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Sunrise Market Commentary

• Rates: More sideways trading?
  Core bonds gained some ground on Friday and traded slightly higher in Asia, but in absence of Japanese traders (holiday). So, a slightly risk-off sentiment may dominate at the start of European trading. However, with the eco and event calendar nearly empty, we bet on a sideways oriented session maybe with a slight upward bias.
• Currencies: Dollar still looking for a post-Fed bottom
  On Friday, US consumer confidence was ok, but failed to change fortunes for the dollar. This morning, sentiment is slightly risk-off as the G-20 didn't repeated its intention to avoid all kinds of protectionism. The risk-off sentiment might continue to weigh somewhat on core yields. In context, the dollar might remain in the defensive.

The Sunrise Headlines

• US equities closed Friday's session flat to marginally lower in dull, be it volatile, trading. Asian equities trade slower to mixed on disappointment about the G-20 inability to restate their rejection of all forms of protectionism.
• Chinese housing prices defied restrictions designed to cool the nation's property market. The cost of new homes gained in 56 of 70 urban areas last month, compared with 45 in January
• The G-20 couldn't say more about trade in its statement than that it will “work to strengthen the contribution of trade”. According to participants, US Mnuchin didn't have a mandate to negotiate new or creative wordings on trade policy.
• Moody's cut the outlook on Turkey's Ba1 rating to negative, citing persistent political uncertainty after last July's failed coup. S&P raised Iceland's rating to A from A- and increased the Russian outlook on its BB+ rating to positive.
• S&P kept Portugal's BB+ rating, stable outlook unchanged. A fragile banking system and high private/public debt are of concern, but the fiscal situation and growth improves. Only DBRS gives the country still an investment grade.
• Trump followed his awkward meeting with Merkel by slamming Germany on Twitter. "Germany owes vast sums of money to NATO & the US must be paid more for the powerful, and very expensive, defence it provides to Germany!"
• The eco calendar is virtual empty today. Only highlights are an Eurogroup meeting on amongst others Greece and speeches from ECB Weidmann and Chicago Fed Evans. Belgium holds an regular OLO auction

Currencies: Dollar Still Looking For A Post-Fed Bottom

USD correction continues

On Friday, US eco data, including the Michigan consumer confidence were OK, but not strong enough to change USD sentiment for the better. Interest rate differentials were still marginally supportive for the euro. Post-Fed USD softness persisted. EUR/USD finished the session at 1.0738 from 1.0766 on Thursday. USD/JPY closed at 112.70 (from 113.31).

Overnight, Asian equities are trading with a slight risk-off bias. This is due to the G20 disappointment. The communiqué doesn't say anymore that the G-20 will intend to avoid all forms of protectionism, mirroring the US shift to more protectionism. Japanese markets are closed today. Even so, USD/JPY remains under pressure from ongoing overall USD weakness. USD/JPY trades around 112.60, near the lowest level this month. EUR/USD is trading around 1.0765. So, the post-Fed top (1.0782) remains also within reach. After a pause in the second half of last week, the oil price is again under pressure as supply concerns remain present.

Today, the eco calendar is completely empty. Regarding events, the Eurogroup meets on Greece, pension systems, the budgetary plans and the implementation of the Stability and Growth path. On Friday, Greece FM Tsakalotos said he expected to reach a deal by April 7 Eurogroup meeting. The problem is complicated though by signals the US is critical about IMF participation. ECB Weidmann speaks, as does Chicago Fed Evans. Last week, USD yields and the dollar drifted south even as the Fed hiked its rates. At the same time, the euro was well bid as markets pondered the chances of an early change in the ECB policy after hawkish comments from ECB's Nowotny. In a longer term perspective, policy divergence between the Fed and the ECB will probably remain big enough to support further USD gains. Yellen suggested that, considering the eco developments, the Fed policy might be relatively close to the ‘dot-path'. The day-to-day USD momentum remains soft though. A cautious riskoff sentiment and a further decline of oil might keep the dollar on the defensive short-term as there are no important US eco data/events to turn momentum in favour of the dollar. So, short-term are in no hurry to the jump in to add to USD long exposure. We wait for strong enough US data that might put a floor on the current USD correction

