'Germany has a significant bilateral trade surplus with the U.S., a material current account surplus, but it has not engaged in persistent one-sided intervention in the foreign exchange market.' – Mario Draghi, ECB (based on Bloomberg)

Pair's Outlook

The common European currency had retreated to the 1.06 level against the US Dollar on Monday morning. At that level the currency exchange rate managed to find support, as the 55-day SMA, which is located exactly at 1.06, is now also supported by the weekly PP at 1.0604. It is highly possible that the currency pair will surge during the session up to the monthly PP, which is located at 1.0650. The monthly PP, which previously failed to play a notable role, on Monday is strengthened by the 20-day SMA at 1.0654. Due to that reason it is unlikely that the resistance will be broken.

Traders' Sentiment

SWFX traders remain neutral bullish on the pair, as 51% of trader open positions are long on Monday. Meanwhile, 63% of trader set up orders are to sell the Euro.

'GBPUSD is sending mixed signals. The pair briefly dipped under its 50-day average near $1.2410 testing $1.2390 before bouncing back toward $1.2430. While this looks like a successful retest, RSI breaking under 50 suggests momentum turning downward.' – CMC Markets (based on PoundSterlingLive)

Pair's Outlook

The Cable edged lower on Friday, with the psychological support around 1.2460/40 failing to limit the losses, but the demand cluster circa 1.2420 succeeding. However, the GBP/USD pair opened with a small bearish gap today, causing the mentioned demand area to be pierced. This does not imply the Sterling is doomed to keep falling; the price is still expected to recover, with the nearest meaningful resistance being at 1.2449, represented by the weekly PP. Nevertheless, the weekly PP is unlikely to hold the Pound for long, even though technical studies are unable to confirm a recovery is due.

Traders' Sentiment

There a 59% of traders with a positive outlook towards the Sterling today, unchanged since Friday. At the same time, the portion of sell orders inched up from 50 to 55%.

'As confidence in the dollar weakens with more articles and headlines like those in recent days and weeks, a tipping-point is on the horizon at which investors collectively realize they are at significant risk of being on the wrong side of a potentially large move.' – A.G. Bisset Associates (based on Bloomberg)

Pair's Outlook

The USD/JPY currency pair followed a less positive for the Greenback path on Friday, having fallen under the 113.00 threshold after successfully maintaining trade above it for a whole week. The given pair still remains in a consolidation trend, meaning there is sufficient room for a decline towards 111.75 today, where the weekly S1 and the lower Bollinger band form support. On the other hand, a rally is also possible, with the 115.00 level being the main target, but with the 20-day SMA and the weekly PP representing immediate resistance circa 113.40 and another obstacle located around 114.40. Meanwhile, technical indicators are unable to confirm the possibility of either scenario.

Traders' Sentiment

Today 57% of all open positions are long (previously 55%), whereas 59% of all pending orders are to acquire the US Dollar, up from 57%

'Gold prices held steady on Monday, with investors looking ahead to a clutch of speeches from U.S. Federal Reserve officials later in the week for clues on the timing of possible interest rate hikes.' – Arpan Varghese, Reuters

Pair's Outlook

The yellow metal remained almost unchanged during the early hours of Monday's trading session, as the bullion's price stayed near the 1,235 mark. However, gold attempted to move higher on Friday, as the commodity price had reached above the 1,240 level. The future direction of the bullion on Monday seemed unclear, but there are two possible way's the session might most likely end. The yellow metal could fall to the newly calculated weekly PP at 1,231.36 or surge up to the monthly R1, which is located at 1,237.68.

Traders' Sentiment

Traders remain long on the bullion, as 54% of trader open positions are bullish. In the meantime, 61% of trader set up orders are set to buy the metal.

On the 4h chart of EURUSD, we are observing a nice bearish reversal taking place, with price turning down from 1.0828 where we think that wave 4) found a top. Reason for a bearish view is a break below the trendline support and push beneath 1.0620 swing which opens door for much lower levels in impulsive manner. That said current bounce is most likely part of a wave 2 correction, which can see limited upside. At the moment we see pair trading in second wave b.

