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Overview: The US dollar has stabilized after yesterday's surge. Following words of caution by Japan's finance minister, the yen is the strongest of the G10 currencies today, with around a 0.15% gain. The slowest underlying inflation in Norway in four months has weighted on the krone, which is off about 0.35%. Excluding the krone, the G10 currencies are little changed. Emerging market currencies are in a wide range but also mixed. Since the end of tis long national holiday, China has announced several measures including broader export controls on rare earths EV battery technology, and a levy on US ships making port calls in China. 

Japanese and Chinese equities fell with the major indices off more than 1%. South Korea and Indian markets rallied, but most of the other large bourses in the region fell. Europe's Stoxx 600 is little changed and US index futures are slightly firmer. Benchmark 10-year yields are softer in Japan and Europe, mostly 1-2 bp lower. UK Gilts and French bonds are the best performers so far today. French President Macron is expected to name a new prime minister today and Belgium credit may be downgraded today. The 10-year Treasury yield is off nearly three basis points to 4.11%. The low for the week is closer to 4.09%. Gold held yesterday's low slightly below $3945 and has reemerged above $4000 today. The record high set Wednesday was almost $4060. November WTI was turned back after approaching $63 on Wednesday and Thursday and has tested the $61 area today. The week's low is near $60.70. 

USD: The Dollar Index jumped to almost 99.60 yesterday, its best level since August 1 when it reached 100.25. There appears little on the charts to prevent a return that high, which is important from a technical perspective. It could be the neckline of a double bottom, which if exceeded could project a year-end rally toward the late March high near 104.70. That is not our base case. DXY is consolidating in a narrow range so far today, between 99.20 and a little more than 99.40. The federal government remains closed, and the market is pricing in high confidence of a rate cut later this month, and about an 80% chance of another cut at the last meeting of the year in December. With no government data, the preliminary October University of Michigan is the data point of the day. Minor slippage is expected in sentiment and expectations. The one- and 5-10-year inflation projected to be stable at 4.7% and 3.7%, respectively. Assuming the government remains shut next week, the Fed's Beige Book and the NY and Philadelphia Fed's surveys are the highlights. 

EURO: With the apparent assistance of option-related and stop-loss sales, the euro was driven almost $1.1540 yesterday, the lowest level since August 5. The element of caution comes from the euro's settlement below the lower Bollinger Band (~$1.1575 today). Near-term potential may extend toward the $1.1515-20 area, but the topping pattern may project toward the August 1 low, a little below $1.14. The euro has fallen for four consecutive sessions. It has not fallen every day in a week since the last week of January. The euro has held above $1.1555 today but has been unable to resurface above $1.16, where options for almost 1.9 bln euros expire today. Italy reported dramatic 2.4% drop in August industrial output. It follows a 0.1% decline in Spain, 0.7% fall in Spain, and a 4.3% collapse in Germany. The aggregate eurozone figure is due in the middle of next week. Meanwhile, as the French bond market calms, Moody's is set to announce the conclusion of its review of Belgium's credit. The As3 rating (with a negative outlook) is above Fitch's assessment (A+) but below S&P (AA+)

CNY: The dollar stalled on Wednesday in front of CNH7.1545, the (50%) retracement of its losses since August 1. It pulled back yesterday as mainland markets re-opened. The greenback fell to a five-day low near CNH7.1240, which was slightly below the 20-day moving average (~CNH7.1285). However, the broad strength of the dollar saw it recover to almost CNH7.14. That held today, and the US dollar has slipped back below CNH7.13. In a firm US dollar environment, the yuan tends to do well. In July, when the US dollar advanced for the first month of the year, the yuan was the strongest currency. During this week's dollar bounce, the offshore yuan is the strongest currency in Asia. The PBOC set the midpoint of the dollar's reference rate at CNY7.1048 today (CNY7.1102 yesterday). China has taken three initiatives over the past 48 hours that are significant. First, it has tightened and extended export controls on rare earths and related technologies, doing in effect what the US has done with semiconductor chips/technology, including extraterritorial application of third-party sales. If enforced, China can demonstrate escalation domination in the semiconductor and AI space as processed rare earths and associated magnets of essential (effective December 1)  Second, it announced export restrictions on the equipment necessary to manufacture batteries for EV (effective November 8) Third, it will charge a special levy for US ships docking in its ports, as the US has done to Chinese vessels (effective October 14). On one hand, this is a significant escalation, but on the other hand, it could be chits to negotiate when Xi and Trump meet later this month on the sidelines of the APEC meeting in South Korea. The 4th plenary session of the 20th Central Committee in Beijing October 20-23. 