Global context. EUR/USD 1.0874 resistance remains the line in the sand with intermediate resistance at 1.0829. We maintain the view that a sustained break of EUR/USD above this area will be difficult. The US/German (EMU) interest rate differential remains at an absolute high level. Especially at the short end of the curve, the differential might even re-widen. The fundamentals/ interest rate differentials are also supportive for USD/JPY, but of late the momentum/technical picture is not really convincing. We maintain the working hypothesis that the 111.60 range bottom should hold.

EUR/USD holding near ST top as dollar softness persists

EUR/GBP

Political uncertainty to cap GBP rebound?

On Friday, there were no eco data in the UK. Trading in sterling was order-driven and technical in nature. Cable showed some erratic swings in the mid/high 1.23 big figure . The pair closed the session at 1.2396, near the intraday high. The rise in cable was at least partially due to USD softness. EUR/GBP reversed Tuesday's late session rebound (Nowotny). So, from this point of view, sterling still maintained a cautious bid in the wake of Thursday's (more hawkish) BoE policy statement. EUR/GBP finished the session at 0.8663 (from 0.8733 on Thursday).

Overnight, the Rightmove House price measure rose 1.3% M/M to be up 2.3% Y/Y. However, the improvement doesn't help sterling. During the weekend, the debate on a Scottish independence referendum continues. A clash between London and Edinburgh highlights the higher number of institutional issues that could complicate the Brexit procedure. Sterling is reversing a (small) part of Friday's rebound this morning. The cautious risk-off sentiment mighty also be a slightly negative for sterling. There are no other important UK eco data today. So, political headlines (Scotland/Brexit) will remain in focus. At the end of last week, both sterling and the euro were in good shape. Some EUR/GBP consolidation might be on the cards. Despite Thursday's somewhat more hawkish BoE approach, we don't see a real risk for BOE tightening anytime soon. So, any rebound of sterling shouldn't go too far.

Last week, the sterling decline took a breather. Some time ago, EUR/GBP cleared the 0.8592 resistance, improving the MT technical EUR/GBP picture. We don't expect a sustained EUR/USD rebound, but a combination of temporary euro consolidation and ongoing sterling softness as the Brexit negotiations are nearing, might trigger some more ST EUR/GBP gains. The 0.8854 correction top is the next key resistance. The nervous swings over the previous days suggest that a clear break beyond 0.8854 will be difficult without important (UK negative) news.

EUR/GBP: post-BoE sterling rebound to slow as political uncertainty grows?

Download entire Sunrise Market Commentary

EUR/USD - 1.0775

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.0759

Kijun-Sen level                  : 1.0755

Ichimoku cloud top             : 1.0755

Ichimoku cloud bottom      : 1.0691

Original strategy  :

Buy at 1.0675, Target: 1.0775, Stop: 1.0640

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0710, Target: 1.0810, Stop: 1.0675

Position : -

Target :  -

Stop : -

As the single currency has maintained a firm undertone after last week’s rally, suggesting recent erratic upmove from 1.0493 low is still in progress and may extend further gain towards previous chart resistance at 1.0829, however, loss of near term upward momentum should prevent sharp move beyond 1.0850-60 and price should falter well below 1.0890-00, risk from there has increased for a retreat to take place later.

In view of this, would not chase this rise here and we are looking to buy euro on subsequent pullback as 1.0706 support should limit downside and bring another rise later. Below 1.0675-80 would defer and suggest top is possibly formed, risk weakness to 1.0640 (previous resistance now support) but still reckon indicated support at 1.0600 would remain intact.