EURUSD, 4H

Sunrise Market Commentary

• Rates: Test of 164.90 resistance on the back of EMU worries?
  US markets are closed today which means that traded volume will be low. The EMU eco calendar only contains EMU consumer confidence which is often ignored. Sentiment-driven trading will be name of the game. EMU worries (Italy, France, Greece) could push the Bund for a new test of 164.90 resistance, but we don't expect a break higher.
• Currencies: Dollar better bid. Euro trading soft on political uncertainty
  On Friday , political uncertainty in Europe weighed temporary on EUR/USD and USD/JPY. Today, US markets are closed and as there are few eco data. Risk sentiment is apparently again improving, supporting USD/JPY. EUR/USD will probably hold near the recent lows as European issues continue to weigh.

The Sunrise Headlines

• US equities finished the week 1.5% higher (S&P), the biggest weekly gain in 6 weeks, led by financials, buoyed by expectations of higher interest rates and hopes of lighter regulation. Today, most Asian stock markets record small gains.
• Moody's became the latest ratings agency to lift its outlook on Russia's Ba1 rating, upgrading it from ‘negative' to ‘stable', citing both a fiscal strategy -lowering the dependence on energy and replenish its savings -and the recovery.
• Fitch confirmed Finland's AA+ rating (stable outlook) and affirmed Malta's A rating (positive outlook). The Maltese debt/GDP ratio is on a downward trajectory, deficit amounted 0.5% of 2017 GDP and the economy outperforms.
• Former Italian PM Renzi quit as leader of Italy's ruling PD party, triggering a re-election battle against minority dissidents that threatens the stability of the centre-left government. Leadership elections are expected in April/May.
• French presidential candidate Francois Fillon, marred by disclosures he put his wife and children on the parliament payroll, will remain in the race even if prosecutors open a formal investigation, reversing his earlier statement.
• Cleveland Fed Loretta Mester said she would be “comfortable” with the central bank raising interest rates now as inflation pressures pick up. Delaying policy tightening will create risks, she added.
• China stops coal imports from N-Korea in a sign it might accept international sanctions against the country.
• Today, US markets are closed, the eco calendar contains only the February euro area consumer confidence and the Eurogroup discusses Greece. Tomorrow, attention goes to euro area PMI business confidence and Fed speakers.

Currencies: Dollar Better Bid. Euro Trading Soft On Political Uncertainty

EUR/USD near recent low as political issues weigh

On Friday, European markets were spooked by the prospect that the final vote in the French presidential election might be between far right and far left. Sentiment turned temporary risk-off, which weighed especially on USD/JPY. US equities maintained a cautiously positive momentum, but with little impact on the dollar. USD/JPY finished the session at 112.84 (from 113.24 on Thursday). EUR/USD closed the day at 1.0605 (from 1.0674). So, both pairs traded with a soft bias.

Overnight, Asian equities show modest gains as US equities held Friday near record high levels. The Japanese trade deficit widened more than expected in January as imports (+8.5%) rose much more than exports (1.3% vs 5.0% expected). However, the data didn't prevent an intraday rebound of Japanese equities. The yen is trading slightly softer with USD/JPY changing hands around 113.15. EUR/USD hovers in the 1.0610 area, still within reach of the recent lows. The political debate in France this weekend showed that Presidential election remains highly divisive and diffuse.

Today, the eco calendar is thin. US markets are closed in observance of Presidents' Day. In the Europe, the consumer confidence is expected to stabilize at -4.9. Consumer sentiment is near the highest levels in 15 years. However, (currency ) markets usually hardly react to the report. The Eurogroup meets on Greece and will evaluate its progress in complying with the terms of the third bailout. The review is 1 year behind schedule and no final conclusion will be reached yet. On Friday, political uncertainty in France caused a modest risk-off trade. This investor cautious supported core bonds and weighed both on USD/JPY and EUR/USD. Comments during the weekend suggest that a single left candidate in French presidential elections is no done thing, but we doubt this will remove investor uncertainty on Europe/France. Issues on Greece and Italy stay on the radar too. We have EUR/USD negative bias at the start of the week. The gradual EUR/USD decline might continue. USD/JPY might be better supported in a daily perspective as global equities remain well bid. Even so, we don't expected the USD/JPY rebound to go far as core yields stay low.

