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  • Forex overnight was mixed for the dollar following the recent bearish developments in the trade war spat whereby China, as promised, retaliated to the further implementation of US tariffs on Chinese imports with 5-10% tariffs on USD60bn worth of imports.

As analysts at TD Securities noted, the markets are taking President Trump’s declaration of new tariffs in stride with broad gains in North American equities (SPX: +0.5%, TSX: +0.7%) following a similar risk-on session in Europe. We also had the US treasury yields climbing with the 2-year up 1.7bps and 10-year up 6bps onto the 3% handle. Global yields were biased higher also and oil rose 1% and gold fell 0.3%.  

“Treasuries bear-steepened on a sharp (7bp) selloff in 30s while Canada outperformed by ~2bp across the belly and long-end. USD performance was more mixed with JPY (-0.4%) trading lower on the better risk backdrop while CAD (+0.5%) rallied on reports that NAFTA talks are to resume on Wednesday. AUD (+0.5%) also outperformed despite the new tariffs while EUR (-0.1%) and GBP (-0.1%) saw modest declines. The BoJ, NZ Current Account, and a speech by the RBA’s Kent will provide the regional focus for Wednesday’s event calendar,”

the analysts explained.  

Currency action

Meanwhile, the euro was rejected ahead of key resistance yet again on the 1.17 handle and dropped in the NY session, reaching a low of 1.1652 before stabilising there around the 100-DMA and 100-HMA. The pair lifted as the dollar came off again and moved up to 1.1682 as the yen weakened and EUR/JPY picked up a bid on strong stocks –  EUR/JPY nears 131.50. Cable was falling just shy of a potential break out on positive Brexit sentiment. The pair was sold off at 1.3148 to 1.3134 before it caught a bid back through 1.3172 prior early NY highs and went on to trade at 1.3175 on UK’s press noting that EU’s chief Brexit negotiator is playing ball with PM may over Irish border and also reported that UK’s PM May has said, ” the withdrawal agreement is virtually agreed” –  Daily Express. On the eve of a key EU leaders’ summit, EU’s chief Brexit negotiator Michel Barnier said he is “ready to improve” backstop plans for preventing a hard Irish border after Brexit. This also sent the cross lower, reaching as low as 0.8864 before climbing into the Tokyo open to 0.8873. The cross had ended the NY session flat by 0.8875, within an NY range of  0.8908-0.8871. USD/JPY bulls were charging in on the 112 handle and the pair made a subsequent high of 112.38 from a low of 111.85 in the European session. The move met the 76.4% of July-Aug drop at 112.39  due to risk-on markets despite the escalation of the trade dispute between the US and China. The pair was also supported by the 10-yr Tsy yields clearing the  3% mark as well as DJIA hitting all-time high following the big N225 breakout above the 4-month range top. We have the BoJ today seen on hold which underpins the upside CB divergence bid with the FOMC next week likely hiking rates. Meanwhile, we have the Aussie stuck at a crossroads, with bulls not committed enough to take the pair through a critical resistance level at 0.7230, (21-D SMA 0.7219). However, oil and copper are supporting the bullish case but the sharp widening of the AU/US spread hinders the bullish case for now.  

Key notes from US session:

Wall Street rebounds strongly led by industrials and technology

Key events ahead:

Key events for DM currencies – TDS


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