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Sunrise Market Commentary

Rates: Further underperformance of US Treasuries with key US eco data?
The US manufacturing ISM will probably key in today's trading session. We put risks on the upside of expectations, which should cause last week's underperformance of US Treasuries vs German Bunds to continue. The focus remains on the US later this week with ADP employment, non-manufacturing ISM, FOMC Minutes and payrolls.
Currencies: Dollar shows no clear trend at the start of Q2. Euro softness prevails
Last week, the dollar rebounded, but the move was not convincing. EUR/USD remained in the defensive as markets are scaling back FX bets positioning for early ECB normalization. Today, the focus turns to the early month data. The dollar needs strong data to gain sustained ground. Sterling remains well bid even as the Brexit procedure started.

The Sunrise Headlines

• US equities closed the final session of a strong quarter with minor losses (S&P: +5.5%). Lower bank shares offset gains in utilities and real estate. Asian markets started Q2 on the front foot, overcoming WS's negative lead.
• US president Trump said he plans to inform Chinese president Xi that the US will act alone against North Korea if it doesn't get more help from Beijing. Trump pushed his view that China engages in trade abuses that lead to deficits.
• S&P raised Spain's outlook of its BBB+ rating to Positive from Stable on balanced eco performance and narrowing deficit.
• French left-wing candidate Jean-Luc Melenchon's creeping gain to 16% in the polls is adding a new layer of risk to France's election. He is now within touching distance of Fillon in third place.
• Crude stockpiles are starting to drop, OPEC Secretary-General Barkindo said, a sign that supply cuts are restoring balance. However, US oil drillers added rigs for an 11th time to 662 last week, more than double the 2016 low,
• The PBOC raised interest rates for standing lending facility loans, aimed mainly at small- and medium-sized financial institutions. Rates were increased on overnight, 7-day and one-month contracts as it tries to rein in leverage.
• Confidence among Japan's large manufacturers improved in the first three months of the year as a weaker yen helped profits rise to a record.
• Today's eco calendar contains ISM manufacturing sentiment, car sales and construction spending. EMU data contain final PMI' and unemployment rate.

Currencies: Dollar Shows No Clear Trend At The Start Of Q2. Euro Softness Prevails

USD shows no clear trend at the start of Q2

On Friday, EUR/USD entered calmer waters even as the EMU inflation slowed much more than expected. The news was apparently discounted after German and Spanish data on Thursday. EUR/USD hovered in a tight range in the high 1.06 area for most of the day, but closed the session at 1.0652 (from1.0674). USD/JPY failed to sustain Thursday's rebound as the rise in core yields and the equity rally did ran into resistance. The pair closed the session at 111.39 (from 111.92).

Overnight, Asian equities are starting the quarter on a positive footing. The headline Japan Tankan indicator improved for the second quarter in a row, but the rise was more modest than expected. Capex was slightly stronger than expected. The dollar continues to trade mixed. EUR/USD is holding with reach of the correction lows reached late last week. So, the euro remains in the defensive. USD/JPY is holding in the mid 111 area.

Today, manufacturing ISM sentiment, car sales and construction spending will get attention. The March manufacturing ISM is expected to have eased slightly from 57.7 to 57.2.Most sentiments indicators improved further in March. Also on a global level, sentiment improved further. So, we put the risks on the upside of expectations. Construction spending is expected to have recouped January's 1% M/M decline in February. Given the solid single family housing starts in January, we see no reasons to deviate from consensus. Speeches of ECB Coeuré, Fed Dudley and Harker are probably less important as all three spoke already in past days.

Last week, USD sentiment improved as the US reflation trade regained traction after a very strong US consumer confidence. US Fed speakers also confirmed that further policy normalization is to be expected throughout 2017. At the same time, the euro faced headwinds. Market rumours questioned the case for early ECB policy normalization. The move was reinforced by very soft EMU inflation data. In Friday both the decline of the euro and the rebound of the dollar slowed. A good US ISM manufacturing should support a further rebound in US yields and in the dollar. That said, we have the impression that the dollar needs very strong data to gain more ST term. For EUR/USD, has the repositioning away from early ECB normalization s already been worked out. We maintain a cautious EUR/USD negative bias, but the decline might slow compared to last week's pace. We stay more cautious on the USD/JPY upside potential.