USD/JPY - 112.57

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 112.60

Kijun-Sen level                  : 112.96

Ichimoku cloud top             : 113.90

Ichimoku cloud bottom      : 113.30

Original strategy  :

Sell at 114.00, Target: 113.00, Stop: 114.35

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 113.50, Target: 112.40, Stop: 113.85

Position :  -

Target :  -

Stop : -

As the greenback has remained under pressure after meeting renewed selling interest at 113.54, suggesting recent decline from 115.51 is still in progress and may extend further weakness to 112.35-40 (50% projection of 115.20-112.90 measuring from 113.54), then 112.10-15 (61.8% projection), however, loss of downward momentum should prevent sharp fall below previous support at 111.69, risk from there has increased for a rebound to take place later.

In view of this, would not chase this fall here and would be prudent to sell dollar on subsequent recovery as said resistance at 113.54 should limit upside, bring another decline later. Only above  the upper Kumo (now at 113.90) would abort and signal low is formed instead, bring rebound to 114.20-25 later.

The Fed hiked, the dollar tumbled, equities received a boost, and the yellow metal shined.

This isn't a price action one would expect when the central bank of the largest economy raises interest rates. However, messages sent to markets from monetary policy makers before Wednesday's meeting led investors to believe the central bank will not only raise interest rates but also accelerate the pace of tightening. This missing part of the equation 'acceleration of tightening' was enough to send the U.S. dollar into a U-turn, and global stocks to fresh record highs.

For dollar traders I think the week ahead will be somewhat challenging. But given the steep decline in the USD on Wednesday and Thursday, any further drop should be rather limited. The Fed might be less hawkish than what was previously thought, but let's not forget that it's the only central bank raising rates when all other major central banks stand pat.

The economic calendar is relatively light; nonetheless, investors will have the chance to get more clarity from FOMC members. Many Fed policymakers are due to speak, including four voting members, but I'll be most interested in what Janet Yellen has to say on Thursday at the Federal Reserve System Community Development Research Conference in Washington and what Minneapolis Fed president Neel Kashkarihas to say as the only dissenter from the decision to raise rates.

Once the noise surrounding the monetary policy dissipates the focus will return to fiscal policies. Equity markets have been clearly driven by animal spirits in the last couple of months and might continue to be the case in the short run. However, given the slow progress in implementing tax cuts and infrastructure spending plans, markets will soon realize that they are ahead of themselves and I'm still quite confident that U.S. protectionist policies will do more harm than good.

In the UK, Theresa May is expected to start the process on Brexit any time soon. Sterling is still holding tight, thanks to the Fed neutral hike and BoE's Kristin Forbes who voted for a rate hike. With inflation on the rise some MPC members believe that a rate hike would be needed sooner than later, but how many MPC members will join Ms. Forbes remains uncertain. Brexit headlines will become the major force moving the pound the days ahead, and the harsher stance EU takes the more pressure might be felt. However, given the shift in monetary policy expectations the downside in the pound is likely to remain limited for now. On the data front, UK will release February's inflation data on Tuesday and retail sales on Thursday.

Market movers today

It is a very quiet day in terms of major economic data releases.

In the euro area, wage growth for Q4 16 is due out. Wage growth has been subdued in recent years despite a continuously falling unemployment rate. Wage growth figure is important in explaining core inflation and the low wage growth is one of the main reasons core inflation also remains subdued. While the ECB predicts sharply rising wage growth and core inflation in coming years, we believe that ECB is too optimistic and we expect the wage growth figures for Q4 will be broadly unchanged from Q3. See ECB's core inflation forecast is still too optimistic, 14 March 2017.

Selected market news

On Friday last week, the US manufacturing production for February came out at +0.5% m/m (unchanged from January). Manufacturing production has increased for six consecutive months now, which is the first time since July 2014. Hence, hard manufacturing data is recovering as indicated by ISM/Markit PMI.

