. Such a break lower will be difficult. A EUR/GBP buy-on-dips approach remains favoured

EUR/GBP: sterling rebounds temporary on BoE comments but the 0.8854/66 resistance stays within reach.

Download entire Sunrise Market Commentary

Daily Pivots: (S1) 1.1134; (P) 1.1156 (R1) 1.1172; More....

EUR/USD is still staying in range of 1.1109/1298 and intraday bias remains neutral. There is no confirmation of near term reversal yet. And focus remains on 1.1298 key resistance. Decisive break of 1.1298 key resistance will carry larger bullish implication and extend the whole rise from 1.0339 to 1.1615 resistance next. On the downside, firm break of 1.1109 support will indicate short term topping and rejection from 1.1298. In such case, intraday bias will be turned to the downside for 1.0838 support.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD staying far above 55 week EMA (now at 1.0932). Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Dollar trades broadly lower today and markets' focuses turn back to economic data. Eurozone PMIs will be closely watched in European session. EUR/USD dipped to we low as 1.1118 earlier this week but is holding above 1.1109 near term support. While some point to topping in EUR/USD after failing 1.1298 key resistance. There is no confirmation of rejection and trend reversal yet. Thus, the pair is staying bullish and upside surprises in today's Eurozone data will put focus back to 1.1298. Canadian CPI will be another key focus. USD/CAD dropped sharply overnight as the Canadian dollar was boosted by strong retail sales. It's likely that near term consolidation from 1.3164 has already completed at 1.3346. And strong consumer inflation data should give the fuel for USD/CAD to power through 1.3164 support. Also, from US, PMIs and new home sales will be featured.

In Japan, PMI manufacturing dropped to 52.0 in June, down from 53.1 and missed expectation of 53.4. Looking at some details, new orders dropped to 51.3, down from 53.4, and hit the lowest level since November. New export orders also dropped to 52.5, down from 53.0. Markit noted that "slower growth was signaled in June, with both orders and output rising at the weakest rates since late last year amid reports of a slight softening in market conditions." Nonetheless, "demand is holding up well, and the sector continues to operate within a solid growth range."

Much volatility is seen in Chinese equities market this week. The CSI 300 index hit 18 month high earlier this week on news of MSCI's decision to include 222 A-share large cap stocks into its global benchmark equity index. It's seen by economists as a pivotal moment and the decision is said to have broad support from institutional investors. However, Chinese equities were then shot down by news that the China Banking Regulatory Commission asked some banks to provide information on overseas loans made to some major Chinese conglomerates. The news is seen by some as a deeper worry on overseas acquisition and a prelude to tightening overseas loan issuance.

Outgoing BoE MPC member Kristin Forbes warned again that "lift-off of UK interest rates should not be delayed any longer." And she repeated the argument that "Sterling's depreciation has fundamentally shifted underlying inflation dynamics in a way that makes it more pressing to begin this voyage soon." Also, "the UK economy appears to be solid enough on key economic criteria, and even 'overstimulated' by others, such that a moderate reduction in the substantial amount of monetary stimulus ... makes sense."

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1134; (P) 1.1156 (R1) 1.1172; More....

EUR/USD is still staying in range of 1.1109/1298 and intraday bias remains neutral. There is no confirmation of near term reversal yet. And focus remains on 1.1298 key resistance. Decisive break of 1.1298 key resistance will carry larger bullish implication and extend the whole rise from 1.0339 to 1.1615 resistance next. On the downside, firm break of 1.1109 support will indicate short term topping and rejection from 1.1298. In such case, intraday bias will be turned to the downside for 1.0838 support.

In the bigger picture, the case for medium term reversal continues to build up with EUR/USD staying far above 55 week EMA (now at 1.0932). Also, bullish convergence condition is seen in weekly MACD. Focus will now be on 1.1298 key resistance. Rejection from there will maintain medium term bearishness and would extend the whole down trend from 1.6039 (2008 high). However, firm break of 1.1298 will indicate reversal. In such case, further rally would be seen back to 1.2042 support turned resistance next.

Economic Indicators Update

Weekly
    •    Last Candlesticks pattern: Hammer
    •    Time of formation: 19 Sep 2016
    •    Trend bias: Down

Daily
    •    Last Candlesticks pattern: Doji
    •    Time of formation: 28 Mar 2017
    •    Trend bias: Near term up



EUR/JPY – 124.28




Although the single currency fell briefly to 122.40 late last week, the subsequent rebound suggests consolidation above this level would be seen and gain to 125.31 resistance cannot be ruled out, however, break there is needed to signal the pullback from recent high of 125.82 has ended, bring retest of this level later. Having said that, only a break of previous chart resistance at 125.82 would confirm recent upmove has resumed and extend subsequent headway to 126.50-60, then 127.00-10.