From a technical point of view, USD/JPY regained the 111.36/60 previous range bottom. This called off the imminent downside alert in this cross rate. For now, we maintain a neutral bias. EUR/USD extensively tested the topside of the MT range, but the test was rejected last week. The 1.0874/1.0906 area now looks a solid resistance. EUR/USD might return lower in the previous 1.0875/1.05 trading range.

EUR/USD: euro drifting lower in the 1.09/1.05 range

EUR/GBP

No negative Brexit fall-out on sterling yet

The final UK Q4 GDP printed at a good 0.7% Q/Q and 1.9% Y/Y on Friday, but details suggested a softening in consumer spending even as the savings ratio declined. Net exports made a substantial positive contribution to growth. Will exports continue to compensate for a slowdown in domestic spending as the Brexit-procedure continues? In a guideline for the Brexit-negotiations, EU Tusk indicated that enough progress has to be made on issues regarding the separation process before talks on future trade relations can start. The news was a bit mixed to even slightly negative for sterling, but for now it didn't hurt the UK currency. Especially EUR/GBP declined further, partially on euro weakness. The pair closed the session at 0.8485 (from 0.8562). Cable hovered mostly in the higher half of the 1.24/lower 1.25 big figure but closed the session at 1.2550.

The UK manufacturing PMI is expected to rebound slightly from 54.6 to 55.0 today. We have no reason to take a different view from the consensus. Mid- March, sterling found a better bid. Substantially higher than expected UK inflation and a more hawkish tone from the BoE supported sterling. We changed our shortterm bias on EUR/GBP from positive to neutral. Last week's decline of the euro reinforced the EUR/GBP downside momentum. Further consolidation in the MT sideways range might be on the cards. The return below the 0.8592 previous break-up suggests that a full retracement to the 0.8402 range bottom is possible. Longer term, Brexit-complications remain a potential negative for sterling. We are not convinced that the BoE will raise rates anytime soon, even not after recent higher inflation data.

EUR/GBP: euro decline and sterling short-squeeze push EUR/GBP lower in the established trading range

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GBP/USD - 1.2527

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2538

Kijun-Sen level                    : 1.2496

Ichimoku cloud top              : 1.2472

Ichimoku cloud bottom        : 1.2455

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As cable found good support at 1.2433 on Friday and staged another strong rebound on active cross-trading in sterling, suggesting the erratic rise from 1.2377 (last week’s low) is still in progress and may extend gain towards 1.2570-75, however, as broad outlook remains consolidative, reckon upside would be limited to 1.2595-00 and price should falter below last week’s high at 1.2616, bring retreat later.

In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below the Kijun-Sen (now at 1.2496) would bring weakness to the upper Kumo (now at 1.2472) but said support at 1.2433 should remain intact. Only a drop below 1.2433 support would revive bearishness and suggest the rebound from 1.2377 has ended, bring weakness to 1.2400, break there would confirm and retest of 1.2377 would follow.

Daily Pivots: (S1) 118.26; (P) 119.03; (R1) 119.45; More...

Intraday bias in EUR/JPY remains on the downside for the moment. Further fall is expected but overall, price actions from 124.08 are still viewed as a consolidation pattern. Hence we're expecting strong support from 118.39/45 (38.2% retracement of 109.20 to 124.08 at 118.39) to contain downside. On the upside, break of 119.81 resistance will indicate short term bottoming. In such case, intraday bias will be turned back to the upside for 120.43 resistance first. However, sustained trading below 118.39/45 will invalidate our view and bring deeper fall.

