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Sunrise Market Commentary

• Rates: Bunds outperforming US Treasuries on mixed inflation readings?
  Influential NY Fed governor Dudley said overnight that the outlook for fiscal stimulus shifts risks to growth, inflation, and the speed of the Fed's tightening cycle to the upside. Today's inflation data are expected to show a significant drop in EMU, while rising above the Fed's 2% target in the US. That should cause outperformance of the Bund vs. US Treauries.
• Currencies: EUR/USD nosedives on soft EMU inflation while dollar rebounds
  The euro's decline accelerated yesterday on very soft German inflation data. At the same time the dollar was supported by hawkish Fed comments and a rising interest rate support. Today, a soft EMU CPI shouldn't come as a surprise, but won't help the euro. US data might remain mildly USD supportive. Sterling is still captured in a short-squeeze post Brexit

The Sunrise Headlines

• US stock markets extended this week's comeback and closed around 0.3% higher. Overnight, most Asian stock markets lose some ground with Japan and China outperforming (+0.4%)
• Prospects for the US economy have brightened now that fiscal stimulus from Washington appears more likely, so the Fed will need to keep raising rates and eventually trim its bond portfolio to avoid an overheating, NY Fed Dudley said.
• China's official manufacturing PMI climbed to the highest in almost 5 years (51.8 from 51.6), the latest evidence of increasing momentum in the world's 2nd largest economy. The non-manufacturing PMI increased from 54.2 to 55.1.
• Some mixed readings on inflation and a drop in household spending in Japan have taken some of the shine off solid industrial production and unemployment numbers this morning.
• Venezuela's supreme court, which is controlled by President Maduro's socialist government, has ruled it is taking over the opposition-dominated National Assembly, sparking fears that the crisis-riven country has moved towards full-blown dictatorship.
• South Africa's President Zuma fired FM Gordhan and replaced him with Home Affairs Minister Gigaba, a person familiar said, extending the rand's decline. USD/ZAR trades around 13.5, from 12.5 at the start of the week.
• Today's eco calendar contains EMU (CPI) and US (PCE) inflation and some second tier data (US personal income/spending, Chicago PMI, final Michigan consumer confidence). More ECB/Fed members speak.

Currencies: EUR/USD Nosedives On Soft EMU Inflation While Dollar Rebounds

EUR/USD hammered on USD rebound and soft euro The euro remained in the defensive yesterday. Market rumours of the ECB being unhappy with the recent hawkish market reaction continued to weigh. They were reinforced by a sharp decline in German and Spanish inflation. EUR/USD finally even dropped below the 1.07 big figure as the dollar gained momentum later in the session. EUR/USD finished the session at 1.0674 (from 1.0766 on Wednesday). The rise of USD/JPY was initially modest, but accelerated later, supported by higher US yields. The pair finished the day at 111.92 (from 111.04).

Overnight, Asian equities are trading mixed with Japan and China outperforming. Japanese eco data were mixed with the headline February CPI slightly higher than expected at 0.3% Y/Y. As usual the data had hardly any impact on yen-trading. USD/JPY tries to regain the 112 barrier as the dollar remains well bid. The US currency is further supported by hawkish comments Fed's Dudley yesterday evening. China PMI data were strong (manufacturing PMI 51.8; nonmanufacturing PMI 55.1). EUR/USD hovers near yesterday's lows (1.0675 area).

Today, the EMU CPI flash estimate and the German labour market data will be published. In the US, PCE deflators, personal spending and income data, Chicago PMI and final Michigan consumer confidence are scheduled for release. The consensus for the EMU CPI still stands at 1.8% for the headline and 0.8% for the core. A very soft figure should already be discounted after yesterday's low readings in Germany and Spain. Even so, a sharp decline of the EMU inflation data shouldn't help the euro. In the US we keep an eye at the PCE deflators (headline expected at 2.1% Y/Y, core at 1.7%). A rise north of 2.0% might cause more talk on the Fed meeting its targets. The Chicago PMI is expected slightly softer at 56.9, but should remain at a reasonable high level. Sentiment on the dollar improved earlier this week as the US reflation trade regained momentum 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 as market rumours questioned the scenario of early ECB policy normalization. The move was reinforced by very soft EMU inflation data. Part of this repositioning should be discounted now. Even so, some underperformance of Treasuries versus Bunds is still likely, widening the interest rate differential in favour of the dollar. A cautious EUR/USD sell-on-upticks approach can be reconsidered. The day-to-day momentum of USD/JPY also improved. However, further gains might be capped if the equity rebound would slow. We stay 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 earlier this 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: combination of USD rebound and euro softness is pushing EUR/USD back lower in the established trading range .

EUR/GBP

Post-Brexit sterling short-squeeze continues

For now, the start of the ‘official' Brexit procedure didn't cause any negative sentiment on the UK currency, on the contrary. The relative political calm in the Brexit-process triggered a further squeeze of GBP shorts. At the same time, the euro was under pressure as the market adapted positions for a prolonged period of easy ECB policy. This combination pushed EUR/GBP sharply lower yesterday. The pair tumbled below 0.86 and closed the session at 0.8562 (from 0.8658). The short-squeeze of sterling against the dollar was less aggressive, especially as the dollar gained momentum later in the session. Cable finished the session at 1.2468 (from 1.2435).

Overnight, Gfk Consumer confidence stabilised at -6 (-7) was expected. Sterling remained well bid in Asia this morning, but the pace of the rebound is slowing. Later today, the third and final reading of the UK Q4 GDP and the Q4 current account deficit will be released. These data are a bit old dated. Even so, a sharp decline of the current account deficit is expected from -£25.5 B to £16.0B. In the current sterling positive momentum, a good figure could still cause some further unwinding of GBP shorts.

Two weeks ago, sterling found a better bid after the early March decline. Substantially higher than expected UK inflation and a more hawkish tone from the BoE put a decent floor for sterling short-term. We changed our short-term bias on EUR/GBP from positive to neutral. Further consolidation in the MT sideways range might be on the cards. The return below the 0.8592 previous break-up even 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 this months' higher inflation data.

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

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USD/CHF - 1.0006

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 1.0008

Kijun-Sen level                    : 0.9982

Ichimoku cloud top                 : 0.9960

Ichimoku cloud bottom              : 0.9907

Original strategy :

Buy at 0.9910, Target: 1.0010, Stop: 0.9875

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9950, Target: 1.0050, Stop: 0.9915

Position : -

Target :  -

Stop : -

As the greenback has surged again after finding renewed buying interest at 0.9948 yesterday, adding credence to our view that recent decline has ended at 0.9813 and bullishness remains for the rise from there to extend further gain to 1.0030, then towards previous support at 1.0060 (now resistance), however, near term overbought condition should limit upside and price should falter below resistance at 1.0109, risk from there is seen for a retreat later. 

In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as said support at 0.9948 should limit downside. Below 0.9910-15 would abort and signal top is formed instead, bring correction to 0.9880 but reckon previous resistance at 0.9869 would hold from here. 

GBP/USD - 1.2454

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.2477

Kijun-Sen level                    : 1.2464

Ichimoku cloud top              : 1.2487

Ichimoku cloud bottom        : 1.2437

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although cable has retreated after yesterday’s rise to 1.2524 in part due to cross-trading in sterling and consolidation below said resistance would be seen, break of 1.2400 is needed to revive bearishness and signal the rebound from 1.2377 has ended at 1.2524, bring retest of 1.2377 (this week’s low) first, otherwise, further choppy trading would take place and risk of another rebound remains.

In view of this, would not chase this fall here and would be prudent to stand aside in the meantime. Above 1.2500 would bring another test of 1.2524, break there would bring test of previous support at 1.2539, however, break there is needed to signal the fall from 1.2616 has ended, bring further rise to 1.2555-60 later. 

EUR/USD - 1.0686

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.0681

Kijun-Sen level                  : 1.0720

Ichimoku cloud top             : 1.0807

Ichimoku cloud bottom      : 1.0767

Original strategy  :

Sell at 1.0800, Target: 1.0700, Stop: 1.0835

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.0745, Target: 1.0645, Stop: 1.0780

Position : -

Target :  -

Stop : -

As this week’s selloff has kept euro under pressure, adding credence to our bearish view that top has been formed at 1.0906 and bearishness remains for the decline from there to extend further weakness to 1.0660, then 1.0640, however, near term oversold condition would limit downside and reckon previous strong support at 1.0600 would hold from here, bring rebound later.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0740-50 should limit upside. Only 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. 

USD/JPY - 111.79

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 111.95

Kijun-Sen level                  : 111.57

Ichimoku cloud top             : 111.14

Ichimoku cloud bottom      : 110.81

New strategy  :

Buy at 111.25, Target: 112.25, Stop: 110.90

Position :  -

Target :  -

Stop : -

As the greenback has eased after intra-day initial rise too 112.20, suggesting minor consolidation below this level would be seen and test of the Kijun-Sen (now at 111.57) is likely, however, reckon the upper Kumo (now at 111.14) would contain downside and bring another rise later, above indicated resistance at 112.20-26 would extend the upmove from 110.11 low to 112.50-55 but price should falter below previous resistance at 112.87-90, bring retreat.

