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The pair shows hesitation at psychological 110.00 support, reinforced by daily Kijun-sen line (yesterday's low was at 110.09), as subsequent bounce left long-tailed daily candle.

Monday's close below weekly cloud top (111.36) is maintaining negative tone, as recovery attempts so far did not show stronger upside action.

However, reversal of slow stochastic on daily chart suggests extended consolidation, which should be capped under weekly cloud top, before bears resume.

Final break below 110.00 handle would expose supports at 109.50/00 and could extend towards 200SMA (108.25) on stronger bearish acceleration.

Daily MA's in firm bearish setup support the notion.

Alternative scenario requires close above weekly cloud top to signal extended correction, with upper breakpoint at 112.15 (Fibo 38.2% of 115.49/110.09).

Res: 110.81, 111.00, 111.36, 111.60
Sup: 110.50, 110.00, 109.50, 109.00

Weekly
    •    Last Candlesticks pattern: Doji
    •    Time of formation: 26 Sep 2016
    •    Trend bias: Sideways

Daily
    •    Last Candlesticks pattern: Shooting star
    •    Time of formation: 25 Oct 2016
    •    Trend bias: Near term up

USD/CHF – 0.9861

The greenback only recovered to 1.0003 early last week (we recommended to sell dollar at 1.0010 and missed our short entry) before renewed selling interest emerging and price dropped again from there to as low as 0.9813 yesterday, the breach of previous support at 0.9861 adds credence to our view that recent erratic decline from 1.0344 top has resumed and downside bias remains for this fall to extend weakness to 0.9735-40 (76.4% retracement of 0.9550-1.0344) and later towards 0.9700 but near term oversold condition should limit downside to 0.9650-60, bring rebound later.

On the upside, whilst initial recovery to 0.9900-10 cannot be ruled out, price should falter below resistance at 0.9960 and bring another decline later. Only break of said resistance at 1.0003 would abort and suggest low is formed instead, risk a stronger rebound to 1.0060 (previous support turned resistance) but still reckon upside would be limited to 1.0109 and price should falter well below resistance at 1.0171, bring another selloff. 

Recommendation: Sell at 0.9910 for 0.9710 with stop above 1.0010.

On the weekly chart, the greenback met renewed selling interest at 1.0003 early last week and dropped again, another black candlestick was formed, price finally broke below previous support at 0.9861, adding credence to our view that the fall from 1.0344 top has resumed and bearishness remains for this move to bring retracement of early upmove to 0.9735-40, then towards the lower Kumo (now at 0.9706) but reckon downside would be limited to 0.9640-50 and price should stay well above support at 0.9550.

On the upside, expect recovery to the Kijun-Sen (now at 0.9947) and resistance at 0.9960 should hold, bring another decline. Above the Tenkan-Sen (now at 0.9992) would risk test of said resistance at 1.0003 but a weekly close above there is needed to signal low is formed instead, bring a stronger rebound to 1.0060, having said that, only break of said resistance at 1.0171 would shift risk back to upside and suggest the fall from 1.0344 has ended, bring further gain to key resistance at 1.0248. A sustained breach above this level would signal the retreat from 1.0344 has ended, bring further gain to 1.0335-44 resistance area but break there is needed to signal early upmove has resumed for headway to 1.0400-10 and later 1.0500.

Sunrise Market Commentary

• Rates: Risk sentiment improves, but key support US 10-yr yield remains nearby
  The improvement of risk sentiment in the US suggests that the first hesitation in the reflation trade was overdone. That could remove some of the upward pressure on bonds, though we wouldn't call off the risks. A test of 2.3% support (US 10yr yield) in the coming days remains likely. We don't think that eco data and central bank talk will impact dealings today.
• Currencies: USD decline slows, but short-term picture remains fragile.
  Yesterday, the correction on the reflation trade slowed and so did the decline of the dollar. However, the USD picture remains fragile as it still trades within reach of the recent lows. Today, the US eco data probably won't be strong enough to put a solid floor for dollar. The ECB debate on reducing policy stimulation is an implicit supportive factor for the euro