On the downside, whilst initial pullback to the Tenkan-Sen (now at 123.53) cannot be ruled out, reckon 123.00-10 would hold and bring another rise later to aforesaid upside targets. Only below said support at 122.40 would risk correction of recent upmove to 122.00-10, however, still reckon downside would be limited to 121.60-65 (38.2% Fibonacci retracement of 114.85-125.82) and bring another upmove later. Below indicated previous support at 120.60 would abort and signal a temporary top has been formed, bring retracement of recent entire rise to 120.30-35 (50% Fibonacci retracement) and then 120.00 but reckon downside would be limited to 119.40-50 and price should stay above indicated support at 118.92.

Recommendation: Buy at 123.55 for 125.55 with stop below 122.55.

On the weekly chart, the single currency has remained confined within near term narrow range and further sideways trading would be seen, however, reckon last week’s lo at 122.40 would limit downside and bring another rise, above 125.31 resistance would signal the pullback from 125.82 has ended, bring retest of this recent high break there would extend the erratic rise from 109.49 low to 126.45-50, then towards 127.40-50 but reckon another previous resistance at 128.23 would limit upside and 129.60-65 (50% Fibonacci retracement of 149.79-109.49) should hold, price should falter below psychological resistance at 130.00, bring retreat later.

On the downside, although initial pullback to 123.50-55 cannot be ruled out, 122.37-40 (current level of the Tenkan-Sen and said support) should hold and bring another rise later. Below 122.37-40 would defer and risk weakness to 121.60-65, however, reckon downside would be limited to 121.00 and the Kijun-Sen (now at 120.34) should remain intact, bring another upmove later. A weekly close below the Kijun-Sen would defer and risk correction to 120.00, however, euro needs to penetrate indicated support at 118.92 to shift risk to the downside for further fall to 118.00 but downside should be limited to previous resistance at 117.82 and bring rebound later. 

Weekly
    •    Last Candlesticks pattern: Shooting doji
    •    Time of formation: 02 May 2016
    •    Trend bias: Up

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



USD/CAD – 1.3222

Although the greenback extended recent decline and dropped quite sharply to 1.3165 last week, the subsequent rebound suggests consolidation above this level would be seen and corrective bounce to 1.3380-85 cannot be ruled out, however, reckon the Kijun-Sen (now at 1.3418) would limit upside and bring another decline later to 1.3200-10 but break of 1.3191 support is needed to signal the rebound from 1.3165 has ended, bring retest of this level. Looking ahead, break of 1.3165 would confirm recent fall from 1.3794 top has resumed and extend weakness to 1.3100-10, however, only break of support at 1.3056 would retain bearishness and add credence to our view that recent entire rise from 1.2461 has ended at 1.3794 earlier, bring further fall to 1.3009 support but price should stay above 1.2969 (previous chart support).

On the upside, whilst initial recovery to 1.3380-85 cannot be ruled out, reckon upside would be limited to the Kijun-Sen (now at 1.3418) and bring another decline later. A daily close above previous support at 1.3425-30 would defer and suggest a temporary low is formed instead, risk retracement of recent decline to 1.3475-80 (50% Fibonacci retracement of 1.3794-1.3164), then towards resistance at 1.3542 but price should falter below 1.3555 (61.8% Fibonacci retracement), bring retreat later.

Recommendation: Sell again at 1.3410 for 1.3210 with stop above 1.3510.


On the weekly chart, last week’s selloff formed a long black candlestick, adding credence to our view that top has been formed at 1.3794 earlier, although the greenback found support at 1.3165 and recovered, reckon upside would be limited to 1.3410-20 and bring another decline, below said support at 1.3165 would extend the fall from 1.3794 top to 1.3080-85 and later towards 1.3000-10, however, near term oversold condition should limit downside to previous chart support at 1.2969, bring rebound later.

On the upside, although initial recovery to 1.3410-20 cannot be ruled out, reckon upside would be limited to last week’s high at 1.3471 and bring another decline later. Only a weekly close above the Tenkan-Sen (now at 1.3480) would defer and suggest first leg of decline from 1.3794 top has ended, risk a stronger rebound towards 1.3547 resistance but still reckon upside would be limited to 1.3600-10, bring another decline. Above 1.3635-40 would defer and risk a stronger rebound to 1.3690-00 but still reckon upside would be limited and price should falter well below said resistance at 1.3794, bring another decline.

EUR/USD

Current level - 1.1161

Despite the positive intraday bias, the overall outlook remains bearish below 1.1210, for a break through 1.1108, towards 1.1020.

USD/JPY

Current level - 111.32

The consolidation pattern is still underway, with a risk of a dip to 110.30 before advancing beyond 111.80, towards 113.00 area. 

GBP/USD

Current level - 1.2698

The intraday bias is positive above 1.2635 support, for a test of 1.2720 minor resistance. A break through the latter will signal a test of 1.2830 major hurdle.

