FX Update: Risk rally drives weaker JPY, GBP bid returns

The G-10 rundown

USD – the greenback trades indifferently here – pulled in too many directions. Positioning suggests weakness risk, but that is somewhat offset by its tendency to serve as a safe haven when risk deleveraging is most intense. But if risk appetite improves, do we then go back to watching US yields lift higher, therefore supporting USD strength?

EUR – Italian yield spreads remain elevated but not going anywhere as Italy shows all signs of continuing to pursue a showdown with the EU over its budget, as the parliament voted in favour of the expanded deficit for the 2019 budget. Next week could provide the next battery of headline risks.

JPY – the yen back to the weak side in kneejerk reaction to . But if yields head higher we get quickly back down to focusing on whether the BoJ is forced to indicate a policy shift as 10-year JGB’s trade up against the 15-basis point yield “cap”.

GBP – sterling is catching a bid again this morning and plenty more room for GBP strength if markets are generally stabilising and we get the positive Brexit headlines the market is gunning for next week. Note GBPCHF trading up at its 200-day moving average near 1.3100 and for perspective, consider that the 200-week moving average doesn’t come in until close to 1.3500.

CHF – as we note above, the franc’s recent weakness despite worse-than-wobbly risk appetite and EU existential stress sticks out like a sore thumb. EURCHF making an interesting go above the local pivot level of 1.1440 and eyeing the perhaps psychologically more important 1.1500 level.

AUD – with the firming CNY yesterday and massive rally in gold, would have expected a more robust response from AUD yesterday, though it did manage to entirely reverse the prior day’s losses in the case of AUDUSD, where we see the risk of a large short squeeze if risk appetite stabilises and the CNY maintains the floor.

CAD – USDCAD is easing back toward the 1.3000 pivot area after the recent chunky oil market correction. The chart is a mess. Next Friday, Canada reports home prices and on Friday, the September CPI.

NZD – next Wednesday’s Q3 CPI from New Zealand the next reason to pay attention to the kiwi in relative value terms as the AUDNZD pair has gone into hibernation.

SEK – a chunky SEK rally worth believing in as the strong CPI release yesterday jolted Swedish rate expectations higher as the Riksbank now seen as a lock to hike in December.

NOK – a more modest comeback for NOK relative to SEK on the NOKSEK breakout brushback and weaker oil prices, but still constructive on EURNOK downside potential.