The Sunrise Headlines

• US equities markets recovered on Monday from an early-day slide to end mixed between -0.2% and +0.2%. Overnight, Asian markets eked out gains on the back of the improved risk sentiment on WS with China underperforming.
• Germany's two representatives on the ECB's main policy-making body called for it to prepare to wind down its aggressive stimulus policy as soon as economic conditions allow it. The ECB could discuss and decide on its next step after June.
• President Trump's son-in-law, Kushner, has been asked to discuss his contact with the head of a state-run Russian bank that is on a US sanctions list with a Senate committee probing Russia's alleged interference in the elections.
• Chicago Fed Evans said there may only be one more rate increase this year, though he could support two if the data warranted. Dallas Fed Kaplan said that he would support further interest rate hikes if the US economy takes more steps toward reaching the Fed's goals of full employment and 2% inflation.
• German Chancellor Merkel has adopted a tough position on issues such as the UK's exit bill and the sequencing of negotiations, partly in response to increasing expectations that Britain is seeking a hard Brexit.
• The worst cyclone in six years smashed into the coast of Queensland, forcing thousands of Australians to evacuate or seek emergency shelter and prompting some of the world's biggest miners to halt coal operations.
• Today's eco calendar contains US trade balance, S&P CS housing data, consumer confidence and Richmond Fed manufacturing index. Several ECB & Fed governors speak and the US & Germany supply markets

Currencies: USD Decline Slows, But Short-Term Picture Remains Fragile

USD holds near recent lows, but decline slows

The correction on the reflation trade initially continued yesterday as investors were uncertain about the impact of the failure to pass a new US healthcare bill. Equities and the dollar were sold. Later in the US session, the risk-off trade eased and so did the decline of US/core bond yields and of the dollar. Still the US currency remained relatively close to the recent lows against other majors. EUR/USD finished the session at 1.0864 (from 1.0798 on Friday). USD/JPY closed the session at 110.66.

Overnight, Asian equities join yesterday's intraday rebound in the US. However, the gains outside Japan and Australia are modest. This is also the case for the comeback of the dollar. USD/JPY rebounded temporary to the 110.80 area, but returned soon to the mid 110 area. EUR/USD hovers in the 1.0865 area. So, yesterday's top just north of 1.09 is still within reach. On the EU side of the story, the euro is probably supported by comments of German ECB members Weidmann and Lautenschlaeger. They kept the debate alive that the ECB should consider scaling back policy stimulation in a not-that-distant future.

Today, there are no EMU eco data. In the US, the advance trade balance, consumer confidence (conference board) and the Richmond Fed manufacturing index will be published. Consumer confidence has probably most market moving potential. The consensus expects a small setback from 114.8 to 114. Recent indicators of consumer confidence were strong, but a slight setback given the very high level is possible. From a market/USD point of view, the question is whether the US data will be strong enough to reverse recent market doubts on the US reflation trade and on the dollar. A good figure might help, but more USD positive news is needed to restore confidence in the dollar. There is also again a long list of Fed and ECB speakers. ECB comments might be at least as important as Fed speakers. Yesterday, the intra-ECB division became again apparent with the German ECB members advocating scaling back policy stimulation. At the same time ECB Chief economist Peter Praet defended the current soft ECB approach

EUR/USD: extensive test of 1.0829/74 resistance both on USD weakness and euro strength

However, it is too early to conclude that the correction has already run its course. A similar reasoning applies for EUR/USD. Sentiment on the dollar was fragile. At the same time, the internal ECB debate on whether or not scaling back policy stimulation continues. This puts a floor for the euro, at least short-term. A new downleg in EUR/USD probably has to come from better news from the US, halting the decline in the US/Euro (German) interest rate differential. We are not at this point yet. So, EUR/USD might hold near the recent highs and even (slight) further upticks are still possible even as we don't expect a sharp break higher.

From a technical point of view, the picture of USD/JPY remains fragile as it clearly dropped below the 111.60/36 support. Next support kicks in at 108.84 (50% retracement of the MT up-move). EUR/USD is extensively testing the 1.0829/1.0874resistance. A break beyond this level would deteriorate the MT picture for the dollar. Chances on a break of this level are growing. However, we don't expect a real protracted rally of the euro against the dollar already now. The absolute interest rate differential between the US and Germany/Europe makes EUR/USD longs costly. At the same time, we also don't see the euro as the perfect safe haven.

