Late Tuesday, President Trump pulled the plug on stimulus talks sending currencies and equities sharply lower. He instructed his staff to stop negotiating until after the election which means unemployed Americans and struggling businesses won't receive any more help until December at the earliest. This unexpected announcement killed rallies in EUR/USD and USD/JPY and could spark the beginning of a deeper contraction in risk appetite. Even when Trump was admitted to the hospital due to COVID-19, the prospect of a fiscal stimulus deal kept financial markets supported. By taking away this hope, Trump is giving investors a strong reason to square up ahead of the November election. Its always a possibility that he’ll change his mind in a week or two but for now, we expect further losses in equities and currencies. This announcement could confirm a top at the 50-day SMA for USD/JPY which is currently near 105.75. That aside, the greenback caught a safe haven bid, rising against all other major currencies.

US data mattered little on a day focused on headline risk as the trade deficit widened. Federal Reserve Chairman Jay Powell also spoke this morning and he reaffirmed the central bank’s low rates for long bias. As Cleveland Fed Mester said yesterday, nothing needs to be done right now but they could lengthen the maturity of bond purchases if necessary. Fed President Bullard agrees that bond purchases would be the way to go. There are no other US economic reports scheduled for release tomorrow beyond the FOMC minutes. The Federal Reserve made their position very clear last month. With inflation running below target and unemployment at historically high levels, there are no plans to raise interest rates for the next 3 years. In fact, 2 out of 9 policymakers wanted the Fed to use stronger language to describe their commitment to low-interest rates. The FOMC minutes are widely expected to reinforce the central bank’s dovish bias which may be more negative than positive for the greenback.

Meanwhile stronger than expected German factory orders drove euro higher prior to Trump’s announcement. EUR/USD rose above 1.18 for the first time in 2 weeks before nosediving. German industrial production numbers are scheduled for release tomorrow and the data should be stronger after today’s report. However, none of that may matter if the market is driven by risk off flows. The Sterling continues to be marked with volatility ahead of tomorrow’s Brexit talks. There are rumors that the EU may call the UK’s bluff and see if they are really willing to leave the union without a trade deal but according to “EU sources” the latest round of talks are the most positive.

The Australian dollar sold off the most on the back of weaker trade data. The Reserve Bank left interest rates unchanged and confirmed the need for a highly accommodative policy stance. The Australian government also announced new tax cuts and measures to boost jobs. This will cause the budget deficit to hit a record high, but the government sees no budget recovery without a jobs recovery. Service sector PMI numbers are due for release this evening and a softer release could accelerate the slide in AUD. The Canadian dollar traded lower on the back of weaker trade data. Canada’s IVEY PMI report is scheduled for release tomorrow and will decide if USD/CAD extends it gains past 1.33.