Global context. The dollar corrected downward since the start of January as the Trump reflation trade slowed down. Two weeks ago , the dollar showed tentative signs of a bottoming out, supported by the ‘Trump tax promise'. Underlying euro weakness due to political uncertainty in the area is a factor too. We see the 1.0874 as solid resistance and thus still favour a sell EUR/USD on upticks approach. The downside test of USD/JPY is also rejected. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) remains key support. The comments of Yellen before Congress (and of other Fed members) were USD supportive, but had little lasting impact on yields and/or on the dollar. We keep cautious USD positive bias, but remain more cautious on the upside potential of USD/JPY compared to USD/EUR.

EUR/USD: Euro softness dominates

EUR/GBP

EUR/GBP: euro and sterling trading soft

On Friday, EUR/GBP weakened a few ticks early in Europe as EUR/USD declined on the uncertainty related to the French Presidential election. However UK January retail sales disappointed again (-0.3% M/M). Of late, sterling didn't react much to activity data, but this negative data surprise was too big to ignore. Sterling was sold and EUR/GBP spiked to the 0.859 area. Cable also fell off a cliff and dropped temporary below 1.24. Selling pressure on sterling eased in the afternoon and a further declined of EUR/USD reversed part of the EUR/GBP gains. EUR/GBP closed the session at 0.8561 (from 0.8546). Cable closed the day in the red at 1.2412 (from 1.2489).

Overnight, Rightmove House prices rose 2.0% M/M and 2.3% Y/Y. There is no noticeable impact on sterling trading. Later today, the CBI trends orders are scheduled for release. A limited decline (4 from 5) at a decent level is expected. Usually sterling doesn't react much to this data series. Even so, in the wake of Friday's poor retail sales, another really negative surprise might be a slightly negative for sterling.

EUR/GBP recently hovered in a tight range north of the 0.8450 support, but a break didn't occur. Sentiment on sterling softened slightly of late as the market feels that a BoE rate hike is still very far away. Euro softness due to political uncertainty is a risk for all euro cross rates, including for EUR/GBP. Longer term, we have a sterling negative view as the negative impact from Brexit still has to impact the UK economy. However, this is no issue at this stage. The test of the 0.8540 support is rejected, but the upside momentum isn't convincing either

EUR/GBP: new test of the 0.8450 support is avoided, but rebound fails to convince

Download entire Sunrise Market Commentary

Monetary policy guidance and strong U.S. data failed to provide another push higher for the greenback last week. Fed Chair Janet Yellen made a blunt statement in her testimony before Congress that it would be unwise to wait too long to tighten monetary policy. Several of her colleagues followed by similar rhetoric specially Boston Fed President, Eric Rosengren, who even suggested that the fed may raise rates by more than three times in 2017.

On the data front consumer prices increased to highest levels in nearly four years and retail sales came in well ahead of expectations. Overall, most of the economic data releases were positive, and still, the U.S. dollar did not perform well.

The fall in U.S. treasury yields on Thursday which eventually narrowed the spreads between U.S. bond yields and their counterparts may explain partially why the U.S. dollar couldn't resume its two-week uptrend. But dollar bulls seemed reluctant to push the currency higher without President Trump providing a clear agenda on tax and trade policy, and may not get one until he addresses the joint session of Congress on February 28.

The FOMC minutes due to release on Wednesday may reverberate recent hawkish remarks made by Fed officials, but without providing a solid indication on the path of interest rates, the impact on the dollar will likely be minor. Another aspect of interest will be a discussion of scaling down the central bank's balance sheet, any sort of such discussion will likely support the dollar. Apart from FOMC minutes and Fed officials scheduled speeches there's no tier one data on the shortened trading week.

