Market sentiment is fragile. After earnings helped boost sentiment yesterday, a different set of earnings weakened it today. The broad retreat has seen some signs of risk-off in the foreign exchange market with the yen and Swiss franc leading the major currencies. At the same time, pressures European bond market persist, and the peripheral premiums over Germany are wider. The euro is a laggard and was turned back from about $1.1255 today. Moody’s, which assigns France a credit rating two notches above S&P and Fitch and a negative outlook, will announce the conclusion of its review tomorrow. A downgrade looks inevitable and a two-step catch-up move cannot be ruled out.
The US economic calendar is light and participants in the foreign exchange market will be keeping a close eye on equities. Meanwhile, oil prices remain firm and December WTI is bumping around $100 a barrel.
Prices
G10
• The euro was confined to about a quarter-of-a-cent range below $1.1240 yesterday, with a marginal new session high recovered in the NY afternoon. It reached about $1.1255 today in the Asia Pacific sessions, but as French bonds came under pressure in Europe, the euro slipped to session lows near $1.1215. This third time in five sessions it was turned back from the $1.1260-70 area. The 20-day moving average is near $1.1245, and the euro has not settled above it since September 9. The euro has to prove itself, and in a material sense, given the interest rate differential, one is paid to be long dollars, and it hasn’t yet. Options for nearly 2 bln euros expire today at $1.1200.
• The greenback has broken down today against the yen after it straddled JPY158 in each of the past five sessions. Falling US yields and unwinding of short-yen hedges to long Japanese equity positions sent the dollar to almost JPY156.75 today, a new low for the month. Options for about $1.5 bln at JPY157.50 expire today and some pressure on exchange rate may be related. A break of the JPY156.70 area could signal a move toward JPY156.
• Sterling consolidated yesterday in the upper end of Tuesday’s range. It traded in a little more than a fifth-of-a-cent range around Tuesday’s $1.3380 settlement. Still, it settled above its upper Bollinger Band for the second consecutive session (~$1.3390 today). The market seems stretched after its five-session, 2.7-cent rally that brought it to a potentially important technical level. Still, sterling reached almost $1.3420 today before stalling. The $1.3400 area holds the (50%) retracement of the decline from the late August high (~$1.3675) to the mid-October low (~$1.3135). The highs from the brief consolidation in mid-September also are around $1.3400. The next retracement target is around $1.3470.
• After rallying a little less than 2% in the previous five sessions, the Canadian dollar consolidated yesterday. The greenback did not move more than around 20-pips from Tuesday’s settlement, trading between about CAD1.4040 and CAD1.4080. The US dollar edged down today to about CAD1.4015, its lowest level in a month. Psychological support is seen around CAD1.40, but the retracement objective is near CAD!.3965.
• The Australian dollar’s advance extended to $0.7035 yesterday, a new high for the month. The five- and 20-day moving averages crossed for the first time since mid-September. It made a marginal new high today before risk-off forces saw it pullback toward $0.7005. Yesterday’s low was slightly below $0.7000.
EM
• The Mexican peso tumbled to new lows for the year yesterday and fell further today. The dollar reached almost MXN18.73 yesterday and nearly MXN18.8150 today. The greenback closed firmly and the move does not seem over. A move toward MXN19.0 area does not look unreasonable. We are looking for some kind of climactic top or a reversal pattern, and neither has materialized.
• The dollar continues to trade heavily against the offshore yuan. It fell to CNH6.6715 today and new multiyear low. The grind continues and the direction of travel is still clear. The dollar’s reference rate was set at CNY6.7195 (CNY6.7192 yesterday).
• Foreign equity inflows to participate in Jio Platforms IPO yesterday have coincided with new policies that raised the cost of being short the rupee has helped improve the exchange rate. The dollar was approaching May’s record high earlier this month near INR97 and fell a little below INR94.42 yesterday, its lowest level since September 7. As the equity-related flows eased and oil prices rose, the US dollar posted a potential key upside reversal against the rupee today by making a new low for the move and then recovering and settling above yesterday’s high. The dollar recovered from INR94.3225 to INR94.9425.
Other Markets
• The Nasdaq Composite rose to a five-day high yesterday and closed firmly. The Philadelphia Semiconductor Index traded firmer and posted a four-day high close. However, disappointing earnings have seen AI-related companies lead the equity sell-off today. South Korea’s 3.5% tumble led the Asia Pacific equities lower. Even the tech-light European Stoxx 600 has fallen a little more than 1% today. The Nasdaq 100 futures are off 1.8%, and the S&P 500 futures are around 1% lower.
• The US 10-year Treasury yield traded quietly around 5.10% yesterday and is near 5.06% now. Strains in the European bond market were still evident. The French premium continues to widen. The contagion, of course, spreads to other countries seen to have pre-existing conditions first. It is an unstable situation, and a political realistic near-term off-ramp does not seem obvious.
• The debt strains in Europe do not appear to have helped gold, which slid to a new two-week low today, slightly below $4067. A break of this area could see a return to $4000 or the late June low near $3943. Silver traded quietly yesterday in a little less than a $1 range, about half of Tuesday’s range. It has been sold below Tuesday’s low (~~$56.40) today and there is little on the charts ahead of the $55 area, where it bottomed in June and July.
• Reports that oil flows from the Middle East remain strong despite the increased Iranian attacks saw the December WTI contract pull back from the brief excursion above $100. The contract is trading firmly in about a $97.70-$100.10-range so far today.
Data
• The US reports weekly jobless claims today. It is the closest to a real time labor market reading. The four-week moving average, used to smooth the noisy series, stood at 198.50k. It recorded the modern low in September 2022 at 197.50k. Anything below 200k is notable. In the week of October 3, continuing claims were at 1.71 mln, slightly above the three-year low recorded near the middle of last month (~1.699 mln). Former Fed Chair Powell’s characterization of a low hire/low fire economy still is apt. The index of leading economic indicators and the KC Fed survey are also due but tend not to elicit a market reaction.
• Mexico’s CPI for the first half of October looks little changed. The year-over-year headline rate may tick up to 3.59%, according to the median forecast in Bloomberg’s survey, from 3.49% in the last two weeks of September. The median projection anticipates that the core rate slipped to 3.70% from 3.71%.
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