CNH: USD/CNH Back Eyeing Re-Test Sub 7.1000, As USD Gains Stall, CNH/JPY Lower
USD/CNH spot tracks near 7.1065/70 in early Monday dealings, after a 0.17% gain on Friday. This brings USD/CNH downside risks back into play, although dips under 7.1000 have been supported back to mid Sep in the pair. Broader USD indices consolidated around recent highs, although USD/JPY saw a pullback, which may have helped CNH at the margins. Spot USD/CNH finished up at 7.1052, while the CNY CFETS basket tracker rose to 98.22, up a further 0.11% to fresh highs since April.
- USD gains stalled as NY Fed President Williams saw scope for further near term easing, which saw market pricing for a Dec cut firm. US-CH yield differentials have rolled back over, the 2yr spread last back to +206bps, which is still above Oct lows (near +190bps).
- The CNH/JPY cross pulled back as yen gained close to 0.70% for Friday's session (as the intervention threat stepped up, while lower US yields also helped). We saw the pair get under 22.00, but we track slightly above this level in early Monday dealings, with an uptrend still intact (the 20-day EMA support point is around 21.75). Recent highs rest close to 22.19.
- Friday saw a better session for the Golden Dragon index in US trade, up 1.23%, but we were still down for last week. The CSI 300 slipped to 4453.6, off 3.77% last week.
- On the data calendar, we have Oct industrial profits out on Thursday, in an otherwise quiet data week.
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FED: MNI Fed Preview - October 2025: QT, Or Not QT
MNI's preview of the October FOMC has been published - Download Full Report Here
- The Federal Reserve is overwhelmingly expected to cut the funds rate by 25bp for a 2nd consecutive meeting on October 29, bringing the target range to 3.75-4.00%.
- This will again be framed as a risk management cut, with the limited data available since the September meeting not disconfirming that the shift in the balance of risks had tilted toward labor market downside.
- Dissent to this decision should once again be limited to Gov Miran in favor of a 50bp cut.
- With limited new developments and official data to opine on, Chair Powell’s press conference will be eyed for affirmation that a December cut remains on track, as signalled by the most recent Dot Plot.
- He’s unlikely to give much away, but it would be surprise given the lack of data and relevant developments if he suggested that a further 2025 cut was in any greater doubt than it was 6 weeks earlier.
- Instead, we think focus in terms of action at this meeting will be on the balance sheet, with the Fed likely to announce an end to quantitative tightening amid diminishing reserve levels and nascent evidence of funding market pressures.
- We will also be watching for any news on the Fed’s communications framework, with an updated “Dot Plot” potentially unveiled at some point by year-end.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Oct 27
RATINGS: Moody's Lowers France's Outlook To Negative, Maintains Aa3 Rating
Moody's has lowered its outlook on France to negative from stable.
- Moody's was expected to at least lower the outlook, so this is not a surprise - there had been some risks perceived of a downgrade to A1 (from Aa3) in the domestic and foreign currency long-term issuer and domestic-currency senior unsecured ratings.
- Per the Moody's release: "The decision to change the outlook to negative reflects the increased risk that the fragmentation of the country's political landscape will continue to impair the functioning of France's legislative institutions. This political instability risks hampering the government's ability to address key policy challenges such as an elevated fiscal deficit, rising debt burden, and durable increase in borrowing costs, thus leading to a more rapid weakening in France's key fiscal metrics than we currently expect."
- Both S&P and Fitch have already downgraded France’s sovereign rating to the single-A bucket this year.
USDCAD TECHS: Corrective Pullback
- RES 4: 1.4200 Round number resistance
- RES 3: 1.4167 50.0% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.4111 High Apr 10
- RES 1: 1.4080 High Oct 16 and the bull trigger
- PRICE: 1.4016 @ 16:33 BST Oct 24
- SUP 1: 1.3979/3907 20- and 50-day EMA values
- SUP 2: 1.3829 Bull channel base drawn from the Jul 23 low
- SUP 3: 1.3769 Low Sep 19
- SUP 4: 1.3727 Low Aug 29 and a bear trigger
USDCAD has pulled back from its recent highs. The trend condition is bullish and a move lower is considered corrective. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4111, the Apr 10 high, and further out, scope is seen for an extension towards 1.4167, a Fibonacci retracement. First key support lies at 1.3907, the 50-day EMA. Support at the 20-day EMA lies at 1.3979.
