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Forex today was pretty volatile where the pound picked up an unwarranted  bid on U-turn Raab headlines while the yen sold off to fresh short-term highs only to pick up a strong month-end London fix  bid while the euro tested the commitments of the bulls’ down at the  2018 lows and a bizarrely strong Aussie finally gave into gravity.  

Firstly, the Asian equity rally extended to Europe and the US as analysts at Westpac noted:

“The US dollar rose against most currencies, with data such as Q3 employment cost index supportive but month-end rebalancing flows reportedly playing a role. AUD/USD edged down to 0.7070, near post-CPI lows.”

The DXY made a high of 97.20 and the US 10yr treasury yield rose slightly for the third consecutive day, from 3.12% to 3.15% while the 2yr yield rose from 2.86% to 2.87%. the Fed fund futures yields priced the chance of another rate hike in December at 75%. US equities were up overnight following the European bourses and Asian equity bounce despite poor Chinese data.  LIBOR continues to fix higher. Oil prices were largely unchanged despite US crude output rising to 11.346m bbl/day, up 3.8% to a record high. Gold fell on better risk sentiment, down 0.8%.

Currency action:

EUR/USD was testing the bull’s commitments down at the August and 2018 lows but there was no follow through and the pair moved back to the 1.1320 vicinities instead.  A number of factors were supporting the greenback and weigh on the euro. Firstly, the German September sales missed expectations while EZ core HICP above came in as a beat. However, the mixed data still had the DE-US yield spreads widening and the US ADP’s upside beat hurt some more. The euro was also pressured by a slide in the TRY but month-end flows seemed to have triggered stops leading into the London fix which turned up the pressure on euro bulls. The pair failed at 1.1347 on the upside and shot down to 1.1305 into the Lonon fix and then drifted lower to 1.1302 before recovering back to 1.1328 for a double top, a drift lower into the NY session close at 1.1316. Cable was picked up a bid on month-end flows and also a headline banded about that a Brexit deal is expected on the 21st Nov quoting Brexit secretary Raab. GBP/USD rallied from 1.2733 and spiked harder from 1.2756 to 1.2831 on the headlines. However, Raab was reported admitting that there was “no set date for the negotiations to conclude” just three hours after a letter he had sent to a select committee was released in which he said he was happy to appear before it on 21 November after “a deal is finalised”. Cable dropped back to 1.2743 and closed at 1.2767.  As for the cross, EUR/GBP was ending down -0.73% to 0.8855 within Wednesday’s range of between 0.8929-0.8843 as the euro takes a beating and the pound finds Brexit progress demand. USD/JPY was looking good with a bid through the 61.8% fibo in NY when it made a high of 113.39 due to firmer US treasury yields and a strong ADP number that followed the recent consumer confidence 18 year high. Also, the sentiment that a trade war truce will be on the cards weighed on the yen while stock markets made impressive gains again on Wednesday – The DJIA is up 1.61%, the NASDAQ +2.52% and the S&P 500 +1.77%. USD/JPY, however, met supply in NY and fell back to a low of 112.80 on month-end flows into the London fix and settled in North America for the day at 112.94. AUD/USD’s attempts on the 0.71 handle were shortlived as the dollar continued to press on and whatever support the Aussie managed to squeeze from whatever heresy sentiment came from the moves following the misses in Chinese data and a subsequent bounce in Chinese markets was faded and short lived. The theory goes that the Chinese data misses cemented the market’s belief that Xi will bow to Trump with respect to trade takes that may or may not take place at the 26th Nov G20 Summit given how much the Chinese economy is suffering due to the tariffs war.  

Key notes from US session:

Wall Street ends October on a positive note, S&P records biggest monthly percentage fall in 7 years

Key events ahead:

Today’s data includes Australia Oct house prices and Sep trade balance, the BoE policy decision and US Oct manufacturing sentiment survey