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Risk appetite remains well supported despite the latest escalation in the US/China trade war, according to Ned Rumpeltin, European Head of FX Strategy at TD Securities.

Key Quotes

“While the latest round avoided the worst-case scenario, we are starting to wonder whether trade tensions are now fully priced – or close to it. If so, then FX markets could be looking at a game changer heading into Q4, leaving the USD vulnerable going forward.”

“If correct, we think AUDUSD and NZDUSD could be prime candidates for a short squeeze in the weeks ahead. A floor may already be in place for both pairs.”

“The local macro and technical backdrops have started to look better while positioning looks stretched. We don’t think it will take very much to send both higher.”

“The second half of the week reverts market attention to Europe. Brexit negotiations are approaching a new phase while the Norges Bank is widely expected to deliver a rate hike this week. This has us looking at interesting possibilities in EURGBP and NOKSEK.”

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