The Euro
EUR continues to leak lower as Italy’s government has shattered the budget and challenged the EU’s mandate. BTPs have driven a good chunk of the move lower. The Euro was holding on the 1.1600 handles by a thread, but the less -than -vigorous Eurozone September Core CPI came in lower than expected at 0.9%YoY (1.1% estimated, 1.0% prior) which sprung the 1.1600 trap door triggering a wave of stop losses as that fundamental and psychological level ceded.
Indeed music to EURO bears ears as the ECB will be in no mood to signal a quicker pace of interest normalisation anytime soon. And with the Fed laying their cards on the table and guiding the markets to a December rate hike, the keep it simple pragmatic approach to this trade suggests the dollar remains clearly in favour as US growth and positive USD differentials will stay supportive.
The Japanese Yen
For all the right macro reason spot USDJPY is looking to break higher, and if the NKY and US 10 y yields continue to track higher, there is no reason we cannot push into the 114 zones next week.
There are some chunky structural long EURJPY and a lot of underlying derivatives that add up to the same trade still sitting on traders books. These positions are clearly at risk during this Italy induced panic as we leak near yet another psychological support level EURJPY 131. However, these structures should not come under any stress provided EURJPY 130 remain intact
Oil markets
I’ve been told me my views are far too unabashedly bullish, but from my seat until sizable supply is offered up by OPEC and with pandemic market chatter raging about the $100 per barrel market, its hard on to be blatantly bullish.
Gold Markets
Gold has been trading in a rather begin range after dropping to fresh one-month lows on the stronger USD dollar narrative. But frankly, the market is so oversold that we should expect consolidation to set in before the next leg lower. We’re in the domain of the Gold Bears who have August $1160 lows in their crosshairs.