In addition, the University of Michigan consumer confidence came out strong at 114.5 in March from 111.5 in February. We still view private consumption as the main growth driver in the US, although real wage growth has slowed. More interesting though, was the big drop in the University of Michigan long-term inflation expectations to 2.2% y/y from 2.5% y/y, which is a new low. The long-term inflation expectations measure has declined significantly since around 2014 when it was around 2.7-2.8%. While it seems as if the Federal Reserve accepts that inflation expectations are not as high as previously, we think this could be a concern, as core inflation also remains somewhat below 2%.

On Friday in Sweden, the government proposed to reduce the Swedish currency reserve. This is in line with the 2013 Flam committee proposal and has wide parliamentary support. The idea is that RGK SEK250bn on-way lending to the Riksbank FX reserve is too costly. Now, it will be reduced by SEK250bn (no FX implications as both lending and assets are in foreign currencies). Aside from the remaining SEK200bn FX reserve, the Riksbank will have an extra SEK50bn at the Debt Office (if needed). This means that Sweden's overall government debt will fall by 5 percentage points of GDP

Currency pair USD/JPY

The USD/JPY is building a potential pull back and the 78.6% Fibonacci retracement level could be a support level. A break below the 100% Fibonacci level invalidates wave 2 (blue/brown).

The USD/JPY could be in a wave 5 (pink) of wave C (orange).

Currency pair EUR/USD

The EUR/USD is testing the 78.6% Fibonacci resistance level of wave 2 (purple). A potential break above the 100% level invalidates the current wave 1-2 (purple) structure. A break below support (green/blue) confirms a new downtrend within waves 3 (brown/green).

The EUR/USD is potentially building a hook back within a wave 1-2 (blue) but a break above the 100% Fibonacci level invalidates the wave structure.

Currency pair GBP/USD

The GBP/USD broke above the resistance trend line (dotted orange) which makes a continuation of the correction within a larger ABCDE (green) triangle more likely.

The GBP/USD broke above the resistance trend line (dotted orange) which makes a continuation of the correction within a larger ABCDE (green) triangle more likely.

Daily Pivots: (S1) 139.00; (P) 139.73; (R1) 140.31; More...

Intraday bias in GBP/JPY remains neutral for the moment. Overall outlook is unchanged that price actions from 148.42 are forming a consolidation pattern. And there is no clear sign of completion yet. On the downside, break of 138.53 support would trigger downside acceleration to 136.44 support and possibly below. We'd expect strong support from 50% retracement of 122.36 to 148.42 at 135.39 to contain downside and bring rebound. On the upside, break of 142.79 resistance will turn bias to the upside and send GBP/JPY through 144.77 resistance.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. Main focus is on 38.2% retracement of 195.86 to 122.36 at 150.42. Rejection from there will turn the cross into medium term sideway pattern. Or, sustained break of 50% retracement of 122.36 to 148.42 at 135.39 will turn outlook bearish for a test on 122.36 low. Though, sustained break of 150.42 will extend the rebound towards 61.8% retracement of 195.86 to 122.36 at 167.78.

China property prices edge up despite curbs

Asia Mid-Session Market Update: China property prices edge up despite curbs; G20 communique retreats on pledge to fight protectionism

Friday US markets on close: Dow +0.2%, S&P500 +0.3%, Nasdaq +0.4%

Best Sector in S&P500: Financials

Worst Sector in S&P500: Utilities

Biggest gainers: CTAS +4.7%; ADBE +3.8%; WYNN +3.8%

Biggest losers: AMGN -6.4%; IVZ -4.4%; BEN -3.9%

At the close: VIX 11.3 (+0.1pts); Treasuries: 2-yr 1.32% (flat), 10-yr 2.50% (-2bps), 30-yr 3.11% (-2bps)

Politics

(DE) President Trump tweets about meeting with Germany Chancellor Merkel, says Germany "owes vast sums of money to NATO"

(DE) German Defense Min von der Leyen: "There is no debit account in NATO" - press

(US) House Speaker Ryan: Feel confident about health bill passing the House this week after changes made provided more assistance to people in their 50s and 60's - press

(US) President Trump: Meetings on health care bill are going well; North Korea is "acting very badly" - speaking from Air Force One