EUR/USD: extensive test of 1.0829/74 resistance both on USD weakness and euro strength

EUR/GBP

Sterling rebound slows ahead of article 50 triggering

On Monday, there were no important UK data. The BoE published a framework for the 2017 banking stress test that included a test against a big economic setback and a sharp depreciation of sterling. This scenario isn't formally linked to the risks of Brexit, but the case is straight forward. The upcoming new phase in the Brexit saga (triggering article 50 on Wednesday) didn't negatively impact sterling for now. USD weakness was the most important driver for sterling trading. Cable ‘enjoyed' quite a powerful short squeeze. The pair traded temporary above 1.26, but closed the session at 1.2559. EUR/GBP initially declined, but finally closed the session in the mid 0.86 area.

Today, there are again no important eco data in the UK. So, global factors and investors looking forward to the formal triggering of Article 50 (tomorrow) will set the tone for sterling trading. With no high profile news on the agenda, some further consolidation on the recent sterling rebound might be on the cards. Two weeks ago, sterling found a better bid after the early March decline. Some time ago, EUR/GBP cleared 0.8592 resistance, improving the MT technical picture. However, (substantially) higher than expected UK inflation probably 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 0.85/0.88 area might be on the cards. Longer term, Brexit-complications remain a potential negative for sterling, but this issue isn't in the spotlights right now. We are not convinced that the BoE will raise rates anytime soon, even not after this months' higher inflation data

EUR/GBP: sterling rebound to show tentative signs of slowing?

Download entire Sunrise Market Commentary

UK Prime Minister Theresa May will trigger Article 50 of the Lisbon treaty on Wednesday March 29, starting the 2-year Brexit negotiation process with the EU. The EU leaders will hold a summit on April 29 to adopt Brexit guidelines.

There are three possible situations for the negotiation process: soft Brexit, hard Brexit, or failing to achieve any agreements. In the third situation, trade between the UK and the EU must be carried out per the World Trade Organisation (WTO) clauses.

The EU is unlikely to make it easy for the UK to leave, in order to prevent other EU member states from leaving the EU following Brexit. Downward pressure is still on GBP and GBP crosses until the outline of the final Brexit deal draft is clear. Thousands of protesters in the UK marched, on March 25, against Brexit.

The UK government have a list of issues that need to be negotiated with the EU such as; a new post-Brexit trade agreement, tariff, transportation, financial services, fishing waters, and reducing the number of EU immigrants entering the UK etc.

The EU is the UK's biggest trade partner with the two economies being highly interdependent over the past decades. The EU and the UK must manage to minimize the Brexit impact and reach balance between their own interests.

Theresa May aims to get the best Brexit deal with access to the single market and a new trade agreement with minimised trade barriers. The EU economy is highly tied up with UK financial services it is therefore also crucial for the EU to maintain its access to London's financial sector.

After the UK leaves the EU, the UK will be able to retrieve the control of its borders, jurisdiction, and diplomacy. The UK will be free to sign trade agreements and develop a tighter relationship with other economies such as the US and China. In addition, the UK will get rid of the financial burden of the EU annual membership fee.

The Scottish parliament will vote on whether to hold a second Scottish independence referendum today, which is only one day ahead the triggering of the Brexit process. If the result is to hold a referendum, the proposal will be delivered to the UK parliament for voting. In this situation, it will pose more political uncertainties on the UK's economic prospects and the value of GBP.

GBP/USD hit a 7-week high of 1.2615 on Monday, mainly because of the slump of USD, be aware that the GBP crosses will likely to be volatile with the proceeding of Brexit.

USD/CHF - 0.9833

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9837

Kijun-Sen level                    : 0.9864

Ichimoku cloud top                 : 0.9932

Ichimoku cloud bottom              : 0.9921

Original strategy :

Sell at 0.9910, Target: 0.9800, Stop: 0.9945

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9910, Target: 0.9800, Stop: 0.9945

Position : -

Target :  -

Stop : -

The greenback found support at 0.9813 yesterday and has recovered, suggesting consolidation above this level would be seen and corrective bounce to 0.9880 is likely but upside should be limited to 0.9900-10 and bring another decline later, below said support at 0.9813 would confirm recent decline has resumed and extend weakness to 0.9795-00, however, loss of downward momentum should prevent sharp fall below 0.9770-75 (100% projection of 1.0171-0.9942 measuring from 1.0003), bring rebound later.

In view of this, would not chase this fall here and we are looking to sell dollar on subsequent rebound as 0.9900-10 should limit upside. Only above said resistance at 0.9960 would abort and signal low is formed, bring retracement of recent decline towards indicated previous resistance at 1.0003.

