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Cable closed in red on Tuesday and generated another negative signal after Harami pattern was formed on Fri/Mon. The pair came under additional pressure after yesterday's terrorist attack in Manchester, keeping the downside vulnerable. Technical studies on lower timeframes are weak with indicators on daily chart pointing lower that may shift near-term bias. First triggers and strong supports lay at 1.2945/35 (converging 10/20SMA's), loss of which would generate stronger bearish signal for fresh extension of pullback from highs at 1.3045 zone, as descending thick weekly cloud continues to weigh. Further easing would expose next pivotal supports at 1.2843/30, break below which is needed to confirm reversal. Conversely, break and close above 1.3000 barrier would neutralize immediate bearish threats. With no releases of economic indicators from the UK today, turns focus towards US housing data and more significant FOMC minutes, which may give more clues whether the Fed remains on track for rate hike in June.

Res: 1.3000, 1.3033, 1.3046, 1.3087
Sup: 1.2945, 1.2935, 1.2888, 1.2843

The Euro remains at the back foot in early Wednesday and holding around 1.1175 (Tuesday's low) after failure to sustain break above 1.1200 barrier pulled the price lower.

Tuesday's close in red that also formed bearish Outside Day, could be seen as early signal of correction, along with slow stochastic which reversed from overbought territory on daily chart.

Stronger dollar in Asia dragged the single currency lower, offsetting positive impact of strong German Ifo data and EU PMI on Tuesday.

Further negative signal could be expected on break below Monday's low at 1.1161, with loss of pivotal 1.1100 support (Fibo 38.2% of 1.0839/1.1268 upleg, reinforced by rising 10SMA) needed to confirm pullback, which may extend towards next strong support at 1.1000 (Fibo 61.8%, reinforced by rising 20SMA).

However, overall structure remains bullish and sees scope for fresh upside after correction.

Focus today in on the speech of ECB President Draghi (due at 12:45 GMT) which may provide more information about timing for tapering of QE program and hints about exiting current ultra-low rate policy.

Any comments from Draghi that markets will understand as hawkish would be supportive for Euro for renewed attempts above 1.1200 and extension towards next target at 1.1313 (Fibo 76.4% of 1.1614/1.0340.

Conversely, more dovish from Draghi would accelerate pullback from Tuesday's fresh multi-month high at 1.1268.

Res: 1.1200, 1.1249, 1.1268, 1.1300
Sup: 1.1161, 1.1100, 1.1053, 1.1000

Sunrise Market Commentary

• Rates: Range trading remains in vogue
  Yesterday, some modest further losses, which pushes core bonds back lower in the reach, while equities recaptured the highs. Today, the calendar is thin. Surprises are possible from the ECB speakers or FOMC Minutes, but overall we bet on another technical driven bond session.
• Currencies: Dollar decline shows tentative signs of slowing
  Yesterday, the dollar finally rebounded supported by a rise in equities and US yields; Today, the focus is on the Minutes of the May FOMC meeting. More signs that the Fed normalization process will continue might help to put a floor underr the dollar. Equities remain a wild card.

The Sunrise Headlines

• US equities rallied for the fourth day in a row, leaving the S&P 500 within striking distance of its all-time high at the close. Financials outperformed and recouped last Wednesday's rout. Asian equities area trading mixed. Japanese equities outperform on weaker yen, while Chinese ones lose on a rating downgrade.
• China's credit rating has been downgraded by Moody's from Aa3 to A1 (stable) on expectations the country's financial strength will 'erode somewhat' over coming years as debt rises, but its outlook was lifted to stable from negative.
• New Zealand reported its largest monthly trade surplus since 2015 in April as dairy, wood and wine exports grew. Its trade deficit year to date decline to NZD 4.4B. The Kiwi dollar was little changed around NZD/USD 0.70
• S&P Global Ratings has placed the ratings of 38 Brazilian financial institutions on negative watch amid a political scandal that rocked the country's markets. It may delay an economic recovery and increases the risks for credit fundamentals.
• Philadelphia FED Harker said June 'is a distinct possibility' for the U.S. central bank's second interest-rate increase of 2017. He still sees 3 hikes in 2017 as appropriate and expects an balance-sheet unwinding as likely to start in 2017.
• Ben Bernanke subtly criticized the BOJ: It's disappointing the 2% CPI target had to be pushed back, policy transmission channels are near their limits and the government and BOJ have to do better coordinating fiscal and monetary policy.
• Today calendar is light with speeches of ECB Praet and Draghi, a US 5-yr Note auction and the FOMC Minutes.