In the bigger picture, we're holding on to the view that medium term rise from 109.20 is still in progress. Focus is on 126.09 key resistance level. Sustained break will confirm completion of the whole decline from 149.76. And rise from 109.20 is of the same degree as the fall from 149.76. In such case, further rally would be seen to 104.04 resistance and possibly above before topping. Meanwhile, rejection from 126.09, or firm break of 118.45 cluster support, will likely extend the fall from 149.76 through 109.20 low.

EUR/USD - 1.0666

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.0673

Kijun-Sen level                  : 1.0677

Ichimoku cloud top             : 1.0746

Ichimoku cloud bottom      : 1.0700

Original strategy  :

Sell at 1.0765, Target: 1.0645, Stop: 1.0800

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0740, Target: 1.0625, Stop: 1.0775

Position : -

Target :  -

Stop : -

As the single currency has remained under pressure after last week’s selloff, suggesting the decline from 1.0906 top is still in progress and bearishness remains for this fall to extend further weakness to 1.0620-25, then test of previous chart support at 1.0600, however, a sustained breach below the latter level is needed to retain downside bias for subsequent selloff to 1.0570-75 first, otherwise, risk from there is seen for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0735-40 should limit upside. Only a firm break above resistance at 1.0773 would suggest low is formed instead, bring a stronger rebound to 1.0800 but resistance at 1.0827 should remain intact. 

Fridays core inflation numbers from the U.S., Europe and Japan were anything but, giving the U.S. Dollar a helping hand to start the week.

Trading is off to a quiet start in Asia this week with the markets barely moving after President Trump's interview in the Financial Times this weekend. The major takeaways, most of which should be dollar positive to some degree, are he is prepared to take unilateral action against North Korea if China continues to vacillate. That currency manipulation and China is not of the table, and that governing is harder than he thought it would be. The last being of no surprise.

However is was Friday's core inflation numbers from the “big three” that are probably most troubling. Japan with a mind-numbing 0.1%, the U.S with an expected 1.75% and most troubling, Europe undershooting at 0.7%. Europe will have the reflationista's more than a little nervous given we are approaching the tapering phase of the ECB's quantitative easing (QE) programme. After the mother of all QE programmes in Japan, Friday's number may be causing a few sleepless nights in Tokyo as well.

At least the United State's is delivering it's inflation Nirvana, albeit at a pace the street is slightly underwhelmed with. Taken in totality Friday's numbers were USD positive with the Euro, in particular, starting the week as it finished, on a soggy note.

This week features both the ECB and FOMC minutes, President's Trump and Xi of China meeting in Florida. Perhaps over a game of golf. We then culminate in the U.S. Non-Farm Payroll on Friday. Into the mixture we see Fed. Governor Dudley speaking twice and an RBA rate decision. Mr Dudley's speeches and the non-farms being the most likely to move the needle on volatility this week.

EUR/USD

The Eur has rallied in Asia as EUR/JPY, EUR/AUD and EUR/GBP buying today, support the single currency. The Commitment of Traders (COT) report also showed a large unwind of Euro shorts against the dollar. Although supportive in the short-term, the COT is backwards looking by a week. Euro will find resistance at Friday's highs around 1.0700 with support at 1.0650, a 61.8% Fibonacci, and 1.0630 the 100-day moving average.

USD/JPY

Having failed at 112.00 again on Friday, USD/JPY sits mid-range at 111.37 today. Key support and resistance are 110.00 and 112.00 with the street unlikely to get excited until one or the other is broken. This morning's Tanken report was a fizzer, and unsurprisingly, the COT report showed a large reduction of JPY shorts from the previous week.

In the short term, USD/JPY has support at 111.10 with seller sat 111.40/50. It should remain supported in Asia by cross flows and a positive Nikkei.

AUD/USD

Post a poor building approvals data set this morning, AUD/USD is trading heavy despite AUD/JPY buying. AUD has support at 7590 with the possibility of some stop losses lurking below there. Resistance lies at 7670. The RBA rate decision tomorrow is unlikely to provide fireworks and remain unchanged. What will be interesting is if the RBA strike a quite dovish tone which could see AUD optimists heading for the door.