Weekend US/EU Corporate Headlines

MBLY: May seek higher offers from other companies - NY Post citing analyst

SFM: Said to have held preliminary merger talks with Albertsons - press

DDC: Confirms Washington Companies discloses all-cash proposal to acquire Dominion Diamond Corporation for $13.50/shr

Key economic data:

(CN) CHINA FEB PROPERTY PRICES M/M: RISE IN 56 OUT OF 70 CITIES VS 45 PRIOR; Y/Y: RISE IN 67 OUT OF 70 CITIES V 66 PRIOR; China avg all-70 new home prices m/m: 0.3% v 0.2% prior; y/y: 11.8% v 12.2% prior

(NZ) NEW ZEALAND Q1 WESTPAC CONSUMER CONFIDENCE: 111.9 V 113.1 PRIOR

(NZ) New Zealand Feb Performance Service Index: 58.8 v 59.5 prior

(KR) SOUTH KOREA FEB PPI M/M: 0.3% V 1.4% PRIOR; Y/Y: 4.2% (5-year high) V 3.9% PRIOR

Asia Session Notable Observations, Speakers and Press

Asia equity markets are mixed after modest gain on Wall St on Friday, as investor focus turns from central bank statements last week to US policy under Pres Trump. The White House is heading for a busy week, with anticipated House health care legislation coming to the floor and the Senate starting hearings on Supreme Court nominee Gorsuch. In the mean time, there was tension at Trump's meeting with German Chancellor Merkel over the weekend as US leader claimed Germany "owes vast sums of money to NATO", to which German Defense Min replied "There is no debit account in NATO".

Economic nationalism was also on display at G20, with official Communique affirming commitment against competitive devaluation but also omitting language on promoting free trade thanks to recent threats of more protectionism from US govt. US Treasury Sec Mnuchin urged not to read into the omission, but also maintained that US is now move interested in reducing trade deficits and is prepared to re-examine certain agreements as it transitions to move "fair" trade policies. Elsewhere, US State Sec Tillerson held talks with China on his trip to Asia, discussing North Korea, Taiwan and bilateral trade. Tillerson and Trump remained scornful of North Korea's more aggressive posturing, though China called for restraint and "cool-headed" decisions.

Economic calendar was very light to start the week, with key data coming from China property sector. House prices rose m/m in 56 out of 70 cities - up from 45 last month - as markets appeared to stabilize in the wake of policy curbing excessive rise of property inflation. Across China's 70 top cities, prices rose 0.3% m/m v 0.2% prior, while y/y rise was comparable at 11.8% v 12.2% prior. China govt continues to make targeted adjustments, particularly in the first tier cities, as regulators raised the downpayment requirement for buyers of 2nd homes in Beijing from 50% to 60% on Friday.

China

(CN) Beijing raised the downpayment requirement for buyers of 2nd homes from 50% to 60% - Chinese press

(CN) China Financial News: PBoC's increase of reverse repurchase and mid-term lending facility interest rates had the effect of “targeted” measures to prevent property sector risks as developers with high debt are more sensitive to rate hikes

(CN) PBoC Gov Zhou: China's growth prospects have improved and we are focused on structural adjustment of the economy - G20 meeting

(CN) US Sec State Tillerson: US and China discussed safeguarding stability in Asia Pacific; agreed North Korea must be convinced to choose a better path

Japan

(JP) Japan PM Abe: Germany and Japan should continue as free trade champions; countries are signing "Hanover Declaration"

Australia

(AU) Goldman Sachs strategist: Expect RBA to raise rates in Nov 2017 - Australian press

Korea

(KR) South Korea Dep PM Yoo: Govt to consider ways to communicate with China about its retaliatory measures in response to THAAD deployment - Korean press

(KR) South Korea Fin Min Yoo: See the need for preemptive moves on household debt

(KR) South Korea Defense Ministry spokesperson: North Korea likely made "meaningful" progress in rocket engine test - press