The cable also challenged fundamentals last week. A terrible retail sales report, below than expected inflation, and drop in wage growth all failed to break the 200 pips trading range for GBPUSD. Traders will have the chance to hear from Mark Caney on Tuesday when he testifies before the UK parliament's Treasury Committee. What's going to be interesting is that his testimony comes after Bank of England upgraded its growth forecast in February 2, and since then signs of weakness in the economy emerged. Markets are currently seeing less probability of BoE tightening this year, but if Carney indicates that higher interest rates are still on the table during UK's negotiation period, sterling may find some support.

EUR traders will be braced for some volatility on Monday when Euro area finance ministers gather to discuss Greece bailout, and “Grexit” term will probably show again if talks between Athens and its creditors get more complicated. Greece has about €7.5 EUR of debt due by July, and it's unlikely to manage to pay back without securing another tranche of the bailout. This comes at a time where the Eurozone faces several elections with anti-euro politicians on the rise. On the data front, PMI's reports, consumer confidence, and inflation data are scheduled for release.

Market movers today

We have a very light data calendar ahead of us today where US markets are closed due to President's Day.

The data calendar for this week is also relatively light. The most interesting data points are preliminary European and US PMIs, which will give an indication of the condition of the industrial cycle. We look for an increase in the US, while the index for Europe is likely to show that the recent upward trend has ended. However, both indices will show that activity remains solid.

In the UK, focus is on the Article 50 debate in the House of Lords, which begins today. The bill is not expected to be delayed and the UK remains on track to trigger Article 50 by the end of March, perhaps at the EU summit in Malta on 9-10 March.

In the euro area, we expect slightly weaker consumer confidence in February in line with the turn in other sentiment indicators. That said, as the unemployment rate continues to decline, we expect consumer confidence to remain at a high level, thereby pointing to continued solid growth in private consumption.

Selected market news

The week starts with a modest positive tone on Asian bourses where most regional equity indices trade higher this morning following the positive close in the US on Friday.

With little on the agenda today, markets are likely to dwell on the political situation in Europe, with the upcoming presidential election in France on 23 April and 7 May as the most noteworthy event. Polls released on Friday showed that the election is still a very open race. According to a poll from Ifop, the National Front's Marine Le Pen remains in the lead in the first round with 26% of the votes, Emmanuel Macron and Francois Fillon are both tied in second place with 18.5% of the votes, while the Socialist Party candidate Benoit Hamon is at 14% and Far Left candidate Jean-Luc Melenchon 11.5%. Speculation that Hamon and Melenchon would unite under a single candidacy in order to boost the chance that the left wing proceeds to the final round was the main driven behind the 6bp widening of France 10-year yields versus Germany on Friday.

In Sweden, CPI, CPIF and CPIF excluding energy were all a 10th below the Riksbank's forecasts, printing 1.4% y/y, 1.6% y/y and 1.2% y/y, respectively on Friday. Looking ahead, we expect all measures to print below the Riksbank's forecasts this year. Most importantly, we see a significant widening compared with the Riksbank's forecast for CPIF excluding energy in particular. To make the story short: wage cost pressure is too low to boost domestic inflation sufficiently, in our view, and the upcoming wage round will give no comfort here. With a stable to slowly appreciating Swedish krona, import prices will soon be back to deflation levels again as long as global consumer goods prices continue to fall. For more details, see Flash Comment - Sweden: January inflation again below Riksbank's forecasts,17 February.

• Rally lacks conviction but stocks remain in the green;
• Gold fails at previous higher, $1,216 now key;
• Quiet session in store given US holiday and light economic calendar.

European equity markets are expected to open higher on Monday, although trading is likely to be relatively light given the US bank holiday which helped drive similar conditions in Asia overnight.

