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We had a volatile Asian start, with big gaps seen across the fx space (as expected) amid the US-China trade war escalation. The trade developments on Friday and over the weekend emerged the main market driver and triggered a wave of risk-aversion in the Asian hours, which boosted the demand for the safe-havens: Yen, the Swiss Franc and Gold at the expense of the risk assets such as oil, equities, Antipodeans and Treasury yields.

However, markets witnessed a calm towards Asia close/ early European trades, as the bears took a breather amid conciliatory remarks from both the US and China while fresh US-Japan trade optimism also helped ease some nerves. Amongst the Asia-pac currencies, USD/JPY enjoyed good two-way price movements, initially hitting fresh multi-year lows near 104.47 on a bearish opening gap. Subsequently, the spot spikes to 105.78 highs before reversing below the 105.50 level. The Antipodeans were the worst performers, as they are Chinese proxies, with Kiwi downed to 0.6341 before recovering to near 0.6375 region while the Aussie found fresh bids once again below the 0.67 handle and retested the 0.6750 barrier on the road to recovery. The USD/CHF pair traded modestly flat around 0.9750 levels despite risk-aversion. Both the EUR/USD and Cable also remained trapped in a range, unable to benefit from the US-China trade escalation so far this Monday.

On the commodities’ front, gold held onto the recent gains near 1550 levels, with the bias leaning towards the upside while both crude benchmarks traded in the red amid intensifying trade spat and global growth concerns.

Main Topics in Asia

US-China trade updates

Forex Today: trade war overshadows it all

China’s Vice Premier Liu: China is willing to resolve trade dispute with US via calm negotiations

Trump’s decision to escalate the tariff war a “strategic mistake” – People’s Daily

US Pres. Trump aides say he isn’t ordering US companies out of China – WSJ

Other key headlines

US two-year yield hits lowest since September 2017 on trade tensions

PBOC sets Yuan reference rate at 7.0570

USD/CNH retraces from record high amid US-China trade war

WTI technical analysis: Oversold RSI conditions favor recovery from 23.6% Fibo.

Asian stocks follow the DJIA’s lead, bears look to DJIA Fibo lows

Japan’s Suga: ‘Do not think we compromised much in trade talks with the US’

S. Korea’s FinMin Kim: To take steps on forex regardless of currency level

Gold: Risk-off rally stalls after US, China aim to calm trade war fears

China’s NDRC: China to lower capital requirement ratio for infrastructure projects

China’s offshore Yuan Hibor rises to highest since November 2018

Japan agrees to import additional 2.5 million tonnes of feed core from the US – Kyodo

Key Focus Ahead

There is nothing of relevance on the European calendar this Monday, except for the German IFO business survey, dropping in at 0800 GMT. In the NA session, the US Durable Goods data will headline among other minority reports.

However, the market sentiment will be exclusively driven by fresh US-China trade developments after last Friday’s trade escalation while the focus also remains on the Brexit-related headlines for fresh trading impulse.

EUR/USD: Friday’s bullish outside day makes today’s close pivotal, eyes German IFO data

EUR/USD created a bullish outside day on Friday –  an early warning of a bullish reversal. A close above Friday’s high of 1.1153 is needed to confirm the trend change. The bullish close may remain elusive if German IFO data prints below estimates amid escalating trade tensions.

GBP/USD holds above 21-day EMA as markets shrug-off no-deal Brexit fears amid trade war

With the risk aversion gaining major market attention,  GBP/USD  remains above near-term key support (previous resistance), while holding above 1.2250 ahead of Monday’s London open. Focus on Brexit/ trade headlines ahead of US data.

Brexit: Entering the business end of negotiations – ANZ

In the view of the analysts at Australia and New Zealand Banking Group (ANZ),  Brexit uncertainty will be intense in coming weeks, as we head closer to the October 31st  deadline.