In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as 111.25-30 should limit downside. Below 110.90-95 would abort and signal top is formed instead, bring test of support at 110.72, break there would suggest the rebound from 110.11 (this week’s low) has ended, then further fall to 110.45-50 would follow. 

Key Points:

• Near-term rally now in jeopardy as the 100 day EMA draws nearer.
• Overarching bullishness could see the 51.55 handle tested moving ahead.
• OPEC still worth keeping an eye on.

Oil prices are reaching a critical zone of resistance which could spell trouble for the forecasted rally. Specifically, as has been discussed previously, the 100 day moving average is generating some significant resistance which could prevent the 51.55 mark from being reached over the coming session. As a result, it may be worth looking at some of the developing technical readings to establish a bias moving ahead.

Beginning with what could be an impediment to the previously forecasted rally, primarily, we expect the presence of the 100 day EMA to present a major obstacle for the pair. However, the movement of the stochastics into overbought territory will also be giving the bulls pause for thought. Additionally, a rather robust historical zone of resistance will also be playing its part in preventing further gains from being claimed.

Despite these factors, a number of other instruments are generally indicating that we should see the forecasted rally up to the 51.55 level take place. Firstly, the overarching double bottom structure would usually suggest that the strong uptrend should continue, especially given that we have broken above the neckline. Further, we have seen both a MACD signal line crossover and an inversion of the parabolic SAR reading which would also be indicative of upside potential.

Although the overall outlook remains fairly bullish, after overcoming the current impasse, gains should be limited to the 51.55 price as has been previously indicated. The presence of not only a historical zone of resistance but also the 50.0% Fibonacci retracement should provide more than enough resistance to halt oil's advance. Moreover, the ensuing reversal might even send the commodity all the way back to the lower constraint of the wedge.

Ultimately, we may be more at the mercy of fundamental upsets than we would like to admit at present. In particular, OPEC has been oddly silent despite the recent geopolitical developments in the market which could mean the cartel is on the verge of announcing a deepening or extension of its production freeze. Regardless, monitor oil prices closely over the coming week as we could have some interesting moves on our hands if the technical forecast rings true.

Market movers today

In the euro area, focus remains on inflation with the release of the aggregate figure. We expect headline inflation decline to 1.6% in March, from 2.0% in February, driven partly by a fall in core inflation from 0.9% to 0.7%. If this core inflation figure is correct, it will be the lowest since April 2016. However, our estimate of a decline is due mainly to the early timing of Easter in 2016, causing low inflation in volatile package holiday prices in March this year. Added to the lower core inflation, the latest decline in the oil price together with less support from base effects in energy prices is also likely to have driven headline inflation lower, although energy price inflation should still have a considerable positive contribution to inflation. Finally, food price inflation has surprised on the upside recently, due mainly to cold weather in the winter months, but should not have continued and we look for a lower contribution in March.

US PCE core inflation for February is also due for release today. While headline inflation has been increasing rapidly and is almost at the Fed's 2% target, PCE core inflation has remained stuck around 1.7%. We expect the development of PCE core inflation to attract special interest in coming months given the comments at the last FOMC meeting that the Fed has a 'symmetric inflation target', which could be interpreted as the Fed will be willing to let inflation slightly overshoot the 2% target. Hence, it implies a more dovish tone. However, we will have to see whether it actually means it. Last time PCE inflation was at 2% was at the beginning of 2012. We estimate the PCE core increased 0.2% m/m, implying 1.7% y/y. Thus, we expect core inflation to remain at the same level it has stayed at since August 2016.

In Scandi markets, we expect focus to be on Norwegian unemployment, together with the government's presentation of its Perspectives 2017 report. The Swedish wage negotiating process will also be followed closely before the current contracts run out (midnight) see more on page 2.

Selected market news

The Chinese official manufacturing PMI increased to 51.8 in March, from 51.6 in February, and is now at the highest level since 2012. Despite the continued improvement in the first few months of 2017, we believe the Chinese economy will be faced with some moderate headwinds this year, as we expect the housing market to cool and believe the significant infrastructure boost is set to fade. China has moved its foot from the gas to the brake and aims to rein in the brewing housing bubble and lean against inflationary pressure.

Asian stocks are mixed this morning but Chinese stocks have been supported by the economic figures and the Shanghai composite index added 0.3% on the last day of the month and quarter.

Despite the quarter-end there is nowhere the same stress in the European system as seen around year-end. It is likely that this move towards a more 'normal repo situation' could weigh on the short-end of the German yield curve over the next couple of days.

