EUR

FX markets remain relatively rangebound with lower conviction, driven by the intraday volatility of equity market fluctuations. This week brings a significant amount of data, including September payrolls and PMI figures later in the week. The delayed September payroll print raises questions on how to interpret its impact, especially as indicators suggest varying levels of labor market softness. A solid figure (50k+) could reinforce the somewhat hawkish tone expressed by several Fed Governors regarding a potential rate cut in December. However, the compromised quality of data collection and the anticipated economic fluctuations between Q4 and Q1 may keep broader dollar participation subdued, with focus shifting towards EM and relative value opportunities.

Consequently, I don’t hold a strong dollar bias in the current environment. I remain short on the pound as political and economic uncertainty intensifies ahead of next week’s crucial Autumn Statement, alongside CPI, retail sales, and PMI data. These factors are likely to continue weighing on the pound. On the other hand, I remain biased long on the kiwi, albeit with reduced exposure following its relative outperformance last week (notably audnzd dropped significantly after the Aussie payrolls report). I also maintain a long position on the rand, supported by the solid MTBPS delivery and subsequent ratings upgrade, though last week’s price action was notably volatile. Additionally, I’ve added eursek cash shorts again, aligning with the view of a prolonged European upswing as highlighted by several analyst reports. If this upswing fails to translate into euro strength due to US resilience, peripheral opportunities may be worth exploring.

Regarding the euro, while there are positive signals from Europe, mixed views on the dollar and continued selling pressure on the single currency by longer-term market participants suggest limited breakout potential. The failure at the 50/100-day moving averages underscores this. The PMI data later this week will be key in determining whether last month’s upward momentum can persist, though sustained US data weakness may be necessary to drive the euro higher. Resistance is seen around the 1.1660 area, while support remains around the 1.14 handle, encompassing recent lows and the rising 200-day moving average.

GBP

The focus here is understandable for obvious reasons. While the manner in which the news broke on Friday was far from ideal, I view it as a net positive overall. The smaller OBR deficit has allowed Reeves to avoid income tax hikes and retain her role. Although the initial volatility in the Gilt market, driven by interpretations of Reeves leaning to the left (especially following the noise from Streeting), was unsettling, the situation has not fully rebounded despite additional details coming to light. However, contrary to some newspaper claims, I don’t believe Reeves has lost the confidence of the Gilt market just yet.

As a result, I closed out my GBP shorts and anticipate an opportunity to re-enter shorts at better levels in the coming week. The cyclical story remains significant for the BoE, as the LFS data trends downward, but the extreme negativity surrounding this Budget has been mitigated by the OBR’s reprieve, which spares Reeves from potential dismissal. The upcoming October UK CPI data on Wednesday will be crucial, especially after September’s miss. Another cooler outcome could encourage me to re-engage, particularly with Sales and PMI data arriving on Friday. I’m looking to buy the dip in EURGBP towards 0.8750/65, while in cable, I’d consider selling around 1.3250 for the day (noting the 200-day moving average at 1.3287).

JPY

Japan’s GDP contraction doesn’t indicate an imminent rate hike, though the result was better than expected. Meanwhile, tensions between China and Japan over Takaichi’s Taiwan comments could have economic repercussions, further complicating the BoJ’s ability to hike rates anytime soon. Additionally, former BoJ member Kataoka, now part of Takaichi’s economic advisory team, has called for a JPY23 trillion stimulus package and recommended delaying rate hikes until March or April next year. Unsurprisingly, December rate hike expectations have eased, now priced at around 8bp (down from 15bp post-October meeting).

While the gradual downward trend in JPY persists, it’s worth noting that the upcoming NFP report, albeit for September, could spark speculation about the December Fed decision. For now, I’m staying on the sidelines. In terms of flow, we’ve observed significant DHF JPY buying offset by SHF supply, with RM activity largely absent on a net basis. Trends remain elusive in recent sessions. Key levels to monitor include 180 in EURJPY and 155 in USDJPY, with Empire Manufacturing data later today.