Cable eased to 1.2550 zone in early European trading on Tuesday, after being flat in Asia, following Monday's spike to fresh multi-week high at 1.2613.

Probe above strong barriers at 1.2568/ 80 (24 / 09 Feb highs) so far did not result in close above them to confirm break.

Current easing could be seen as correction (signaled by reversal of slow stochastic from overbought zone) before broader bulls resume.

Sustained break above 1.2568/80 triggers is needed to open way towards targets at 1.2689 (falling 200SMA) and 1.2704 (02 Feb high).

Dips were so far shallow and held by initial support at 1.2550 zone, however, deeper correction cannot be ruled out.

Rising daily cloud offers strong support at 1.2420, reinforced by ascending daily Tenkan-sen, which should contain extended downticks.

Sterling may show stronger volatility during these days, as official divorce process between the UK and the EU starts tomorrow.

Res: 1.2580, 1.2613, 1.2671, 1.2689
Sup: 1.2550, 1.2523, 1.2500, 1.2467

The Euro is consolidating under Monday's fresh high at 1.0905 (the highest traded since 11 Nov 2016), posted on Monday.

Bullish acceleration after Monday's gap-higher opening, cracked strong 200SMA barrier (1.0877), but failed to close above it, suggesting prolonged consolidation, before bulls resume.

Daily technicals maintain strong bullish momentum for further upside.

Sustained break above 200SMA would open next pivot at 1.0931 (Fibo 61.8% of 1.1298/1.0339), break of which would attract psychological 1.1000 barrier.

Rising hourly cloud continues to underpin, with solid support at 1.0821 (Monday's low, reinforced by weekly Kijun-sen), expected to contain consolidation and keep yesterday's gap unfilled.

Conversely, signals of deeper correction could be expected on loss of 1.0821 handle, with extension below 1.0760 (Friday's close) to confirm scenario.

Res: 1.0877, 1.0905, 1.0931, 1.1000
Sup: 1.0847, 1.0821, 1.0800, 1.0759

Markets are calmer today after a steep selloff on Monday driven by concerns that Friday's decision to cancel voting on Obamacare bill might lead to difficulties to push through other U.S. pro-growth plans. Asian equities are back to green territory, oil prices recovered slightly, fixed income markets are steady, and similarly currency markets are moving in narrow trading ranges.

At this stage, U.S. markets will remain the key driver for global investors. The Dow Jones industrial average dropped for eight consecutive days heading into Monday; the longest losing streak since 2011, but nothing dramatic here given that the total declines are less than 2%. This selloff is obviously not a good sign, but it shows that investors are not yet in a stage of fear, but are somewhat on the defensive side.

Tax reforms, infrastructure spending, and deregulation. this is what's next on Trump's administration agenda. The success of execution on any of these legislations is probably lower now than it was just last week, but investors are still giving President Trump the benefit of the doubt. However, if they see that these plans will face the same destiny as the Health Care Act, markets will soon turn to aggressive selling as the expected companies' earnings growth and pace of economic recovery are not enough to support currently overstretched valuations.

The fixed income markets are not showing signs of enthusiasm either. U.S. Treasury bonds yield curve is flattening again with U.S. 10-year yields down more than 9% from March highs, and 30-year yields fell below 3%. This explains why the dollar lost much of its value, but more importantly, it indicates that fixed income investors do not see real signs of acceleration in inflation and economic growth.

Investors will turn their attention to Europe this week as U.K.'s Prime Minister Theresa May will officially trigger article 50 on Wednesday and start the two-year journey into the unknown. Meanwhile, Scottish Parliament is set to vote today on whether to hold another independence referendum. Interestingly, the pound was the best major performing currency yesterday rising 0.7% against the dollar. While the sterling strength was more of a USD weakness story, I believe any approach towards 1.27 will be a selling opportunity. The BoE seemed somehow hawkish when Kristin Forbes voted to raise rates on March 16, but I don't think this will be enough to overcome the challenges awaiting the U.K. when negotiations kick off with the E.U.