Asian Equity Indices/Futures (00:00ET)

Nikkei closed, Hang Seng +0.6%, Shanghai Composite +0.1%, ASX200 -0.5%, Kospi -0.5%

Equity Futures: S&P500 -0.3%; Nasdaq -0.2%, Dax -0.2%, FTSE100 flat

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

EUR 1.0735-1.0765; JPY 112.45-112.75; AUD 0.7690-0.7725; NZD 0.7010-0.7040; GBP 1.2380-1.2395

Apr Gold +0.3% at 1,234/oz; Apr Crude Oil -0.8% at $48.94/brl; May Copper -0.7% at $2.67/lb

(SA) China and Saudi Arabia agree to increase cooperation in the oil sector, including Saudi oil exports to China - press

SPDR Gold Trust ETF daily holdings fall 3.0 tonnes to 834.1 tonnes; 2nd straight decline

(CN) PBOC SETS YUAN MID POINT AT 6.8998 V 6.8873 PRIOR; 2nd straight weaker setting

(CN) PBOC to inject combined CNY100B v CNY60B prior in 7,14, and 28-day reverse repos

(KR) South Korea sells 10-yr bonds at 2.215%

Asia equities/Notables/movers

Australia

Wesfarmers WES.AU -0.7%; Coles in Western Australia under investigation for asking workers to work for pizza instead of money on a Sunday - NZ press

Fletcher Building FBU.NZ -10.2%; Cuts FY17 EBIT NZ$610-650M (prior NZ$720-760M); construction division to report an EBIT loss

Hong Kong

1088.HK China Shenhua Energy Company Limited +16.0%; Reports FY16 CNY32.0B v CNY25.0B y/y; Rev CNY183.1B v CNY177.1B y/y

1184.HK S.A.S. Dragon Holdings Limited +10.3%; Guides FY16 Net +114% y/y or more

2488.HK Launch Tech Company Limited +9.0%; Reports FY16 Net profit CNY21.4M v loss CNY93.9M y/y, Rev CNY835M v CNY698M y/y

1530.HK 3SBio Inc +4.9%; Reports FY16 Net CNY714.3M v CNY526.2M y/y, Rev CNY2.80B v CNY1.67B y/y

819.HK Tianneng Power International +4.0%; Guides FY16 Net +40% y/y or more

732.HK Truly International Holdings -3.0%; Reports FY16 Net HK$581.7M v HK$845.4M y/y, Rev HK$22.1B v HK$19.4B y/y

1368.HK Xtep International Holdings Limited -9.7%; Reports FY16 Net CNY527.9M v CNY622.6M y/y; Rev CNY5.40B v CNY5.30B y/y

Daily Pivots: (S1) 120.43; (P) 121.34; (R1) 121.87; More...

The deeper than expected fall from 122.88 dampened out immediate bullish view. And the consolidation pattern from 124.08 is possibly extending with another falling leg. Intraday bias in EUR/JPY remains mildly on the downside for 120.01 support and below. At this point, we'd expect strong support from 118.345 (38.2% retracement of 109.20 to 124.08 at 118.39) to contain downside and bring rebound. On the upside, above 122.24 minor resistance will suggest that fall from 122.88 is merely a pull back. And intraday bias will be turned back to the upside for retesting 124.08 high.

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.

For the 24 hours to 23:00 GMT, the AUD rose 0.39% against the USD and closed at 0.7699 on Friday.

LME Copper prices declined 0.4% or $22.0/MT to $5889.0/MT. Aluminium prices rose 0.3% or $6.0/MT to $1901.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7717, with the AUD trading 0.23% higher against the USD from Friday’s close.

The pair is expected to find support at 0.7678, and a fall through could take it to the next support level of 0.7639. The pair is expected to find its first resistance at 0.7740, and a rise through could take it to the next resistance level of 0.7763.

Going ahead, investors will keep a close watch on Australia’s CB leading indicator for January, scheduled to release later today.

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