USD/CHF - 0.9706

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9712

Kijun-Sen level                    : 0.9723

Ichimoku cloud top                 : 0.9743

Ichimoku cloud bottom              : 0.9731

Original strategy :

Bought at 0.9705, Target: 0.9805, Stop: 0.9690

Position : - Long at 0.9705

Target :  - 0.9805

Stop : - 0.9690

New strategy  :

Hold long entered at 0.9705, Target: 0.9805, Stop: 0.9690

Position : - Long at 0.9705

Target :  - 0.9805

Stop : - 0.9690

As the greenback has traded lower after meeting resistance at 0.9743, suggesting near term downside risk remains, however, as long as support at 0.9695 holds, bullishness remains for recent upmove to resume after initial sideways trading, break of said resistance at 0.9771 would confirm recent rise from 0.9613 low has resumed for test of resistance at 0.9808 but reckon previous resistance at 0.9825 would hold from here.

In view of this, we are holding on to our long position entered at 0.9705. Below said support at 0.9695 would defer and risk weakness towards said support at 0.9641 but only break there would abort and revive bearishness, this would also suggest the rebound from 0.9613 has ended instead, bring retest of this level later.

GBP/USD - 1.2702

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2671

Kijun-Sen level                    : 1.2672

Ichimoku cloud top              : 1.2702

Ichimoku cloud bottom        : 1.2650

Original strategy :

Sold at 1.2695, Target: 1.2595, Stop: 1.2710

Position : -  Short at 1.2695

Target :  - 1.2595

Stop : - 1.2710

New strategy  :

Hold short entered at 1.2695, Target: 1.2595, Stop: 1.2710

Position : - Short at 1.2695

Target :  - 1.2595

Stop : - 1.2710

Although cable has rebounded again and upside risk remains, as long as 1.2710 holds, mild downside bias remains for another decline, below 1.2635-40 would bring another fall towards said support but break there is needed to retain bearishness and signal recent decline has resumed for weakness towards 1.2550, however, oversold condition should limit downside to 1.2520-25. 

In view of this, we are holding on to our short position entered at 1.2695. Only above 1.2720-25 would abort and suggest low has been formed instead, bring a stronger rebound to 1.2755-60 and possibly 1.2780 but price should falter below indicated strong resistance at 1.2818.

EUR/USD - 1.1167

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.1158

Kijun-Sen level                  : 1.1159

Ichimoku cloud top             : 1.1158

Ichimoku cloud bottom      : 1.1146

Original strategy  :

Sell at 1.1200, Target: 1.1100, Stop: 1.1235

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1200, Target: 1.1100, Stop: 1.1235

Position : -

Target :  -

Stop : -

The single currency found support just below 1.1140 and has recovered, retaining our view that further consolidation above this week’s low at 1.1119 would be seen and near term upside risk remains for retracement to 1.1185-90 (38.2% Fibonacci retracement of 1.1296-1.1119), however, upside should be limited and price should falter below 1.1207-13 (50% Fibonacci retracement and previous resistance), bring another decline later, below 1.1135-40 would suggest the rebound from 1.1119 has ended, bring retest of this level, below there would confirm recent decline has resumed for further weakness to previous support at 1.1109, then towards 1.1075-80.

In view of this, we are looking to sell euro on recovery as 1.1195-00 should limit upside. Only above 1.1213 resistance would defer and risk a stronger rebound to 1.1230-35 but upside should be limited to 1.1260-70, bring another decline later.

USD/JPY - 111.23

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 111.33

Kijun-Sen level                  : 111.21

Ichimoku cloud top             : 111.37

Ichimoku cloud bottom      : 111.27

Original strategy  :

Buy at 110.65, Target: 111.65, Stop: 110.30

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 110.65, Target: 111.65, Stop: 110.30

Position :  -

Target :  -

Stop : -

Although the greenback found support just below 111.00 level, near term downside risk remains for the erratic fall from this week’s high of 111.79 to bring retracement of recent rise and weakness to 110.90-95 cannot be ruled out, however, reckon previous support at 110.65 would limit downside and bring another rise later, above 111.45-50 would bring retest of 111.79 but break there is needed to confirm the rise from 108.82 low has resumed and extend headway to 111.90-95 (50% projection of 108.82-111.42-110.65), however, upside should be limited to resistance at 112.13 and 112.25 (61.8% Fibonacci retracement of 114.37-108.82 and 61.8% projection) should hold.

In view of this, would not chase this rise here and we are looking to buy dollar on pullback as 110.65 support should limit downside. Below 110.30-35 (50% Fibonacci retracement of 108.82-111.79 and previous resistance turned support) would abort and signal a temporary top has been formed instead, risk weakness towards 109.95-00 (61.8% Fibonacci retracement).