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  • Forex today was all about equity prices where Wall Street rolled over and made for a session of two halves, ending in favour of the bears.
  • The greenback was mostly higher while uncertainties continued to pressure the euro – The DXY traded close to YTD highs.  

The US stocks were in the green, starting well  but gains have eroded throughout the trading day after a Bloomberg headline captured the market’s attention, indicating that President Trump’s administration was prepared to impose tariffs on all China’s import if there is no progress made between at Nov’s summit. Subsequently, the Dow Jones Industrial Average dropped 245.05 points, or 0.99%, to 24,443.26, the S&P 500 dropped 17.43 points, or 0.66%, to 2,641.26 and the Nasdaq Composite fell 116.92 points, or 1.63%, to 7,050.29.

“The USD was generally stronger against the G10. US treasury yields lifted across the curve with 10-year up 2bps. Italian yields fell double digits (11-18bps across the curve, and narrowing the 10-year spread over German bonds below 300bps) after S&P reaffirmed the nation’s rating at BBB and lowered the outlook from stable to negative, which was better than some were expecting. Commodities were biased lower with oil and gold down 0.4% and 0.7% respectively,” analysts at ANZ explained.

Currency action

EUR/USD is treading bearish waters without a life ring with price accumulating at the top of the bearish channel and just below the 4hr 21-SMA. The single currency was ending slightly lower and weighed by ongoing risk-off factors. However, there was a slightly improved tone supporting Italy on Monday when  S&P Global Ratings kept Italy’s sovereign credit rating at BBB, although the agency changed the outlook from stable to negative. As a result, tighter IT-DE & DE-US spreads combined with EUR/JPY gains to limit the slide in the single currency, ending NY at 1.1373. Cable was ending NY at 1.2803 and down -0.16% without any real conviction one way or the other. However, the pound continues to be in supply on the back of unsettling outlooks for Brexit. UK’s Finance Minister Hammond presented the budget on Monday who announced his opinion that Brexit will bring a double deal dividend although was unable to offer much in the way of relief for the pound. He was also promising to release funds held in reserve in the advent of a no-deal scenario. EUR/GBP was scraping together a +0.08% gain to close at 0.8895 within an NY range of between 0.89-0.8869 and was weighed by German politics after German Chancellor Merkel’s governing coalition party has lost significant support in the wealthy state of Hesse, home to the financial centre of Frankfurt. USD/JPY was rather flat in NY trade, trading at 112.19 for its lowest point after Europeans bid the pair up from the 111.80’s and scored a high of 112.56. Derisking has been a theme helping the yen recover back into the 111 handle but the divergence between the BoJ and the Fed and impressive data from the US economy keeps the dollar in favour and we are only going to see the BoJ kick the can further down the road this meeting around, underpinning the downside in the yen in the absence of risk-off flows.  As for the Aussie, CPI and China NBS mfg PMI are key risks looming that are tipped to come in bearish which is weighing on the commodity currency. Eyes will be on USD/CNH that has been trading as high as  6.9771. Commodities and stock’s downside keeps a lid on Aussie rallies, although, that Oct 26 bull hammer is offering a slight bullish bias on the near term with some divergence in RSI. AUD/USD ended NY at 0.7061 but remains below the trendline resistance and the 21-D SMA.

Key notes from US session:

Wall Street erases early gains, closes in red following trade-war headlines

Key events ahead

Australian building permits are out at 00:30GMT.