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  • Having  digested the Fed, Forex today had the dollar sinking all boats as investors piled into the highing yielding world reserve currency, playing the macro-fundamentals again in the absense of anything new with respect to geopolitics.  

Market sentiment was modestly upbeat on Thursday with North American equities slightly higher (SPX: 0.3%, TSX: 0.2%) in the wake of Wednesday’s FOMC meeting. Treasuries and Canadian rates were little changed on the day with both curves slightly flatter on a small selloff in 2s.

The USD continues to grind higher with a broad advance against G10 currencies, which saw DXY test the 95 level for the first time in two weeks. EUR (-0.8%) traded lower on reports (later confirmed) that the Italian government will set its deficit target at 2.4% for 2019, while NZD (-0.8%) declined after the RBNZ left rates on hold. Meanwhile, CAD (-0.2%) outperformed on the crosses ahead of a speech by Governor Poloz.

Currency action

EUR/USD was sent down to from the off on the Italian budget concerns. EUR/USD dropped from the region of the 1.1750’s and crash landed down at 1.1633 in early  Asia, (initially pressured by strong US economic data), as the coalition government in Italy came too close to comfort in their agreement at 2.4% of GDP budget spending plan. This was  

above the Economy Minister Giovanni Tria’s more moderate line to keep next year’s deficit below 2  percent  of GDP – seeking to adhere to the Commission’s expectations that Italy would lower its structural deficit and satisfy Brussels and investor requirements. In the absence of anything Brexit related on Thursday and without any economic data from the UK, (  Comcast/Sky  M&A already priced in), cable was following on the heels of the euro and fell to 1.3073 as the Italian budget was announced. GBP/USD has fallen from a high of 1.3164. The cross was lower on a weak euro falling the  hardest against the dollar. EUR/GBP fell from 0.8933 to 0.8885, chugging along in the descending  channel formed on the 21st of the month up at 0.8996, (Brexit related highs/dollar weakness). USD/JPY was stealing the show in NY and punched through the July  high & 61.8% of 2016-18 drop at 113.18/27  and the 200-W SMA to score a fresh high for 2018 up at 113.47. The dollar was soaring to 94.85 in NY and the pair took out big stops which helped the bulls along from a 76.4%  extension  fib around the 113.25 mark to aforementioned  highs – The US  Treasury and-JGB yields spread is   rising and should keep the dollar underpinned with eyes on the  76.4% Fibo at 115.33 next in line on closes above the  Dec and Nov 2017 highs through the upper end of the 114 handle. AUD/USD was whitewashed as well, sent down to test the 0.72 the figure for a 50% correction of the recent retracement from down at 0.7085 lows. USD/CNH was a driver, meeting the 0.8886  mark  where bulls continue to pressure in Asia, awaiting the Chinese Caixin manufacturing data as the next catalyst, (albeit downside likely priced in, to some extent, as its no news story that the China economy is underperforming).    

Key notes from US session

Key events ahead

Credit data is out in Australia and Caixin manufacturing PMI in China.