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  • Forex today was lively with a heavy risk-off tone emanating from concerns over global growth and further IMF warnings after their recent growth forecasts.  
  • The main action kicked off in the North America session, although commodities were hanging by a thread as trade stated, despite a lower greenback.

The DXY was surprisingly steaded through the shift, licking its wounds in a sulk by 95.45, trodden down below the key trend line support that gave way the prior day at 95.65.  

Stock market rout on Wall Street points to an even lower Asia

The centre of attention is two-fold, being a) political and b) due to China and subsequent contagion of their ill economy and markets spreading through the rest of the financial arena around the world. The complacency of Wall Street has seemingly morphed to sheer fear as can be seen from the dramatic exit from US stocks a sudden rout not seen since last February at the start of this year. this is being led by Italy and the US bond market causing anxiety in corporate credit, stocks, EMs and currencies which are deeply seated due to inflation and the growth populism in debt-financed inflationary activity. Eyes today need to be on the CSI 300, CRB index, USD/CNH and yields.  

Currency action

As for the currencies, Italian yields dipped in European trade although the euro was looking heavy into the US session while Italy’s government was digging in over its budget plans ahead of the 15th when it will be formally delivered by the deadline. Italy’s Tria was reported trying to ease the market’s worries and as such the BTP’s rallied which eventually transpired into a tightening of the IT-DE spreads. The 10-year bund yields hit new a fresh high and the DE-US yield spreads tightened which leant a hand tot he euro bulls, leading to further bleeding in the DXY.  The single currency made its way to the daily cloud & 10-DMA for an NY high of 1.1538 before edging back as risk soured later in the day in a big way. The Euro will continue to be pressured from widening UST/Bund spreads,  trade issues & EM concerns. The pound was once again running on all cylinders as the improved prospects of a clean breakthrough between the UK and EU hit the wires again on Wednesday, the latest of which came in from EU’s Barnier, when he was saying that 80-85% of the Brexit treaty has been agreed.

GBP/USD remained firm throughout NY trade, closing the day on the 1.32 handle at 1.3211, between Wednesday’s range of 1.3213-1.3137.  However, it should not be forgotten that in the European shift, sterling had actually dropped on mixed UK data to aforementioned lows. The UK August GDP came in flat vs +0.1 pct forecasted while the quarterly number came in at +0.7 pct vs +0.6 pct forecast. A poor UK Aug construction output at +0.3 pct YY vs +1.4 pct forecasted was trumped by the industrial output +1.3 pct YY vs +1.0 pct forecasted while the goods trade deficit came above consensus. Attention should now stay on options strikes now that the 1.32 barrier is taken ahead of next weeks EU summit – round figure to the upside such as 1.35 on knockouts will be attractive on further Brexit positives.  As for the cross, EUR/GBP was a touch lower at 0.8732 while the Brexit deal optimism trumps the euro that is suffering in a malaise of populism on the rise and political tensions stemming from not only Italy but Greece at al – boiling down to the divergence between the BoE and the ECB.

USD/JPY was yet again sinking due to the fierce risk-off atmosphere and sank all the way down below the 21-DMA & 38.2% of Aug-Oct rise at 112.91/72 and then the Kijun down at 112.46. the low has been 112.05 so far ahead of the Tokyo open at the time of writing. Eyes are on what happens in China Town today and the yen will follow suit, but we also have the key US CPI data in the US session that could go either way for the markets depending on the outcome –  an as-expected or slightly-below-forecast CPI, counterintuitively, could, in fact, stabilise the pair considering how concerned markets are for inflationary pressures and a faster rate of rate hikes from the Fed in 2019 battling with rn away real inflation – the curve is in focus and concerns of an inverse relationship between the long end and near end which might otherwise indicate recessionary signals for the US economy.

As for the Aussie, persistent weakness in the CNH is playing havoc on the bull’s case for any sort of a meaningful recovery in the pair. AUD/USD fell to 0.7044 and is poised to go lower for a test of the 0.70 handle with lower pivots re-set which brings R3 down to 0.6942 in the 4hr sticks for the sessions ahead. Eyes are the yuan whereby the Aussie will struggle due to the proxy status it carries for risk,  EMs and the Chinese markets. Eyes are on the 3200 level as a line in the sand for CSI 300.

Key notes from the US session

Wall Street records biggest daily fall in 8-months as all major sectors close in red