Currencies: Dollar Decline Shows Tentative Signs Of Slowing

USD finally gets (modest) interest rate support

On Tuesday, the trends of the previous days initially persisted. USD/JPY (111.10) struggled to avoid further losses even as sentiment on risk remained constructive. The euro remained well bid supported by very strong EMU data. Finally, the dollar received interest support later in the session, lifting the USD currency off the recent lows. EUR/USD dropped below 1.12 to close session at 1.1183. USD/JPY rebounded higher in the 111 big figure to finish the day at 111.78 (from 111.30).

Overnight, Asian equities show a mixed picture. Japanese equities are supported by a weaker yen. USD/JPY trades currently at 111.85. Chinese markets underperform after Moody's cut the China debt rating to A1 from Aa3, stable outlook. The China rating downgrade also put additional pressure on the Aussie dollar. AUD/USD trades currently in the 0.7450 area (top around 0.7517 yesterday). EUR/USD is holding a tight range in the 1.1180 area.

Today, in the US the Existing Home sales (April) will be published. A slight decline at a high level is expected. This evening, the focus will turn to the minutes of the May FOMC meeting. For an in dept analysis see the fixed income part. We expect the report the confirm the Fed's intention to raise rates in June. If the Fed would give concrete hints on the roadmap for its balance sheet reduction, it would be hawkish and USD supportive.

Over the previous days, the dollar hardly profited from the post-Turmp rebound of equities. Euro strength prevailed. Yesterday afternoon, fortunes finally changed in favour of the dollar. Recently, but not yesterday, interest rate differentials drifted gradually against the dollar. If the Fed minutes confirm the Fed's intention to normalize policy further, interest rate differentials between the US and Europe shouldn't go against the dollar anymore. The global equity performance is also a wildcard for USD trading. Yesterday, the dollar finally profited from a better equity sentiment. A risk-off correction, if it would occur, might be mixed for the dollar. However, we are not convinced on the safe haven characteristics of the euro. Over the previous days we suggested that the EUR/USD rebound has gone far. Yesterday's price action suggests that the upside has indeed become tougher. We look to cautiously sell EUR/USD on upticks.

Technical picture.

The USD/JPY rebound ran into resistance two weeks ago. Wednesday's selloff/ re-break below the 112.20 previous top aborted the uptrend and made the short-term picture negative. Return action lower in the 108.13/114.37 range is possible. Yesterday, the USD/JPY decline took a breather, but the global picture didn't change fundamentally.

Earlier this month, it looked that EUR/USD could revisit the 1.0821/1.0778 support (gap). However, poor US data and political upheaval finally propelled EUR/USD north the 1.1023 range top. The correction tops at 1.1300/1.1366 is the next resistance. We think that USD sentiment will have to be extremely negative to clear this hurdle short-term. Further ST EUR/USD gains will become tougher. A return below 1.1023 would indicate that the upside momentum has eased.

EUR/USD rally running into resistance as USD stages a comeback

EUR/GBP

EUR/GBP rally running into resistance

Yesterday, the news flow on the UK remained sterling negative. The terrorist attack in Manchester weighed on sterling early in the session. The CBI May reported sales were also softer than expected. EUR/GBP touched a new correction top in the 0.8675 area around noon, but this move was also driven by euro strength. Later, EUR/USD fell prey to profit taking as the dollar rebounded. EUR/GBP closed the session at 0.8628. The decline in cable was more modest. The pair closed the session at 1.2961.

Today, the UK eco calendar is empty. So sterling trading will be driven by to global moves in the dollar and the euro. If the EUR/USD rally takes a breather, the topside of EUR/GBP will probably also be capped. So, some profit taking on EUR/GBP shorts might be on the cards.