JPY: Takaichi's election has the new LDP leader and most likely the next Japanese prime minister has injected a new dynamic into the exchange rate. Indeed, in recent days the exchange rate has been less sensitive to the movement of the US 10-year yield. The rolling 30-day correlation between changes in the exchange rate and the 10-year US Treasury yield has fallen to near 0.40, the lowest in three months. Some observers argue that the yen's weakness adds to pressure on the BOJ to raise rates, but the swaps market sees it differently. At the end of last week, there were 14 bp of tightening discounted for this month's BOJ meeting. Now there are a little more than four. There were 18.5 bp of tightening discounted by year-end, and now about 14 bp. There are two developments to note in Japan today. First, after dramatic yen moves this week, officials have responded with a bout of verbal intervention as Finance Minister Kato warned that the government is carefully assessing "excessive or disorderly movement". Fear of intervention seems to be still at a low ebb, but it may increase if the dollar approaches JPY155.50 not because the level itself is important but that it represents a 10-yen advance from the low in mid-September. If intervention can be depicted as an escalation ladder, today's verbal intervention is a low rung. Second, the quarter-century coalition between the LDP and the Komeito Party has collapsed, ostensibly over campaign funding reform. Meanwhile, in the US, the president wants the Fed to cut more aggressively, and in Japan, the next prime minister wants the BOJ not to raise rates. The dollar settled above its upper Bollinger Band (two standard deviations above the 20-day moving average) for the fourth consecutive session yesterday. It is found slightly above JPY153.00 today. The dollar recorded a marginal new high today, near JPY153.25, before being sold to about JPY152.40. It is consolidating in the European morning. 

GBP: Sterling was sold to a through the September lows yesterday to $1.3280. The break of September lows in the $1.3325-35 area inflicts potentially serious technical damage. The September lows could be the neckline of a topping pattern that project losses that may extend toward $1.2945, the (50%) retracement of this year's gains. However, ahead of it is the August 1 low near $1.3140. It has been a dramatic move, and sterling settled below its lower Bollinger Band, which is near $1.3280 today. Sterling has struggled to find traction today. It has held the $1.3280 low but has not been above $1.3315. This week's loss of nearly 1.4% is sterling's largest weekly decline since early January. 

CAD: The US dollar is firm and reached a six-month high yesterday of almost CAD1.4035. It settled above the 200-day moving average (CAD1.3980) and CAD1.4000 for the first time since mid-April. There is little to hang one's hat on until closer to CAD1.4150-65. It is consolidating in a narrow range below yesterday's high and above C AD1.4000. Canada reports September employment figures today. Through August, the labor market has slowed. Let's run the numbers. Canada has created about 37.5k jobs in the first eight months compared with 210.5k in same period last year. It has lost a little less than 1k full-time positions this year and had gained about 86.5k in the year ago period. The unemployment rate was 6.7% in August 2024 and 7.1% in August 2025. The participation rate has eased to 65.1% in August from 65.4% last August. Wage growth for permanent employees has slowed to 3.59% year-over-year from 4.89% in August 2024. The swaps market goes into the report with about a 55% chance of a cut at month-end Bank of Canada meeting. 

AUD: The Australian dollar posted a bearish outside down day yesterday by trading on both sides of Wednesday's range and settling below its low. Initially, the Aussie recorded the session high in early North American trading yesterday slightly above $0.6610 were it met a buzzsaw of sellers that drove it a new session low near $0.6540. Wednesday's low was closer to $0.6555. It has been confined to about a quarter-of-a-cent range below $0.6575 so far today. Options for almost A$660 mln at $0.6545 expire today. The next chart support area is in the $0.6500-20 area. A break could signal another cent decline. After poking a little above $0.5800 yesterday, the New Zealand dollar was sold aggressively and fell through Wednesday's low slightly below $0.5740. The $0.5725 area corresponds to the (61.8%) retracement of this year's rally. It is in less than a 20-tick range above $0.5740 today. 

MXN: The dollar edged to a new six-session low yesterday near MXN18.30 before its broad recovery pushed it above MXN18.41. It made marginal new high near MXN18.4165 today before steadying. A trendline drawn off the late September high and last week and this week's high is found near MXN18.45 today. It falls to about MXN18.4000 at the end of next week. Mexico is expected to report that industrial production stabilized in August after contracting by 1.2% in July. It was the second consecutive monthly decline and left industrial output 2.7% lower than a year ago. The minutes from the recent central bank meeting released yesterday showed most of board are concerned about economic weakness, though yesterday's inflation showed further upward pressure on prices. 

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