It would appear we’re still in a kind of trance at the moment whereby equity markets continue to shuffle higher in the hope that Donald Trump will deliver on his fiscal stimulus, tax and deregulation plans and yet, there’s no conviction in the rally’s. This isn’t overly surprising given the amount of political risk at the moment but you wonder how much longer we can remain in this state before we wake up.

That’s not necessarily to say markets are going to collapse or even enter correction but I think we’re nearing the point at which investors may start demanding something a little more concrete. It’s difficult to ignore the moves in Gold and the yen alongside this which typically accompany more risk averse conditions. Perhaps it just reflects underlying uncertainty which is a concern.

Gold is actually trading a little lower so far today having interestingly failed to break above the high from 8 August, despite coming very close. The next big test for Gold will now come around $1,216.41, last week’s lows, with a break through here possibly triggering a move back below $1,200 towards $1,180.

As mentioned above, with it being a bank holiday in the US today, we could be looking at a slightly quieter session. We have some scatterings of low level data throughout the day but nothing that I would expect will cause too much of a jolt in the markets. The Reserve Bank of Australia minutes from its recent meeting, released overnight, will likely be the next event of note.

Japan trade balance in deficit on rising imports

Asia Mid-Session Market Update: Beijing voices opposition to US carrier presence in South China Sea; Japan trade balance in deficit on rising imports

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

Best Sector in S&P500: Telecom

Worst Sector in S&P500: Energy

Biggest gainers: KHC +10.7%; VFC +4.6%; CL +4.3%

Biggest losers: CPB -6.5%; fls -4.8%; GIS -3.8%

At the close: VIX 11.5 (-0.3pts); Treasuries: 2-yr 1.19% (-2bps), 10-yr 2.43% (-3bps), 30-yr 3.03% (-2bps)

Weekend US/EU Corporate Headlines

ULVR.NV: Kraft Heinz withdraws $143B offer for Unilever

RBS: UK Treasury has brokered a new deal with EU over the £46B bailout received by RBS in 2008 amid Brexit fears; new measures will cost RBS £750M, to be written off as a cost in this week's annual results - UK press

SAZ.DE: Bain Capital said to have submitted competing €3.6B takeover bid at €58/shr - press

Politics

(JP) Japan PM Abe's cabinet approval rating rises 5pts to 66% - Yomiuri

(US) Homeland Security Secretary (DHS) Kelly said to consider a new "streamlined" version of Executive Order on immigration - press

Key economic data:

(JP) JAPAN JAN TRADE BALANCE: -¥1.09T (first deficit in 5 months) V -¥626BE; ADJ TRADE BALANCE: ¥155B (1-year low) V ¥276BE

(NZ) NEW ZEALAND Q4 PPI INPUT Q/Q: 1.0% V 1.5% PRIOR; PPI OUTPUT Q/Q: 1.5% V 1.0% PRIOR

(NZ) NEW ZEALAND JAN PERFORMANCE OF SERVICES INDEX: 59.5 (16-month high) V 58.5 PRIOR

(KR) SOUTH KOREA JAN PPI M/M: 1.3% V 0.9% PRIOR; Y/Y: 3.7% (5-year high) V 1.8% PRIOR

Asia Session Notable Observations, Speakers and Press

Asian equity markets trading mixed to start the week, with Australia dragged down by disappointing earnings from Brambles and WorleyParsons, while Shanghai Composite is faring better despite the rising geopolitical risks. Overall trading sentiment is somewhat muted by the US holiday on Monday, as investor also await this week's FOMC policy minutes for further hints of just how close the Fed is to another policy tightening. Ahead of that release, Fed's Mester (hawkish, non-voter) stated she sees the US economy on solid footing, but also added it will take some time to for Fed to shed MBS from its balance sheet.

Weekend security summit in Munich, Germany yielded some more conciliatory and less isolationist rhetoric from US govt officials, including VP Pence. However, some focus also turned to China, and US Sen Lindsay Graham said there may be bipartisan Congressional support if Pres Trump decides to name Beijing a currency manipulator. In the mean time, China defense officials expressed displeasure to US aircraft carrier USS Carl Vinson beginning patrols in the South China Sea.

