Currency Updates:
AUD/USD steady short covering squeeze continued for Europe’s morning. A bit of resistance in the 0.8810 region saw a dip towards 0.8770 into NY’s open. NY bought the dip though as US bond yields were soft. This kept steady pressure on the USD especially vs. JPY. AUD/USD lifted from the 0.8770 area, ran light stops above Europe’s high and more stops through 0.8830 to hit a 0.8835 high. The rally stalled though as the IMF lowered global econ growth forecasts and risk sentiment shifted south. The pair dipped to 0.8800 but sat near 0.8815 late in the day to leave the AUD the top performer vs. the USD on the day. China’s Sep HSBC Services PMI will get some play by traders but it’s unlikely to impact too much as the market is more attuned to the Oz Sep jobs report due tomorrow. Should both data pieces come in on the weak side, AUD/USD’s recent squeeze may be over and a return to the key 0.8660/70 area may be in order.
EUR/USD Asian names sold the spike higher to 1.2665 in Europe’s morning. The slide saw EUR/USD dip to 1.2585 just before NY got going. NY walked in and immediately rallied the pair towards 1.2625. US bond yields were soft and USD/JPY slid closer to the all important 108.00 area. EUR/USD’s rally pushed to 1.2655 before EUR/JPY weakness took control. That pair slipped from near 136.95 to a low of 136.56. EUR/USD dipped to 1.2615 but the dip met buyers. Persistent yield weakness had the USD on its heels vs. most major currencies. EUR/USD rallied towards Europe’s high and sat just below it late in the session. There is no major data due that would seriously impact the pair so the recent short squeeze may persist. Technicals & yield spreads back up that view. Day/week o/s unwinds continue and spreads are narrowing. The 10-DMA is capping gains for now but a clear break puts 1.2700/15 in play. Longer-term bears likely sit there but a break of that latter level may inspire a much bigger squeeze and put 1.2850/1.2900 in play.
USD/JPY The yen was well bid amid another round of global de-risking that, though led by European equity and peripheral bond losses, also claimed Japanese, US others’ equity setbacks. That 2-yr Tsy yields fell for a second day after Fri’s huge NFPs beat showed that concern is increasing about weakness outside the US feeding back to the domestic economy. Moreover, PM Abe, whether for domestic political considerations or not, again noted concerns about the cons of a falling yen perhaps outweighing the pros. Even the BOJ is beginning to sound less resolute about reflation progress in the wake of the VAT hike this year, with another on the docket for next Oct. A 4% plunge in German Aug IP rattled EUR/JPY down to 136.56, just below the lower 21-day Bolli, where nimble spec shorts booked some profits. As this stage, prices remain below the daily Cloud base at 137.09. A close below there would reinforce the negative techs and keep the Aug-Sep lows at 135.73/82 in play. USD/JPY is hovering just above the Oct 2 low & daily up TL fm Aug at 108.01-02 & likely to close below the 21-DMA at 138.39. 5.5bln in 107.50 NY expiries eyed on Wed. JPY Trade tonight.
Looking Ahead – Economic Data (GMT)
• 23:50 Current Account NSA JPY* Aug f/c 198.0b, 416.7b-prev
• 01:45 HSBC Services PMI Sep 54.1-prev
• 05:00 Economy Watchers Poll* Sep 47.4-prev
Looking Ahead – Events, Other Releases (GMT)
• No Significant Events