EUR/GBP rally to take a breather

Download entire Sunrise Market Commentary

US Session Highlights

(US) Fed’s Kashkari (dove, voter): it's hard to believe there would be a spike in inflation; hard to see 3% growth in US given demographics

(US) MAY PRELIMINARY MARKIT MANUFACTURING PMI: 52.5 V 53.0E

(US) APR NEW HOME SALES: 569K V 610KE

(US) MAY RICHMOND FED MANUFACTURING INDEX: +1 V 15E (lowest since Sep 2016); new orders 0 v 23 prior

Investors digested Trump's budget plan, which calls for large cuts to Medicaid and social services, with major indices making small gains for the day. Markets were unperturbed after weak US data and a heinous terrorist attack in the UK overnight. Fixed income fell out of favor again, as investors regained interest in risk; 10-year Notes yield rising 3bps on the day. In the S&P, Financials was the best performing sector, up 0.8%, with Consumer Discretionary the only losing sector, down 0.4%

US markets on close: Dow +0.2%, S&P500 +0.2%, Nasdaq +0.1%

Best Sector in S&P500: Financials

Worst Sector in S&P500: Consumer Discretionary

Biggest gainers: A +4.6%; ADM +3.7%; NUE +3.3%

Biggest losers: AZO -11.8%; ALXN -9.3%; BRO -6.2%

At the close: VIX 10.7 (-0.2pts); Treasuries: 2-yr 1.32% (+4bps), 10-yr 2.28% (+3bps), 30-yr 2.95% (+3bps)

US movers afterhours

TCS: Reports Q4 $0.17 v $0.10e, R$221M v $214Me; Guides initial FY17 $0.25-0.35* v $0.25e, R$830-850M v $837Me, SSS down low single digits; +40.9% afterhours

TLYS: Reports Q1 -$0.01 v -$0.10e, R$120.9M v $114Me; Guides Q2 $0.07 to $0.03 v $0.02e; SSS "flat to up low single digits"; +16.6% afterhours

INTU: Reports Q3 $3.90 v $3.87e, R$2.54B v $2.50Be; Guides Q3 $0.16-0.18 v $0.15e, R$795-815M v $772Me; +9.1% afterhours

BG: Issues statement: Not in talks on combination with Glencore; -3.4% afterhours

STNG: To merge with Navig8 Product Tankers Inc., will pay $42.2M cash consideration; -4.8% afterhours

ANW: Reports Q1 $0.03 v $0.36e, R$1.5B v $1.16Be; EBITDA $27.1M v $21.9M y/y; -18.1% afterhours

Key economic data

(NZ) NEW ZEALAND APR TRADE BALANCE (NZD): 578M V 267ME (2nd straight trade surplus); 12-MONTH YTD: -3.48B V -3.8BE

(AU) AUSTRALIA Q1 CONSTRUCTION WORK DONE Q/Q: -0.7% V -0.5%E

(AU) AUSTRALIA APR SKILLED VACANCIES M/M: +0.1% V -0.6% PRIOR

Asia Session Notable Observations, Speakers and Press

Asian indices traded mixed in the wake of 4th consecutive session of gains on Wall St, where rising Treasury yields helped Financials lead the broader index despite confirmation that the overnight explosion in Manchester was in fact a terror act. Mainland China is underperforming following a surprise sovereign rate cut by Moody's - the first since 1989. The rating agency noted that "China's financial strength will erode over the coming years, with economy-wide debt continuing to rise as potential growth slows", though the "stable outlook reflects our assessment that, at the A1 rating level, risks are balanced." Moody's also forecast leverage across the China economy to increase in coming years and reform to slow, as sustained policy stimulus will lead to higher debt. China Finance Ministry responded that the assessment overestimated economic difficulties and underestimates ability to deepen supply side reform, maintaining that debt levels will be reasonable and govt reform will help curb local debt risks.

