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  • Forex today was lively and a great display from the greenback, the US economy and US yields.
  • The DXY broke through the 95.70 barriers as a result and all the way to 96.12 on some late US session hawkish rhetoric from Fed’s Governor Powell.  

The 10-year yields rose above previous highs for the year and this time, the dollar followed suit. While this is an initial positive outcome for the greenback, the rise in yields is very sharp and perhaps a mean reversion style correction is warranted. However, the Fed has underpinned the notion of higher rates and in fact, Powell said that they could even raise rates past ‘neutral’ – that really set the dollar on fire and provoked breaks of key levels in the EUR, GBP and Aussie to the downside – the yen deserves a mention there but it had already been toppled back to the 114 .40’s earlier in the day, making a high of 114.55 on the Powell headlines.

Currency action

EUR/USD was unable to perform on the bid despite the news of the Italian budget deficit reduction. The pair bled from the 1.1490’s that were scored on the knee-jerk in Asia and dropped to a low of 1.1473 in early Asia following Powell’s rhetoric. The ADP and ISM services reports were the initial catalyst along with US yields o the rise with a widening of the DE-US spread underpinning the dollar. Initially, it was the 1.15 barrier option level and confluence zone that held the bears off, but that was only until a late afternoon spike in the greenback took out stops and sent the single currency packing all the way to the aforementioned lows – the pair drifted into Asia from there and traded around 1.1478 in Tokpy’s open.  Cable was ending the NY session at 1.2985, down 0.19% within a range of between 1.3023/1.2967 before the Powell comments that took the pair all the way down to 1.2924. Brexit headlines did little to help the bulls case and uncertainty there remains as opaque as the negotiations have become whereby Raab’s optimism is mostly being ignored by markets that want some concise and conclusive outcomes – PM May stuck to her guns saying yet again that no-deal better than a bad one and that there will be no 2nd referendum. The budget reduction noise did little to help the euro and instead, EUR/GBP takes its cues from the sterling leg of the cross. The cross was sold off after an attempt to hold above the descending resistance line and instead scored a low of 0.8860 from 0.8918 the high. the cross ended NY at 0.8872 and down 0.31%with the North American range of between 0.8905-0.8860. USD/JPY rallied hard into the 114.50’s on a rise in US yields and stellar US data. Bulls target the knock out option barrier of 115 and that might be the trigger for a correction should there be a mean reversion in the state of play in US yields that are well beyond their competitive currency’s. The dollar was bolstered by 10 and 30-yr Tsy yield breakouts to the highest levels since 2011/14 – boosted by extraordinary growth, fading pension funds no long actively buying long-dated bonds, (purchases of long-dated Treasuries have thinned down to a trickle), and bearish positioning where bears pounced on the break of key chart level – (Speculators and hedge funds held a record number of short positions, bets on prices to fall, on 10-year note futures as of Sept. 28, data from the Commodity Futures Trading Commission shows). As for the Aussie, it was all one way business, a little stop on start o the way there mind you, but there were no significant signs of a let up from the bears who have been hungry ever since the August rally that seemed to contain little in the way of fundamentals behind the move other than speculative positioning paring back. On Wednesday, AUD/USD fell all the way from 0.7180 to 0.7093. however, what should not be ignored is the robustness in the commodities sector that were actually higher for a fifth day with the CRB at its best levels since May. There is an H&S bottom forming in copper worth noting. however, eyes will stay on USD/CNH that is on the brink of a troubling looking break out of 6.90.

Key notes from the US session: