FOREX: Steady Session Gives Way to Sharp Vol
Oct-10 18:00
- A steady Friday session gave way to volatility just ahead of the London close, as President Trump raised a threat of further trade measures and tariffs against China as a result of Beijing's recent actions on rare earths. Risk proxies were sold hard in response, with the same names that were exposed to the tariff disputes earlier this year again being hit the hardest: AUD, NOK, ZAR and NZD are the softest currencies on the day.
- Follow-through USD sales on the Trump post have changed the intraday picture for GBP/USD, which has surged to briefly trade back above 1.3350, and help cool this week's USD rally somewhat. Focus in the coming week shifts to a busy week for the BoE, with several MPC members set to speak, while UK jobs numbers are also due. Commentary across this week flagged the sensitivity of the MPC to inflation expectations, suggesting the bar to another BoE rate cut in 2025 as a result of a weak labour market is rather high.
- With JPY rallying and AUD falling sharply on Trump's renewed tariff threat, AUD/JPY is very close to erasing the Takaichi gap. A further ~90 pip slip puts the price back to 97.35, last week's close, and would help form a long wick candlestick pattern on the weekly chart. Price action in the cross shows the real sensitivity of these two currencies to renewed tension in a trade war scenario.
- Trump's potential withdrawal from a face-to-face meeting with Xi is significant; but with two weeks to go until the APEC conference in South Korea - there still appears to be room for diplomacy - which would work against Friday's price action.
- US earnings season is set to kick off in the coming week, although the data schedule is thinner. September US CPI was originally due for release, however the US government shutdown has delayed this print until October 24th.
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EURGBP TECHS: Corrective Pullback
Sep-10 18:00
- RES 4: 0.8769 High Jul 28 and the bull trigger
- RES 3: 0.8744 High Aug 7
- RES 2: 0.8728 76.4% retracement of the Jul 28 - Aug 14 bear leg
- RES 1: 0.8713 High Sep 2
- PRICE: 0.8653 @ 16:30 BST Sep 10
- SUP 1: 0.8636/8597 50-day EMA / Low Aug 14 and the bear trigger
- SUP 2: 0.8562 50.0% retracement May 29 - Jul 28 upleg
- SUP 3: 0.8540 Low Jun 30
- SUP 4: 0.8514 61.8% retracement May 29 - Jul 28 upleg
EURGBP traded lower Tuesday and has breached the 20-day EMA. Short-term weakness is considered corrective - for now - and support to watch lies at 0.8597, the Aug 14 low. Clearance of this level would reinstate a recent bearish threat. A resumption of gains would open 0.8744, the Aug 7 high. Key resistance and the bull trigger is at 0.8769, the Jul 28 high. Note that MA studies are in a bull-mode position highlighting a dominant uptrend.
BONDS: EGBs-GILTS CASH CLOSE: Short-End Underperformance Ahead Of ECB
Sep-10 17:56
EGBs and Gilts traded in mixed fashion Wednesday, with underperformance at the short end of respective curves.
- While Gilt yields remained within this week's ranges throughout the day, 10Y Bund yields touched an intraday post-Aug 7 low in early trade as markets digested overnight news of Poland downing Russian drones in its territory.
- Lower-than-expected inflationary pressures in the US producer price report saw a brief rally across global core instruments, but EGBs and Gilts were content to drift into the cash close ahead of event risk Thursday.
- The German curve twist flattened on the day, with the UK's bear flattening.
- OAT spreads were little changed albeit underperformed periphery/semi-core EGBs more widely, following overnight news that French President Macron had named centrist/ex-defence minister Lecornu as the new Prime Minister.
- While US CPI will garner significant attention, Thursday's European highlight is the ECB decision (MNI preview here in PDF).
- Along with the expected rate-hold along with communications reiterating a data dependent approach, Lagarde's characterisation of economic resilience and/or the extent to which uncertainty has been alleviated by the US-EU trade deal should help shape market reaction.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.1bps at 1.952%, 5-Yr is unchanged at 2.225%, 10-Yr is down 0.7bps at 2.652%, and 30-Yr is down 0.7bps at 3.273%.
- UK: The 2-Yr yield is up 2.6bps at 3.94%, 5-Yr is up 1.8bps at 4.055%, 10-Yr is up 1bps at 4.633%, and 30-Yr is up 0.5bps at 5.482%.
- Italian BTP spread down 0.6bps at 81.5bps / French OAT spread down 0.3bps at 80.9bps
US TSY OPTIONS: Oct'25 10Y Call Fly Sale
Sep-10 17:44
- -8,170 TYV5 112.5/113.5/114.5 call flys, 20 vs. 113-15/0.05%