China CDS rose about 3bps in the wake of the downgrade and AUD/USD fell some 40pips below 0.7450, though the spillover was contained to only marginal declines in US equity futures and a slight ripple in the risk-gauge USD/JPY pair. FX majors were otherwise fairly rangebound going into tomorrow's FOMC policy meeting minutes where investors will look for more clues about the Fed's intended policy mix, including anticipated balance sheet reduction later this year.

In other notable economic data, New Zealand Apr trade balance registered its 2nd straight month of surplus, with Exports volume at a 2-year high of 4.75B v 4.4Be. Shipments to China also rose over 20% y/y, helping NZD/USD to session highs above 0.7020. Modest upward momentum in NZD was helped by earlier release of Fonterra milk price forecast hike speculated to result in sooner RBNZ tightening than currently expected.

China

(CN) China will further open its economy to foreign investors, through measures such as allowing investment in more industries, such as services - Chine media

(CN) China margin trading is at a 3-month low and 60% lower than the peak 2 years ago - Chinese press

(CN) MSCI notes there are still over 100 stocks suspended in China

Japan

(JP) BOJ Gov Kuroda: Many people agree the natural interest rate has fallen in recent years, leading to unconventional monetary policy - press

(JP) Japan PM Abe planning to hold talks with US Pres Trump at upcoming G7 summit - press

(JP) Japan Upper House approves government’s two nominees for BoJ board; Vote to move to lower house

Australia/New Zealand

(NZ) Fonterra Raises 2016/17 farmgate milk price to NZ$6.15/kg; Affirms FY17 EPS NZ$0.45-0.55

(NZ) Fonterra's increase of price forecasts today may lead RBNZ to hike rates sooner than expected - NZ Press

Korea

(KR) According to one survey, analysts are unanimous in expectation for Bank of Korea (BOK) to hold rates unchanged this month - Korean press

(KR) South Korea govt to submit extra budget to Parliament in June - Korean press

Asian Equity Indices/Futures (00:30ET)

Nikkei +0.5%, Hang Seng -0.2%, Shanghai Composite -0.4%, ASX200 -0.1%, Kospi +0.2%

Equity Futures: S&P500 -0.1%; Nasdaq -0.1%, Dax -0.1%, FTSE100 -0.2%

FX ranges/Commodities/Fixed Income (00:30ET)

EUR 1.1175-1.1190; JPY 111.75-112.00; AUD 0.7440-0.7480; NZD 0.6990-0.7020

June Gold -0.3% at 1,252/oz; July Crude Oil flat at $51.47/brl; July Copper -1.2% at $2.57/lb

SPDR Gold Trust ETF daily holdings fall 5.0 tonnes to at 847.5 tonnes; lowest since Apr 12th

(US) Weekly API Oil Inventories: Crude: -1.5M v +0.9M prior

(CN) Dalian iron ore down over 5% in early trade

(CN) PBOC to inject combined CNY90B v CNY140B prior

(CN) PBOC SETS YUAN MID POINT AT 6.8758 V 6.8661 PRIOR; 1st weaker fix in 3 sessions

(AU) Australia MoF (AOFM) sells A$800M v A$800M indicated in 2.75% 2027 bonds; avg yield 2.545% v 2.515% prior; bid-to-cover 3.04x v 3.24x prior

Asia equities notable movers

Australia

Iluka (ILU) +6.1%; Increases Zircon Reference price

Worleyparsons (WOR) +3.6%; investor day comments

Programmed Maintenance Services (PRG) +2.3%; Reports FY17

Japan

Toshiba (6502) +8.0%; Western Digital said to have proposed ¥2T offer for chip unit as part of partnership with INCJ and DBJ

Nippon Express (9062) +1.6%; Working with Amazon to launch a logistics service allowing small and mid-size businesses to send exports to the US - Nikkei

Park 24 (4666) -2.4%; May report H1 op profit ¥9B, -10% y/y (prior forecast +1% y/y) - Nikkei

