FOREX: USDJPY Prints Pullback Lows, AUD Extends Higher Highs Streak

• After some moderate weakness during the APAC session, the US dollar has reversed back to recovery highs, keeping the post-FOMC topside momentum firmly intact. Gains today for the DXY would represent a sixth consecutive winning session, as the index currently flirts with the August highs, a break of which would represent 5-month highs.
• The most notable price action overnight was for USDJPY, which had a sharp selloff to 152.96, as the risk off sentiment across global markets initially extended. Assisting the yen rally was the BOJ minutes, where one board member, apart from the two dissenters, said it was time to consider another hike. Subsequently, risk stabilised and provided a more supportive tone for USDJPY, which has risen to a session high of 153.84 ahead of the NY crossover.
• In line with the broader greenback advance, USDCAD is also on a 5-session winning streak, currently trading at 6-month highs. Canada yesterday budgeted its biggest ever cash deficit this fiscal year, excluding the pandemic, on a fiscal push to revitalize sluggish growth in the country. This week’s extension of USDCAD highlights a clear reversal of the corrective bear leg between Oct 14 - 29. Spot is currently testing 1.4136, the top of a bull channel drawn from the Jul 23 low. Above here, 1.4167 is the next level of note, the 50.0% retracement of the Feb 3 - Jun 16 bear leg.
• GBPUSD remains in focus following its pronounced downtrend since mid-September. The pair remains close to cycle lows today as markets digest Chancellor Reeves’ speech on Tuesday hinting at tax increases, and await tomorrow's BoE MPC decision, set to be a close decision between a hold and a 25bp cut. Following the break of 1.3041, sights are on 1.2971 next, a Fibonacci projection point. Note that the trend is in oversold territory and a recovery would allow this condition to unwind. Initial resistance is at 1.3142, the Aug 1 low.
• ISM services highlights today's data calendar. A set of ECB speakers including Schnabel are scheduled over the next couple of days, while we will also hear from SNB's Tschudin today.

Gilts trade around session lows with a recovery from overnight lows in equity benchmarks, a firmer-than-flash final services PMI release and source reports pointing to some potential movement to end the U.S. government shutdown applying pressure.

• Futures through yesterday’s low, last -22 at 93.44.
• Monday’s base (93.32) untested, bulls remain in technical control.
• Yields now ~0.5bp higher across the curve.
• Only 30s managed to pierce their October yield low during yesterday’s rally.
• SONIA futures now 0.5-3.0 lower alongside the pressure in the long end.
• The bulk of the focus remains split between tomorrow’s BoE decision and local fiscal matters.
• On the former, we have characterised our view as 50/50 (when it comes to a cut or a hold), which is more dovish than current market pricing (~6bp of easing).
• We would have more confidence in a cut if the Budget was not coming into view, particularly given the soft food CPI reading in the latest monthly inflation release.
• Our full preview of the decision will be published later today.
• Elsewhere, the NIESR has suggested that the Budget should include GBP50bln of fiscal consolidation, with the aim of building fiscal headroom of ~1.5% of GDP.