In economic data, Japan trade balance was the most notable event with a much wider deficit than anticipated. Exports growth was slower than expected at 1.3% v 5.0%e, while imports growth of 8.5% v 4.8%e marked the first monthly rise in 2 years. Some of the slower exports can be attributed to stronger JPY, as USD/JPY came in about 5 handles from early January highs. Shipments to US and Europe were down 6.6% and 5.6% respectively, while exports to Asia rose 6%. Elsewhere, South Korea PPI spiked up to a 5 year high.

China

(US) According to US Sen Lindsey Graham (R-SC), Pres Trump would have bipartisan support to label China a "currency manipulator" - press

(CN) Chinese Academy of Social Sciences (CASS) Researcher Zhang Yunling: China plans to have growth depend more on domestic consumption and less on exports amid rising labor costs and weak external demand - Chinese press

(CN) US Nimitz-class aircraft carrier USS Carl Vinson started patrols in the South China Sea despite this week's opposition from China Foreign Ministry against US meddling in the region - Nikkei

(CN) China plans to have growth depend more on domestic consumption and less on exports amid rising labor costs and weak external demand - Chinese press

Japan

(JP) Japan PM Abe's cabinet approval rating rises 5pts to 66% - Yomiuri

Australia/New Zealand:

(AU) CBA Business Sales indicator sees Australia growth of business spending for January rising 0.5pts m/m to 5.8% - press

(NZ) ASB chief economist: New Zealand property market expectations have retreated - NZ press

Asian Equity Indices/Futures (23:30ET)

Nikkei +0.1%, Hang Seng +0.3%, Shanghai Composite +0.8%, ASX200 -0.3%, Kospi flat

Equity Futures: S&P500 +0.1%; Nasdaq flat, Dax flat, FTSE100 flat

FX ranges/Commodities/Fixed Income (23:30ET)

EUR 1.0600-1.0635; JPY 112.80-113.20; AUD 0.7660-0.7680; NZD 0.7170-0.7195; GBP 1.2405-1.2440

Apr Gold -0.3% at 1,235/oz; Mar Crude Oil +0.1% at $53.83/brl; Mar Copper +0.3% at $2.72/lb

GLD: SPDR Gold Trust ETF daily holdings fall 2.3 tonnes to 841.2 tonnes; first fall since Jan 25th

(CN) PBOC SETS YUAN MID POINT AT 6.8743 V 6.8456 PRIOR; biggest margin of decline since Jan 9th

(CN) PBOC to inject combined CNY170B v CNY150B prior in 7-day, 14-day and 28-day reverse repos

(KR) South Korea sells 10-yr Treasury bonds; avg yield 2.155%

Asia equities/Notables/movers

Australia

NHF.AU NIB Holdings +7.2% (H1 result)

BSL.AU Bluescope +4.0% (H1 result)

AMP.AU AMP Capital -1.3% (FY result)

BXB.AU Brambles -9.6% (H1 result)

WOR.AU WorleyParsons -14.2% (H1 result)

Hong Kong

611.HK China Nuclear Energy Technology +2.2% (FY16 profit alert)

827.HK Ko Yo Chemical Group +2.0% (FY16 guidance)

1060.HK Alibaba Pictures Group Ltd -4.3% (FY16 profit warning)

3322.HK Win Hanverky Holdings -6.8% (FY16 profit warning)

1219.HK Tenwow International Holdings -10.7% (FY16 profit warning)

Japan

5101.JP Yokohama Rubber +3.4% (FY16 result)

9984.JP Softbank +3.2% (reportedly preparing to approach Deutsche Telekom's T-Mobile US about a possible merger with Sprint)

6502.JP Toshiba +1.3% (Speculation about chip unit sale)

5423.JP Tokyo Steel -2.4% (Maintains prices of hot-rolled coil and H-beam steel after 3 months of increases)