GBP/USD

GBP has drifted lower in Asia on EUR/GBP buying this morning, but still remains in a most un-Brexit way, near the top of its recent range at 1.2550. 1.2600 is the key resistance area to watch while support sits at 1.2520 initially. It is a light data week for the U.K. and sterling will mostly likely move to the beat of both the USD and EUR/GBP flows.

USD/CNH

Moving higher in Asia with a strong USD in general at 6.8800 today. The 6.8400 level remains the key support for the pair with resistance in the 6.9300 regions. Neither level appears to be in imminent danger unless we see a very large USD elsewhere. This may well have to wait for Friday's Non-Farms. Asia looks content to trade the 6.8700/6.8900 range today. Bring a good book to read.

USD/ZAR

President Zuma's night of the long knives with his cabinet last week is overshadowing improved South Africa trade data. As it should, with the respected finance minister removed amongst others. Traders looking for some volatility to start the week should almost certainly find it here. Political rumblings within his own ANC and the opposition mean this story may have more to run and should see USD/ZAR bid on any meaningful dips.

Support sits at 13.3000 with resistance at 13.6000. Expect this pair to remain extremely volatile and vulnerable to news headlines out of South Africa.

Overall the USD appears to be shrugging on its recent lethargy and making a quiet comeback. At the very least, the U.S. has some inflation to show for its troubles, as opposed to Europe and Japan, and in a light data week until Friday, this should be supportive.

USD/JPY - 111.47

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 111.36

Kijun-Sen level                  : 111.59

Ichimoku cloud top             : 111.76

Ichimoku cloud bottom      : 111.46

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Dollar’s retreat after last week’s strong rebound to 112.20 suggests top has possibly been formed there and consolidation with mild downside bias is seen for weakness to 110.91-94 (61.8% Fibonacci retracement of 110.11-112.20 and previous support), however, break there is needed to add credence to this view, bring further fall to support at 110.72, once this level is penetrated, this would signal the rebound from 110.11 has ended and further decline to 110.50 would follow.

In view of this, would not chase this fall here and would be prudent to stand aside in the meantime. Above 111.75-80 would bring recovery to 112.00-05 but price should falter below resistance at 112.20, bring further consolidation. Only break of 112.20 would revive bullishness and extend the rise from 110.11 low to 112.50-55 but price should falter below previous resistance at 112.87-90, bring retreat later.

Daily Pivots: (S1) 1.3925; (P) 1.3975; (R1) 1.4009; More...

Intraday bias in EUR/AUD remains neutral for the moment. We're still mildly favoring the case of trend reversal after defending key support level at 1.3671. Another rise is expected as long as 1.3872 minor support holds. Break of 1.4309 will extend the rebound from 1.3624 to 1.4721 key resistance level next. Break should confirm larger trend reversal. However, firm break of 1.3872 support will dampen our bullish view. In such case, intraday bias will be turned back to the downside for 1.3624 low instead.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. Such correction could be completed after testing 1.3671 support. Break of 1.4721 cluster resistance (38.2% retracement of 1.6587 to 1.3624 at 1.4756) should confirm this case and target 61.8% retracement at 1.5455 and above. Overall, we'd expect the up trend from 1.1602 to resume later. However, sustained break of 1.3671 will invalidate our bullish view and would turn extend the fall from 1.6587 towards 1.1602 long term bottom.

Daily Pivots: (S1) 0.8447; (P) 0.8522; (R1) 0.8559; More...

Intraday bias remains on the downside for 0.8402 support. Consolidation pattern from 0.8303 could have finished at 0.8786 already. Break of 0.8402 will resume that larger decline from 0.9304 and target 0.8303 and below. Nonetheless, as fall from 0.9304 is viewed as as a corrective move, we'd expect strong support at 0.8116/20 cluster support to contain downside and bring rebound. On the upside, break of 0.8604 support turned resistance is needed to indicate completion of fall from 0.8786. Otherwise, outlook will remain cautiously bearish in case of recovery.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Such decline is likely ready to resume and should make a new low below 0.8303. At this point, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Break of 0.9304 will pave the way to 0.9799 (2008 high). However, sustained break of 0.8116 could bring deeper decline to next key support level at 0.7564 before the correction completes.

