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Overview: The US dollar is mostly a little softer ahead of the start of the North American session. Participants do not seem to have much short-term conviction amid the heightened tensions between the US and China and wary of political developments in France and Japan. Against several pairs, the greenback has frayed its recent ranges but there has been limited follow-through. Poor Australian jobs data boosted market speculation of a rate cut next month, while a recovery in the UK's August GDP is helping lift sterling to the top of the G10 currency performers today. French Prime Minister Lecornu has survived one of two no-confidence motions today after yesterday's significant compromises bought the government some time. Unexpectedly aggressive intervention by the Reserve Bank of India yesterday, and US claims that India has agreed to stop buying Russian oil has seen further gains in the Indian rupee today, making it among the strongest of the emerging market currencies today. 

Equities continue to march higher. Led by a 2.5% rally in South Korea's Kospi and 1.3% rise in Taiwan's Taiex, most equity markets in the Asia Pacific region advanced today. Europe's Stoxx 600 is about 0.40% higher, and if sustained it would be the third gain this week. US index futures are 0.30%-0.45% better. The disappointing Australian jobs report sent its 10-year yield down more than six basis points (to around 4.14%), while European benchmark 10-year yields are narrowly mixed. The 10-year Treasury yield continues to hover around 4.0%, now 4.02%. Gold stretched to a new record (~$4242) but is now around $4230. December WTI is holding above $58 today but below $58.65. 

USD: The Dollar Index has finally broken out of last Thursday's range (~98.70-99.55) to the downside, falling to almost 98.40 today. This overshot the (50%) retracement of this month's gains. The 20-day moving average and the (61.8%) retracement are in the 98.20-25 area. The government remains closed and some two million federal employees will go without a paycheck this week. A federal judge ruled yesterday against anymore "reduction in force lay-offs). Still, both political parties appear to be retrenching rather than seeking a compromise. Even with the government shut, the economic calendar is not empty. Today features three surveys: the October Philadelphia Fed survey, the NY Fed's business services survey, and NAHB home builders survey. Still, when everything is said and done, the derivatives markets show near full confidence of a rate later this month and in December. 

EURO: The euro appears to have forged a base around $1.1540 but has yet to prove itself on the upside. Yesterday, it held below last Thursday's high, slightly below $1.1650, and the (50%) retracement of this month's decline is around $1.1660. Today it has been bid to $1.1675. The next retracement (61.8%) and the 20-day moving average are around $1.1690. France's immediate political logjam has broken with significant and necessary compromises by President Macron. Prime Minister Lecornu has survived one of two no-confidence votes today, but Macron's reform agenda has been stymied, and Lecornu has promised not to use the constitutional provision (Article 49.3) that allows bypassing the National Assembly, which minority French governments have relied on. 

CNY: The US dollar has frayed the lower end of the range that has confined it since last Thursday against the offshore yuan (~CNH7.1240-CNH7.1500). It was sold to almost CNH7.1210 today before recovering to almost CNH7.1315. The PBOC lowered the dollar's reference rate to its lowest level in nearly a year. It was set at CNY7.0995 yesterday and CNY7.0968 today. Meanwhile, the Dutch government's actions (to take control of Chinese-owned subsidiary of Wingtech, Nexperia continues to be discussed. In late September, the US had put 100s of subsidiaries of Chinese sanctioned companies on its entity list (which is appears to be part of  the context of Beijing's tightening and broadening of it critical minerals regime), and it had reportedly threatened to include Nexperia, according to press reports. The Dutch government quickly capitulated but did not go public until last week. Beijing responded this week by blocking Nexperia China and its subcontractors from exporting some components, which appears to undermine the Dutch operations. 

