Turkish lira falls after a diplomatic crisis with the United States and gold rises as a safe haven after tensions with North Korea
The Dollar Index (USD/DXY) drifted lower in holiday-thinned, mainly featureless trading. Sterling rallied as political fears eased in the UK. The Euro edged higher amid a lack of fresh catalysts. Emerging Market currencies were mixed. The Turkish Lira slumped 3% as a diplomatic row between Turkey and the US threatened to disrupt travel and trade. Japan, Korea, Canada as well as some of the US market (treasury and bond markets) were closed for local holidays.
China’s Caixin Services Index surprisingly fell to 50. from an expected 53.1 and a previous 52.7.
Germany’s Industrial Production for September rose 2.6% larger than the forecast of 0.9%
The Euro Zone Sentix Investor Confidence reading was up to 29.7 from a median forecast of 28.6
Global stocks were mixed. Wall Street slipped in thin trade. The US S&P 500 was down 0.12%.
US Treasury bond markets were closed for the Columbus Day holiday. In Europe, bond yields slipped lower. The yield on the Ten Year German Bund was down 2 basis points to 0.44%.
USD/DXY – drifts lower to 93.658 from 93.795 yesterday, down 0.10%
EUR/USD – rallies 0.27% to 1.1750 (1.1735 yesterday).
GBP/USD – rebounds to finish at 1.3145 from 1.3068 yesterday.
AUD/USD – slightly lower to 0.7760 (0.7775), weighed by the weak Chinese services data
USD/JPY – slips to 112.55 from 112.65, little-changed with Tokyo on holiday.
Outlook: The holidays ensured that markets were pretty stable yesterday. There were no major US economic data releases. Trading was more two way with thinner volumes with the technical levels holding. The Dollar Index (USD/DXY) slipped, mainly due to the rally in Sterling (up 0.63%) and the Euro (+0.27%). British Prime Minister Theresa May managed to stave off efforts to topple her, easing political uncertainty for now. An unexpected fall in the Caixin Chinese Services Index weighed on the Australian Dollar which ended a touch lower. A diplomatic row between the US and Turkey weighed on the Turkish Lira, which slumped 3% against the US Dollar. Both countries stopped issuing non-immigrant visas to each other's citizens on Sunday. A Turkish employee of the US Embassy in Istanbul was arrested by Turkish authorities. The row could affect thousands of travelers and trade. Other Emerging Market currencies were mixed. USD/ZAR was higher at 13.8132 from 13.7080 yesterday. USD/SGD slipped to 1.3630 from 1.3650 yesterday.
Events and economic data releases today:
Australia National Australia Bank September Business Confidence and Conditions Index:(GMT 12.30 am, Oct 10/Local Time 11.30 am, Oct 10) forecast for Business Confidence: 6 from previous 5; Business Conditions: previous reading was 15 RBA Assistant Governor Guy Debelle speaks at the Pan Asia Regulatory Summit in Hong Kong:(GMT 3.20 am, Oct 10/Local Time 2.20 pm, Oct 5).
Japan Economic Watchers Sentiment: (GMT 5 am, Oct 5/Local Time 4 pm, Oct 5) forecast: 49.9 from 49.7
Swiss September Unemployment Rate: (GMT 5.45am, Oct 10/Local Time 4.45pm, Oct 10) forecast: 3.2% from 3.2% Germany Trade Balance: (GMT 6 am, Oct 10/Local Time 5 pm, Oct 10) forecast trade surplus EUR 20.3 billion from previous EUR 19.5 billion.
UK August Manufacturing Production, Industrial Production, Goods Trade Balance and Construction Output: (GMT 8.30 am, Oct 10/Local Time 7.30 pm, Oct 10: forecast Manufacturing Production: 0.3% from 0.5%; forecast for monthly Industrial Production: 0.2% from 0.2%; forecast Goods Trade Balance: -GBP 11.4 billion from previous -GBP 11.6 billion; forecast Construction Output: 0.0% from -0.9%.
UK NIESR GDP Estimate: (GMT 12 pm, Oct 10/Local Time 11 pm, Oct 10): previous reading was 10.0
Canada Housing Starts: (GMT 11.15 pm, Oct 10/Local Time 12.15 am, Oct 11) forecast: 211Kagainst previous 223K
Canada Building Permit: (GMT 11.30 pm, Oct 10/Local Time 12.30 am, Oct 11) forecast: -0.9% from previous -3.5%
Trading View: The easy move higher in the Dollar Index (USD/DXY) is over and we can expect more two way technically dominated trade today. The ranges established yesterday should hold. The sentiment toward further Dollar gains is mixed. In spite of the Dollar’s impressive rally in the past few weeks, speculative market positioning is still short. The latest CFTC/Reuters report (week ended Oct 3) saw an increase in the net total volume of speculative Dollar shorts to -USD 11.5 billion from the previous week’s -USD 8.4 billion. Only two of the total 8 currencies in the report was long of USD (JPY and CHF). The Dollar has room to move higher in the next few weeks.
EUR/USD – edged higher to finish at 1.1750 from 1.1735 yesterday. Trade was featureless and the range was narrow (1.1720-1.1756). Immediate resistance in the Euro can be found at 1.1760/70. A break above 1.1770 could see 1.1800. While a breach of 1.1720 would likely yield 1.1680. Political risks remain elevated in Spain. This will keep the Euro’s topside limited. Speculative long Euro positioning remains at multi-year highs. Look to sell rallies with today’s likely range 1.1710-1.1760.The target for this move lower still remains at 1.1500.
GBP/USD – The Pound rallied staving off an attack at the 1.30 level. A removal of domestic political uncertainty supported Sterling. There were signs that a plot to remove Theresa May would not be successful. GBP/USD traded to an overnight high of 1.3184 before settling to close at 1.3148. The overnight low traded was 1.3075. Immediate support for the Pound lies at 1.3110/15 and then at 1.3080. The fifth round of Bexit negotiations begins this week with little promise. Look to sell rallies in Sterling with today’s likely range 1.3115-1.3165.
AUD/USD – slipped to 0.7758 from 0.7775 yesterday. The surprise fall in Caixin Chinese Services weighed on the Aussie. Overnight low traded was 0.7747. Immediate support can be found at 0.7740 and then 0.7720. Resistance lies at 0.7780 (overnight high traded was 0.7782). The Aussie should trade sideways today but the next move is still south. RBA Assistant Governor Guy Debelle speaks at a summit in Hongkong. Any negative comments on the Aussie will see it lower. Likely range today 0.7740/80. Sell rallies.
USD/JPY – with Tokyo out on holiday, trading was subdued and featureless. US bond markets were also closed. Overall range yesterday was 112.33-112.74. Don’t expect to see much change in that today. The Japanese Economic Watchers Sentiment Index is released later on today. The Japanese Yen is one of two major currencies where the speculators are actually long of USD. This should keep the USD/JPY topside limited for now. Immediate resistance lies at 112.70/80. There is support found at 112.20/30. Likely range today 112.20-112.70
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