Currency pair GBP/USD

The GBP/USD broke above the resistance of the triangle (dotted orange) chart pattern, which makes it likely that a wave X (blue) has been completed. Price could be building a wave Y (blue) correction towards the Fibonacci targets.

The GBP/USD broke above the resistance trend line (dotted orange). The breakout will probably turn out to be an ABC zigzag (pink). The trend lines are forming a contracting chart pattern and the current formation could be part of a wave 4 (purple) retracement.

Currency pair EUR/USD

The EUR/USD showed strong bearish impulse which has been marked as either a wave 1 (light green) or wave A (dark green). Price is trying to break above the resistance trend line (orange), which could spark a retracement back to the Fibonacci levels for wave 2 or B.

The EUR/USD break above resistance has been mild. A push above the 1.07 round resistance level could start a larger wave 2 or wave B retracement.

Currency pair USD/JPY

The USD/JPY indeed bounced at the 38.2% Fibonacci level of wave B vs A (brown). The current bearish price action could be part of a larger WXY (orange) correction within wave B (brown).

The USD/JPY seems to be building an ABC (purple) zigzag which is a corrective pattern. A break above the resistance trend line (red) would confirm a bullish breakout within wave Y (orange).

EUR/USD

Price is showing oversold conditions on the 4H and Daily chart, suggesting that a bounce could follow in the near-term. Nevertheless, the technical outlook for the currency pair is negative, and selling rallies the preferred strategy.

Expect solid resistance at 1.0720 and 1.0750 (38.2 % Fibonacci of the March rally). Support is noted at 1.0650 (61.8 % Fibonacci and last week's low). Should the pair break below 1.06 support, a test of the March low at 1.05 should follow soon.

GBP/USD

GBP/USD had a strong bounce off the 1.24 level and the recent price action has been fairly bullish. However, the Stochastic indicator on the 4H Chart is showing negative divergence, suggesting the rally could pause in the short-term. Initial support is noted at 1.2450, but the important levels in GBP/USD are 1.2375 and 1.2340.

Strong demand can be expected in this area, and GBP bulls are likely to add to their long positions there. To the topside, 1.26 is the next major obstacle. A break above would then signal a move towards 1.27. However, techs suggest we will first a see a correction before the rally continues.

USD/JPY

The short-term outlook for USD/JPY is mixed. The currency pair failed at 112.20 resistance and had a correction of almost 100 pips. This shows that selling interest remains high, and that the overall downtrend is still intact. Traders should watch the support area between 110.70 and 110.80. If we see a clear bounce off that, USD/JPY might have another test of 112 soon.

Should it break below, it will likely head towards 110 quickly. Given the lack of momentum at the moment, trading the range between 110 and 112.20 is the preferred strategy for now.

AUD/USD

AUD/USD continues to consolidate in a relative tight range. The currency pair came under pressure overnight and is moving towards the 0.76 level. Solid support is noted at 0.7587. A break below would likely trigger momentum selling and push the Australian Dollar towards the 0.75 level.

Overall, the risk lies to the downside as the pair has been struggling with strong resistance above 0.77 and failed to gather momentum to the upside. Resistance is noted at 0.7680 and 0.7720/50.

USD/CHF

USD/CHF broke above an important resistance level at 1.00, but the currency pair is running out of momentum. Short-term, expect a minor correction before the rally continues.

Good support is seen at 0.9960, and is likely to attract decent buy interest.

XAUUSD:

Gold ran out of momentum last week and failed once again at 1260 resistance. Nevertheless, it attracted strong demand at 1240 and managed to recover to 1250. The technical outlook remains bullish, with the uptrend clearly intact.

Expect strong support in the area between $1235 and $1239. To the topside, 1260/61 remains the major obstacle. Should Gold break above it, a move towards 1300 should follow quickly.