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Analysts at TD Securities offered a market wrap and explained that market sentiment was downbeat on European politics, with 10Y BTP yields up 15bps to help drive a rally in North American rates.

Key Quotes:

“Treasuries bull-flattened in the front-end and belly, with 2s10s narrowing by 2bps, while CAD outperformed by 1bp through 10s to unwind some of the post-NAFTA selloff.

The USD saw broad declines against G10FX, with JPY (+0.3%) the sole currency to outperform amid the soggy risk backdrop.

AUD (-0.5%) saw a knee-jerk higher out of the RBA meeting but retraced to end the North American session in the red.

Meanwhile, USD/CAD saw little change after failing to break through 1.28.

A quiet session for data will see markets focus on European politics and another speech by Fed Chairman Powell.”

What we’re watching in markets
“Hyperbole is rather high this week with the UK Conservative Conference and the occasional euroskeptic grenade in Italy.

The phrase “more noise than signal” is particularly apt. In this environment, a tactical frame of mind is prudent as is minding correlation structures between FX and risk appetite.

The latter puts dollar bloc to the fore though lopsided positioning and idiosyncrasies (especially for CAD) could cushion the blow.

The 1.1500/25 area remains key support for EURUSD; failure to hold could open a new lower trading range towards 1.13.

Treasuries will remain focused on Italian politics and the second speech by Chair Powell, with the market bull flattening in the wake of the large corporate deal pricing.

Payrolls will remain the key focus, and we expect yields to remain in the 2.80%-3.10% range for the time being.”