Hong Kong

Worldgate Global Logistics (8292) +4.0%; Share buyback

Sustainable Forest Holding (0732) +3.2%; Guides Q1

Hilong Holding (1623) -4.5%; Pakistan contract

USD/CHF - 0.9754

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9759

Kijun-Sen level                    : 0.9735

Ichimoku cloud top                 : 0.9749

Ichimoku cloud bottom              : 0.9729

Original strategy :

Bought at 0.9700, Target: 0.9800, Stop: 0.9690

Position : - Long at 0.9700

Target :  - 0.9800

Stop : - 0.9690

New strategy  :

Hold long entered at 0.9700, Target: 0.9800, Stop: 0.9700

Position : - Long at 0.9700

Target :  - 0.9800

Stop : - 0.9700

As the greenback has rebounded after holding above this week’s low at 0.9692, retaining our view that further consolidation above this level would be seen and mild upside bias remains for another rebound to 0.9790-00, however, break of resistance at 0.9825 is needed to low is formed, bring retracement of recent decline to previous resistance at 0.9851 which is likely to hold from here.

In view of this, we are holding on to our long position entered at 0.9700. Below said support at 0.9692 would signal recent decline has resumed and extend weakness to 0.9670-75 but reckon downside would be limited to 0.9650 and 0.9620-25 should hold, bring another rebound later. 

GBP/USD - 1.2972

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2969

Kijun-Sen level                    : 1.2994

Ichimoku cloud top              : 1.2997

Ichimoku cloud bottom        : 1.2994

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Cable’s retreat after faltering below indicated resistance at 1.3048 (last week’s high) has retained our view that further choppy trading below this level would be seen and pullback to 1.2950 cannot be ruled out, however, reckon downside would be limited to 1.2920-25 and said support at 1.2889 should remain intact, bring another rebound later.

On the upside, although recovery to 1.3000-10 cannot be ruled out, reckon said resistance at 1.3048 would hold, bring further consolidation. Only a break of said resistance at 1.3048 would confirm recent upmove has resumed an extend further gain to 1.3075-80 and possibly towards 1.3100-10 later. As near term outlook is mixed, would be prudent to stand aside in the meantime.

EUR/USD - 1.1178

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 1.1182

Kijun-Sen level                  : 1.1220

Ichimoku cloud top             : 1.1227

Ichimoku cloud bottom      : 1.1183

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite yesterday’s marginal rise to 1.1268, the subsequent retreat suggests a temporary top is possibly formed and test of support at 1.1161 cannot be ruled out, however, break there is needed to add credence to this view, bring further fall to 1.1130 but reckon downside would be limited to 1.1100-05 (38.2% Fibonacci retracement of 1.0839-1.1268) and price should stay well above support at 1.1076, bring rebound later.

On the upside, whilst recovery to 1.1200 cannot be ruled out, reckon the Kijun-Sen (now at 1.1220) would limit upside and 1.1250 should hold, bring retreat later. Only break of said resistance at 1.1268 would extend recent upmove to extend further gain to 1.1280-85 (61.8% projection of 1.0839-1.1172 measuring from 1.1076) and possibly towards 1.1300-10. 

USD/JPY - 111.84

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 111.88

Kijun-Sen level                  : 111.47

Ichimoku cloud top             : 111.28

Ichimoku cloud bottom      : 111.16

Original strategy  :

Sell at 112.05, Target: 110.85, Stop: 112.40

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 112.40, Target: 111.00, Stop: 112.75

Position :  -

Target :  -

Stop : -

The greenback has rebounded after holding above support at 110.86, suggesting near term upside risk remains for the corrective rise from 110.24 low to extend gain to 112.05 (50% Fibonacci retracement of 113.85-110.24), then 112.36 (100% projection of 110.4-11174 measuring from 110.86) but upside should be limited to 112.45-50 (61.8% Fibonacci retracement) and bring another decline later, below 111.30-35 would bring test of said support at 110.86 but break there is needed to signal the rebound from 110.24 has ended, bring further fall to 110.50 first. 

In view of this, would be prudent to sell dollar on further subsequent recovery as 112.45-50 should limit upside and bring another decline. Above 112.70-75 would abort and signal recent decline has ended, bring further gain to 113.00.

Weekly 


    •    Last Candlesticks pattern: Shooting star 
  
    •    Time of formation: 13 Mar 2017 
  
    •    Trend bias: Down



Daily



    •    Last Candlesticks pattern: Bearish engulfing pattern 
  
    •    Time of formation: 16 Feb 2017 
  
    •    Trend bias: Near term down





The Australian dollar did falter below indicated resistance at 84.55 and retreated in line with our bearish expectation, retaining our downside bias and below last week’s low at 81.80 would signal the rebound from 81.50 has ended, bring retest of this level first. A drop below this level would extend recent decline from 88.15 top to support at 81.10-15, however, near term oversold condition should limit downside and reckon 80.00 psychological support would hold from here, bring rebound later.

On the upside, whilst initial recovery to the lower Kumo (now at 83.90) cannot be ruled out, as long as said resistance at 84.55 holds, prospect of another decline to aforesaid downside targets remains. Only a break above said resistance at 84.55 would abort and suggest low is formed instead, risk a stronger rebound to 85.00-10 but said resistance at 85.75 should remain intact, bring another decline later. 


Recommendation: Hold short entered at 83.65 for 81.65 with stop above 84.65.

On the weekly chart, as aussie has remained confined within near term range, suggesting further sideways trading would be seen, however, still reckon resistance at 84.55 would cap upside and bring another decline later, below last week’s low at 81.80 would signal the rebound from 81.50 has ended, bring retest of this level later. A drop below this level would extend the fall from 88.15 top to support at 81.10-15, a weekly close below there would retain bearishness and suggest the rise from 72.50 has ended, then further fall to 80.50 and possibly psychological support at 80.00 would follow.

On the upside, expect recovery to be limited to the Tenkan-Sen (now at 83.63) and bring another decline. A weekly close above resistance at 84.55 would suggest low is formed instead, bring a stronger rebound to 85.00, then towards resistance at 85.75 but only break there would abort and signal low is formed instead, bring further subsequent gain to 86.00 and then 86.50-60, however, price should falter below resistance at 87.50.

Weekly
    •    Last Candlesticks pattern: Shooting doji
    •    Time of formation: 20 Feb 2017
    •    Trend bias: Sideways

Daily
    •    Last Candlesticks pattern: Bearish engulfing pattern
    •    Time of formation: 21 Mar 2017
    •    Trend bias: Near term down



Although aussie has risen again after finding support just above the Tenkan-Sen and near term upside risk remains for the rebound from 0.7329 to extend gain towards previous resistance at 0.7556 but only break there is needed low has been formed at 0.7329, bring further rise to another previous resistance at 0.7611, having said that, aussie needs to break this level to signal the fall from 0.7750 top has ended bring subsequent rise towards resistance at 0.7680.

On the downside, below the Tenkan-Sen (now at 0.7428) would bring weakness to 0.7388 support but break there is needed to signal the rebound from 0.7329 has ended, bring retest of this level, break there would extend recent fall from 0.7750 top to 0.7300 and possibly 0.7250-60 but reckon downside would be limited to 0.7200-10 and price should stay well above indicated previous chart support at 0.7158, bring rebound later.

Recommendation: Hold short entered at 0.7440 for 0.7240 with stop above 0.7540.



On the weekly chart, after forming a hammer candlestick pattern earlier this month, last week’s rebound formed a white candlestick, suggesting low has possibly been formed there and consolidation with mild upside bias is seen for gain to 0.7560-65, however, break of previous resistance at 0.7611 is needed to add credence to this view, bring further gain towards resistance at 0.7680, having said that, price should falter below said resistance at 0.7750.

On the downside, although pullback to the Kijun-Sen (now at 0.7454) is likely, reckon downside would be limited to 0.7384 support (last week’s low), bring another rebound later. Only a weekly close below there would signal the rebound from 0.7329 has ended, bring retest of this level, break there would extend recent decline from 0.7750 to 0.7290-00 and possibly towards 0.7230, however, downside should be limited to 0.7200 and price should stay well above previous support at 0.7158, risk from there is seen for a rebound to take place later.