Short term Elliott Wave view in USDJPY suggests that cycle from 3/10 peak (115.53) has ended with Minor wave A at 110.077. Decline from 115.53 is unfolding as a 5 waves impulse Elliott wave structure with an extension where Minute wave ((i)) ended at 114.46, Minute wave ((ii)) ended at 115.19, Minute wave ((iii)) ended at 110.59, Minute wave ((iv)) ended at 111.34, and Minute wave ((v)) of A ended at 110.077. USDJPY ended cycle from 3/10 peak and correcting that cycle in Minor wave B bounce in 3, 7, or 11 swing.

Revised view suggests that Minor wave B bounce is unfolding as a zigzag Elliott wave structure where Minute wave ((a)) ended at 111.426 as 5 waves diagonal and Minute wave ((b)) ended at 110.96. Minute wave ((c)) of B is in progress as 5 waves and expected to complete at 112.31 – 112.63 area before pair resumes lower or at least pullback in 3 waves. As far as pivot at 3/10 high (115.53) stays intact, expect pair to extend lower or at least pullback in 3 waves once Minor wave B is complete.

1 Hour USDJPY Elliott Wave Chart

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For the 24 hours to 23:00 GMT, the AUD declined 0.29% against the USD and closed at 0.7643.

LME Copper prices rose 0.2% or $13.0/MT to $5860.0/MT. Aluminium prices rose 1.2% or $24.0/MT to $1955.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7639, with the AUD trading slightly lower against the USD from yesterday's close.

Early morning data indicated that Australia's private sector credit recorded a rise of 0.3% on a monthly basis in February, falling short of market expectations for an advance of 0.5%. In the prior month, the private sector credit had registered a rise of 0.2%.

Elsewhere in China, Australia's largest trading partner, manufacturing PMI climbed to a level of 51.8 in March, expanding at its fastest pace in almost five years, thus adding to evidence that the world's second-largest economy is gaining steam early in the year. The PMI had registered a reading of 51.6 in the previous month, whereas markets were expecting a rise to a level of 51.7. Moreover, the nation's NBS non-manufacturing PMI rose to a two-year high level of 55.1 in March, reflecting strength in the nation's services sector and following a reading of 54.2 in the preceding month.

The pair is expected to find support at 0.7623, and a fall through could take it to the next support level of 0.7607. The pair is expected to find its first resistance at 0.7667, and a rise through could take it to the next resistance level of 0.7695.

Next week, traders will closely monitor the Reserve Bank of Australia's (RBA) interest rate decision along with Australia's AiG performance of manufacturing, services and construction PMI's as well as retail sales and trade balance data.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR declined 0.74% against the USD and closed at 1.0684, following disappointing German flash inflation figures.

Data indicated that Germany's flash consumer price index (CPI) advanced less-than-expected by 1.6% on an annual basis in March, easing some pressure on the European Central Bank to wind down its massive monetary stimulus programme soon. The CPI had recorded a rise of 2.2% in the previous month, while market participants expected a gain of 1.8%.

Separately, the Euro-zone's final consumer confidence index improved to a level of -5.0 in March, meeting market expectations and confirming the preliminary print. In the prior month, the index had registered a level of -6.2.

The greenback traded higher against most of its major counterparts, after the latest data indicated that the US economy grew stronger than initially estimated in the fourth quarter of 2016.

The US annualised gross domestic product (GDP) was revised higher to 2.1% in the fourth quarter of 2016, boosted by robust consumer spending and compared to an advance of 3.5% in the previous quarter. The preliminary figures had indicated an advance of 1.9%, while markets anticipated the nation to grow by 2.0%. Meanwhile, the nation's initial jobless claims fell to a level of 258.0K in the week ended 25 March 2017, less than market expectations of a fall to a level of 247.0K and following a level of 261.0K in the previous week.

Separately, the Dallas Federal Reserve Bank President, Robert Kaplan, stated that he expects two additional interest rate increases this year.

In the Asian session, at GMT0300, the pair is trading at 1.0679, with the EUR trading marginally lower against the USD from yesterday's close.

The pair is expected to find support at 1.0643, and a fall through could take it to the next support level of 1.0606. The pair is expected to find its first resistance at 1.0742, and a rise through could take it to the next resistance level of 1.0804.

Moving ahead, investors will keep a close watch on the Euro-zone's flash consumer price index (CPI) data for March, slated to release later today along with Germany's unemployment rate and retail sales data, both for March, due in a few hours. Moreover, in the US, final Michigan consumer confidence index for March along with personal spending and income data for February, will be on investor's radar.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.