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Overview: Tumbling equities and softer yields mark a risk-off session. The US dollar, though, is mostly higher. Among the G10 currencies, it took another round of verbal intervention and softer Treasury yields to help the yen resist the dollar's tug. About half of currencies are off 0.5% or more and most have extended their recent losses. Most emerging market currencies are lower, and the Mexican peso, which sometimes acts as a proxy for restricted currencies, especially in Latin America is off almost 0.75%, to lead the complex lower. 

All the large markets in the Asia Pacific region were sold today. The Nikkei lost 1.75%, while South Korea's Kospi's nearly 2.4% drop led the region. Europe's Stoxx 600 has been crushed 1.5%, its largest loss since August 1. US S&P and Nasdaq futures are off more than 1% and look poised for a gap lower opening. Benchmark 10-year yields are slightly lower in Europe with the UK Gilt yield off nearly two basis points, the most in the region. The 10-year US Treasury yield is off a little more than two basis points to slip below 4.09%. Gold is trading quietly inside yesterday's range and off a little less than $10 in late European morning turnover. December WTI was turned back from $61.50 yesterday and is probing the $60 area now. 

USD: The US federal government shutdown matches the longest in history today, and there is still no sign of either side compromising. The dearth of government data therefore continues and so does the collection process. Tomorrow sees the ADP private sector jobs estimate and ISM services. The futures market continues to discount about a 2/3 chance of a cut next month. With a four-day rally in tow, the Dollar Index is challenging the high from August 1 near 100.25. The 200-day moving average is near 100.40 and DXY has not traded above it since early March. A shelf appears to have been forged in the 99.70 area. 

EURO: The euro is falling for the fifth consecutive session. It has frayed the $1.15-level for the first time since August 1. For the second consecutive session, the euro settled below its lower Bollinger Band (found slightly above $1.1510 today). There are options for 1.1 bln euros at $1.1525 that expire today. A convincing break of $1.1500 leaves little on the charts to deter a push to the lows of the end of July/early August in the $1.1390-$1.1400 area. The economic calendar picks up tomorrow the final services and composite PMI, German factory orders, and French industrial output.

CNY: The dollar is rising for the fifth consecutive session against the offshore yuan today. It reached slightly through CNH7.1320, its best level since October 17. Since the high was recorded, the US dollar has pulled back to around CNH7.1280. The PBOC set the dollar's reference rate at CNY7.0885 (CNY7.0867 yesterday). Tomorrow, RatingDog (previous Caixin) services and composite PMI but the managed exchange rate seems largely immune to the high-frequency data. While there is a lively debate over scoring the outcome of the recent leaders' meeting between Trump and Xi, Chinese hawks in the US are frustrated that with the adjustment there is not strong incentive to move production out of China or address the undervalued exchange rate. Presently, the US has a higher tariff on Brazil and India than China.

JPY: The dollar edged slightly closer to JPY154.50 and Japan's Finance Minister Katayama issued cautionary remarks that spurred a sharp retreat in the greenback. It has been sold through yesterday's lows (~JPY153.95) to about JPY153.30 in the European morning, where some bottom pickers emerged. With its recent gains, the dollar has recouped a little more than 75% of the decline recorded in the first four months of the year. It has not closed below the 20-day moving average (~JPY152.50 today) in a month, though initial support may be near JPY153. Finance Minister Katayama had escalated the verbal intervention before the weekend by declaring that officials were "monitoring foreign exchange movements with a high sense of urgency." He repeated the "high urgency” code words today. While under earlier circumstances, it may have signaled an elevated risk of actual intervention, it seems less so now, with the BOJ reluctant to hike rates and the broader greenback gains. Intervention is a MOF decision, and the new government seems less inclined given its apparent preference for easy monetary policy and commitment to more fiscal support. Verbal intervention is cheap but could have diminishing impact. Moreover, while it clearly does not need US permission, given the US Treasury Secretary's criticism of BOJ monetary policy, Tokyo cannot be sure the US would refrain from criticizing material intervention, which would risk undermining whatever effectiveness it may have enjoyed.

GBP: Sterling traded quietly even if choppily in a mostly $1.3110-$1.3150 range yesterday and spent the session below last Friday's settlement (slightly above $1.3150). It has taken another lower today to reach about $1.3060, which it has not seen in seven months. Concerns about the budget announcement later this month appears to be taking a toll. The lower Bollinger Band is found a little below $1.31 today. The next area of support is in the $1.2990-$1.3000 area. The highlight of the week is Thursday's Bank of England meeting. The swaps market has about a 1-in-3 chance of a cut, which is high compared to the Bloomberg survey that found nine of 47 economists surveyed (~19%) forecast a cut.

CAD: The Canadian dollar often performs relatively better in a firm US dollar environment, but not yesterday. Indeed, the Canadian dollar was among the worst performers among the G10 currencies, losing about 0.35%. Yet, since day before the Bank of Canada and FOMC cut interest rates last week, the Canadian dollar rivaled the Australian dollar for the top of the G10 currency performers, losing about 0.75% against the US dollar. The greenback approached the six-month high set last month near CAD1.4080 yesterday. and is still within spitting distance today are options for $620 mln at CAD1.4110 that expire today. A move above it targets the CAD1.4150-65 area, which holds the February low and the (50%) retracement of this year's US dollar decline. Canada was supposed to report September merchandise trade figures today, but the US government shutdown makes a key input unavailable. This will also delay the Q3 GDP due later this month. Finance Minister Champagne will unveil the budget today. Prime Minister Carney wants to boost Canada's competitiveness, and it will not be cheap. Moreover, the shift in US policy may broaden support for the effort. The Liberal Party is three seat shy of a majority. The budget deficit may be projected to rise from around 1.6% this year to around 3% next year. 

AUD: As widely expected, the Reserve Bank of Australia left its overnight target rate steady at 3.60%. The futures market discounts about a 25% chance of a cut at the next meeting in December, little changed on the day. Yesterday, the Australian dollar traded on both sides of last Friday's range, but the settlement was little changed, obscuring the technical implication of the outside day. Still, it did record a new five-day low slightly below $0.6520. It has fallen through the (61.8%) retracement of the gain from last month's low (~$0.6140) is near $0.6510. Follow-through selling has seen it approach $0.6490 today. Options for about A$830 mln at $06500 expire Friday. Nearby support is seen in the $0.6470-5 area. Australia reports September's goods trade balance on Thursday. Through August, the trade surplus averaged A$4.04 bln a month compared with a A$5.97 bln average in the first eight months of 2024. Good exports have fallen by an average of 0.2% a month this year (0.6% average in the Jan-Aug 2024 period), while imports have risen by an average of 0.4% a month (0.6% average in the year ago period). 

MXN: Despite a slightly softer manufacturing PMI and less than expected worker remittances, the Mexican peso had its best day in a little more than two weeks. It rose by almost 0.4% against the greenback. The Chilean peso, Mexican peso, and Brazilian real were the top emerging market currencies yesterday. The dollar remained confined to the range set last Thursday (~MXN18.4515-MXN18.6045), but the risk-off mood lifted it to MXN18.65 today, its best level since September 11. The greenback was greeted by sellers in early European turnover, and it fell to about MXN18.61. The 25 bp rate cut by Banxico on Thursday may deter aggressive buying of the peso. 

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