JPY: The dollar peaked at the end of last week around JPY153.25. Yesterday's low, near JPY150.90, and today it has been sold to JPY150.50. Options for almost $830 mln expire at JPY150.50 today. The (38.2%) retracement of this month's rally was near JPY150.70, and the (50%) retracement is slightly below JPY150.00. The exchange rate seems caught between the soft US yields on the one hand and Japanese politics on the other. The new head of the LDP wants easy monetary and fiscal policy, and she looked poised to be the next prime minister. However, her inability to find a compromise with junior ally for 26 years, the Komeito Party, and the severing of the alliance has created an opportunity for the main opposition parties. Three opposition parties are exploring scope an agreement to support the head of the Democratic Party for the People (DPP) Tamaki as their prime minister candidate. Meanwhile, Takaichi has reached to the Osaka-based opposition party Japan Innovation Party (Ishin) for support for her bid to be prime minister. The DPP and the Constitutional Democratic Party are also trying to woo Ishin. The vote is next week. August was a rough month for Japan. Yesterday, it revised down the month's industrial output to -1.5% from -1.2% and today it reported a 0.4% decline in the tertiary industry index (from a revised 0.2% gain in July, which was initially reported at 0.5%). The enthusiasm for a rate hike this month peaked at the end of September with about a 70% chance of a hike, the most since April. Now, with a new LDP head who could still very well be the next prime minister advocating easy monetary and fiscal policy and poor economic data in tow, the swaps market has around a 15% chance of a hike priced. 

GBP: Sterling reached a four-day high slightly above $1.3400 yesterday and extended the recovery today to almost $1.3445. Recall, that it set a two-and-a-half month low on Tuesday near $1.3250. Near today's high, sterling met the (38.2%) of the decline since the FOMC rate cut a month ago. The (50%) retracement is slightly above $1.3485. The UK reported that the economy expanded by 0.1% in August after July's unchanged estimate was revised to a 0.1% contraction. Industrial output rose 0.4% (-0.9% in July was revised to -0.4%), while the index of services activity was flat and July's0.1% gain was revised away. The trade balance deteriorated slightly, while construction output weakened (-0.3% after a 0.2% gain in July was revised to zero). 

CAD: After reaching its best level in six months on Tuesday near CAD1.4080, the greenback consolidated yesterday. Previous resistance around CAD1.4020 now offers support. The daily momentum indicators are stretched but have not turned down. The greenback may need to take out the CAD1.3965 area to begin signaling a top. Nearby resistance is around CAD1.4100, though the CAD1.4165 area is the (50%) retracement of this year's decline. Economic data shows the Canadian economy softened in August but the employment data from last week provides some sense of optimism that it performed better last month. 

AUD: The Australian dollar managed to extend Tuesday's recovery. It reached $0.6440 on Tuesday, its lowest level in nearly two months before recovering to almost $0.6525 in North America. A disappointing jobs report pushed the Aussie to $0.6480 before recovering back above $0.6500. Options for about A$435 mln at $0.6500 expire today. Overall employment rose by almost 15k (the 5.4k loss in August was doubled in the revision to -11.9k. Full-time posts increased by almost 9k after falling by a revised 48.6k in August (from -40.9k initially). Labor supply growth by almost increase in new employment and this saw the unemployment rate rise to 4.5% from a revised 4.3% (from 4.2% initially). The odds of a rate cut at next month's meeting, as reflected in the indicative pricing in the futures market, have risen to about 67% from about 36% yesterday. It was near 31% at the end of last month. 

MXN: The dollar remains confined to the range set at the end of last week against the Mexican peso of roughly MXN18.3635-MXN18.6370. While yesterday's low was near MXN18.4350, the MXN18.42 area is the middle of the range that has prevailed since the FOMC meeting on September 17 to cut rates. The greenback is trading between about MXN18.4350 to MXN18.4815, so far today. Options for almost $400 mln at MXN18.39 expire today. Mexico's economic calendar picks up next week with the IGAE report, which is similar to a monthly GDP, August retail sales, and inflation for the first half of October. The central bank meets again on November 6. Pending more data, we suspect that Banxico may pause but signal that the easing cycle is not over. 

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