On the updated count of EURUSD we see price trading in a possible zig-zag correction of a higher degree, with waves A and B already completed. Current bullish rally is wave C then, that can be in final stages if we consider that there is possible to count five subwaves up from 1.0495 swing low. So from an Elliott Wave perspective market may turn south with three waves minimum back to the area of a former wave four, at 1.0760. A sharp impulsive decline beneath that price would indicate that top is in place, so until that happens we need to keep in mind possible extensions up to 1.1000 area.

EURUSD, 4H

The euro strengthened yesterday, following some relatively "hawkish" remarks from ECB Executive Board members Sabine Lautenschlager and Jens Weidman. Lautenschlager indicated that although the current ultra-loose ECB policy is necessary for now, the Bank should be prepared to change its stance as soon as the data are stable and there is a sustainable path towards the ECB's price stability objective. Weidman's comments were along the same lines. He said that he would like to see a less expansionary policy, but there is no sustainable price growth yet to justify something like that. Today, we will get to hear from another ECB Executive Board member, Benoit Coeure, and it will be interesting to see whether his comments echo those of his colleagues. If so, the euro could come under renewed buying interest.

Even though yesterday's comments are far from a clear signal that the ECB may actually change its policy anytime soon, they add to expectations that the era of ultra-loose monetary policy is approaching its final stages. They also place even more emphasis on the bloc's preliminary CPI data for March that come out on Friday, especially on the core rate. According to President Draghi this is the data point the Bank pays the most attention to. The rate is expected to have remained unchanged for the fourth consecutive month, but a potential uptick in coming months could fuel further speculation over a potential reduction in ECB stimulus as early as next year.

EUR/JPY traded higher on the aforementioned remarks, after it hit support once again near the 119.50 (S1) support territory. Nevertheless, the rebound was stopped by the 120.35 (R1) resistance. Even though the common currency outperformed most of its counterparts the last couple of weeks, it still underperformed the much stronger yen. This is evident by the price structure on the 4-hour chart where a near-term downtrend is in place since the 13th of March. Yes, we expect the euro to continue strengthening against other currencies, but we see the likelihood that it remains on the back foot against its Japanese peer, at least in the next few days. The bears may take advantage of the 120.35 (R1) resistance and perhaps pull the trigger for another test near 119.50 (S1).

Today's highlights

During the European day, the economic calendar is relatively light. The only noteworthy indicators we get are Sweden retail sales and PPI, both for February.

In the US, the Conference Board consumer confidence index for March is due out. The forecast is for the figure to have declined, but to still remain at an elevated level. We also get the S&P/Case-Shiller house price index for January, as well as the Richmond Fed manufacturing index for March. However, none of these indicators is usually a major market mover.

Since we get only second-tier indicators today, market participants are likely to lock their gaze on the six speakers we have on the agenda. Besides ECB's Coeure, we have speeches from Fed Chair Janet Yellen, Kansas City Fed President Esther George, Dallas Fed President Robert Kaplan, Bank of Canada Governor Stephen Poloz and Riksbank Governor Stefan Ingves. Although all of these speakers are important, we think that Yellen, Poloz, and Coeure are the three likely to steal the show.

With regards to Yellen, her comments will probably be scrutinized for any hints on when the Fed may raise rates next, and whether the summer FOMC meetings are appropriate candidates for such action. Having said that, we don't expect any major deviation from her comments two weeks ago at the March FOMC meeting, where she maintained a somewhat cautious tone, and did not offer any clear signs regarding the next rate move. If she continues to keep her cards close to her chest, then the reaction in USD may be limited.

As for BoC Governor Poloz, we have to note that in his last few appearances he maintained a more-dovish-than-expected tone, indicating that another rate cut remains on the table should downside risks materialize in the Canadian economy. USD/CAD edged north yesterday after it hit support at 1.3320 (S1) to emerge above the downside resistance line taken from the peak of the 9th of March. In our view, the break shifts the near-term outlook back to the upside and as such, we expect a test near 1.3410 (R1) soon. A break above that zone is possible to pave the way for our next resistance of 1.3440 (R2). The catalyst for further advances in this pair could be another set of dovish remarks by Governor Poloz today.

EUR/JPY

Support: 119.50 (S1), 118.70 (S2), 118.50 (S3)

Resistance: 120.35 (R1), 120.70 (R2), 121.45 (R3)

USD/CAD

Support: 1.3320 (S1), 1.3275 (S2), 1.3210 (S3)

Resistance: 1.3410 (R1), 1.3440 (R2), 1.3500 (R3)