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  • Forex today was pretty wild in the NY session following a recovery of risk in European markets.
  • Dollar drops below key trend line support on 95 handle and GBP/USD rallies to R1, AUD up to R2, EUR/GBP falls just shy of R3, USD/JPY fragile in low 113s as US yields fall back. EUR/USD testing trendline resistance.

Currency action

EUR/USD  has been on the brink of a breakout at the descending trend line that was put in place from the spinning top highs of 1.1798 back on the 25th September. the pair recovered from a brief spell at the short term lows of 1.1432 but on a tightening of the IT/DE yield spread and positive Brexit noise, sentiment picked up a little and DE-US yield spread tightened also. A key development was through the DXY as well, rejected hard at the highs on the 96 handle and the failures to get to or hold above the key  96.240 Fibonacci level, a 76.4 percent retrace of the 96.991 to 93.808 (August to September) decline, leaving the downside exposed with the price dropping all the way back to test the 95.65 critical support line and trend line support. A break there leaves the dollar vulnerable to a fall back to R2 at 1.1529 vs EUR – This area guards 1.1578, being the 38.2% Fib of the latest swing highs and lows between 1.1813 and 1.1432. The 50% Fib of the same range is located at 1.1623. However, on a continuation, of the downside, S3 is located at 1.1390. Cable was performing on the bid following the Brexit noise, of which for the most part was actually conflicting and certainly not conclusive by any stretch of the imagination. However, there was some synergy with respect to optimistic remarks within various inconsistencies between UK Brexit Sec Raab, Irish Foreign Minister Coveney and unknown ‘diplomats’ cited by the Dow Jones of which wires kicked off the rally in sterling. GBP/USD rallied from the 1.3050s out of nowhere to an initial recovery high in the 1.3090’s. the pair then ticked up the trendline resistance, pierced there to make fresh highs on the 1.31 handle, popped the trend line with relative ease and then spiked to R1 at 1.3142 and made a high of 1.3156. The conflicting comments enabled a pullback into the 1.3120s but the bulls steppe din again and the pair settled around R1 in NY for the early Asian handover. As for EUR/GBP, the cross managed a swift run down towards S3 which is located at 0.8731, making a new short-term low at 0.8733. The pair trickled back to 0.8755 in NY for the close of 0.8747.  The following are the various headlines that were coming through:

The Dow Jones citing diplomats that negotiations are on solid grounds as follows:

  • EU, UK look to agree outline of future trade relationship by November – Dow Jones citing diplomats
  • EU, UK. Narrow gaps on Ireland border but some differences remain.
  • EU, UK close to resolving all other exit terms issues.
  • If exit deal reached, EU expected to sketch out views on future relationship next week.
  • EU, UK make progress in Brexit talks, divorce terms could be settled by Monday – diplomats.

Then, Irish Foreign Minister Coveney was saying that there is a strong chance of reaching Brexit deal, but cautioned that November looks ‘more likely’ than October for a Brexit deal:

  • EU is showing a willingness to move.
  • Not sure if UK proposals will be enough.
  • Hopefully, we’ll get certainty over the next 6 weeks.
  • Unlikely that text for UK backstop will be published.


  • We continue to press our case for future relationships.
  • Will not accept anything that threatens the constitutional integrity of UK.
  • Must hold nerve and be confident that we will reach a deal by Autumn.
  • Time for the EU to match pragmatism that we have shown.
  • We are expediting preparations for a no deal.

USD/JPY, (USD/JPY bears to have their cake and eat it? Watching China, the world growth story and US CPI this week – DXY 23.6% Fibo is key), was falling away again as the greenback gave background while US yields slipped back for extreme levels of late in a mixed risk environment. The pair was weighed in a rebound in Italian and the euro while elevated Brexit sentiment also inspired a risk on appetite. US yields edged off the recent highs with 10Y yields some 3bps lower, driving the 2s-10s spread back to 31.5 bps. With US CPI coming up this week on Thursday US time, the FX space is geared up for some volatility around the theme of Treasurys, especially with this week’s $230b in paper being auctioned – Such supply could elevate US yields even higher. However, the moves may well have been more technical and less fundamental in nature and there are a few indications that USDJPY may have formed a top just below 115. On the other hand, seasonally, USD/JPY’s has been bid in mid-Oct to Dec, although in a heavy risk-off environment, Japanese repatriation flows just might trump that of US dollars. As for the commodity complex, a drift back in yields helped commodities run higher with raw materials climbing and copper impressive, through R1 and R2 on the day recovering from below the pivot and looking even more bullish with respect to the H&S bottom pattern – CRB holds above 200 and the Aussie gets through R2 and onto the 0.71 handle from a low of 0.7054 to a high of 0.7117. R3 is a target at 0.7130. But higher levels could be a more attractive place to sell IF DXY can hang on in there at around the September highs being the 95.50/60 zone, or even above the 38.2% Fibo at 95.26.  

Key notes from US session:

Wall Street closes modestly lower on materials and industrials sell-off