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Overview: There was some, albeit limited follow-through dollar buying today, but the early gains have been pared as the European morning progressed. That leaves the greenback narrowly mixed among the G10 currencies, with the Scandis, sterling, and the New Zealand dollar underperforming. North American leadership is awaited. Emerging market currencies are also mixed. News that Hamas accepted the initial terms of peace deal, helped lift the Israeli shekel. Gold was initially sold, but new buying emerged ahead of $4000, and it is near $4038. Yesterday's record was slightly below $4060. French bonds are stocks are outperforming today, encouraged that a potential deal may be in the works that avoid a new round of elections. China's mainland markets re-opened from the long holiday. The offshore yuan recovered from yesterday's slide and China's main equity indices gained over 1%. Beijing announced new export controls on critical minerals and related technology. 

Apart from Hong Kong and Singapore, the equity rally in the Asia Pacific region continued. Europe's Stoxx 600 is struggling. It is off about 0.25%; giving back a third of yesterday's gain, which was the first of the week. The S&P 500 and Nasdaq futures are broadly steady after yesterday's record highs. European benchmark 10-year yields are around one basis point firmer today, but French bond yields are slightly softer. The 10-year Treasury yield is also up a basis point to about 4.13%. Five Fed officials speak today, including Chair Powell. The US Treasury is selling more than $200 bln in bills today and $22 bln of the 30-year bond. November WTI is consolidating after rallying for the past four sessions. 

USD: The Dollar Index briefly poked above 99.00 yesterday in in the NY afternoon, but pulled back in later dealings, seemingly responding to news that French President Macron will name a new prime minister by the end of the week. This suggests that a political compromise on the budget may have been found. Yesterday's low near 98.60 offered initial support initial support and the Dollar Index reached 99.10 in Europe today. The next chart point is around 99.30. The US government shutdown continues. President Trump explained earlier in the week that political pressure has not been brought to bear in sufficient force. Four polls (NY Times, CBS, Marist, and Washington Post) all found that public opinion attributes more of the responsibility for the government shutdown to the Republican. This is also historically true: Republicans typically are blamed by the public for government shutdowns. Negotiations to re-open the government have not yet begun in earnest. Meanwhile, five of the 19 regional Fed presidents and governors speak today, including Chair Powell. Since the September 17 rate cut decision, most Fed officials have staked out their views. 

EURO: The euro slipped by 1/100 of a cent through the $1.16 level for the first time since late August. The (61.8%) retracement of the euro's rally since the August 1 low (~$1.1390) is slightly below $1.1595. The euro recovered on news that a new French PM will be named ahead of the weekend, suggesting that a budget deal may be in the works. It reached $1.1630 in late dealings yesterday and almost $1.1650 before sellers re-emerged and took the euro back to almost $1.1600. Additional losses today could take the $1.1575 area. The French bond market is outperforming slightly today, even though whatever deal emerges will most likely mean less austerity. The euro's three-day decline in tow today matches the longest losing streak since late July. The US two-year premium over German narrowed to almost 150 bp last week and approached the low for the year seen last month, is now near 160 bp, the most since late September. After reporting yet another decline in factory orders and industrial production over the last couple of days, German reported a larger than expected 17.2 bln euro trade surplus. That is around 20% smaller than August 2024. This is in line with this year's average monthly surplus (~17.1 bln euros vs. 21.4 bln in the first eight months of 2024). In August exports fell 0.5% (after revised 0.2% decline in July from initially -0.6%), while imports fell 1.3% (after a revised -.7% decline in July from -0.1% initially). Exports are flat this year compared with a 0.3% gain in the same period last year. Imports have risen around 0.3% on average, the same pace seen in the Jan-August 2024 period. Despite the string of disappointing data, the German government sounded an optimistic note, seeing growth accelerating from 0.2% this year to 1.3% in 2026 and 1.4% in 2027 fueled by government spending on infrastructure and defense. The Bundesbank is less sanguine. It sees stagnation this year followed by 0.7% growth next year and 1.2% in 2027. The IMF forecasts 0.1% growth this year followed by 0.9% next year and 1.5% in 2027. 

CNY: China's markets re-opened for the first time this month. The dollar has gained broadly since the national holiday began. The offshore yuan slipped by slightly less than 0.30% so far here in October coming into today but has recovered nearly fully. The PBOC set the dollar's reference rate at CNY7.1102 compared with the least fix in September of CNY7.1055. The dollar frayed resistance in the CNH7.15 area and approached CNH7.1550 yesterday. It has slipped through CNH7.13 today. The combination of the US transactional approach to foreign relations and its wavering assistance to Ukraine, and the Commerce Secretary Lutnick's demand that Taiwan produce half of the chips the US buys in the US, Taipei appears to increasingly question the US commitment. A few months ago, Taiwan president Lai was refused permission to stop in NY on a trip to Latam. Reports last month indicated that the US rejected a Taiwan offer to purchase $400 mln of military equipment from the US. Reports suggest that Beijing is pressing the US strengthen its stance from "not supporting" Taiwan's independence to saying it "opposes" independence. Ahead of the Trump-Xi meeting on the sidelines of APEC meeting later this month, Beijing announced new curbs on rare earths, including equipment and technology. 

JPY: The dollar reached JPY153 in Europe's late morning turnover. It is the highest level since Valentine's Day and surpassed the (61.8%) retracement of this year's decline (found ~JPY151.60). It settled for the third consecutive session above the upper Bollinger Band, which comes in near JPY152.40 today. The gains were extended to slightly above JPY153.20 today before it stabilized and pulled back to around JPY152.50 in early European trading. The market continues to digest the implication of Takaichi's election as LDP head. Ahead of the vote in the Diet later this month for the prime minister, negotiations with its junior partner for the past 25 years, the Komeito Party are underway. The head of the Komeito Party, Saito Tetsuo, appears to be holding out for some stronger commitment to limit the of money in politics given the effects of the slush fund scandal. Yet, the appointment of Hagiuda, who was previously implicated in the 2022 slush fund scandal, was named Executive Acting Secretary General, may not be received well. Takaichi's initial appointments, including former Prime Minister and Finance Minister Aso and Suzuki (former finance minister and now LDP Secretary General) is seen as signaling not just rewards for her supporters but also a signal of seeking a balance between her stimulus commitment and respect for fiscal discipline. Japan's 40-year bond yield peaked in late May near 3.70%. It held below 3.60% this week. It settled around 3.40% last week and is now near 3.48%. The 30-year bond yield made new highs on Tuesday, near 3.35%. is now near 3.18%, which is about where it settled last week. The US-10-year premium over Japan has slipped to about 240 bp, the least since July 2022. 

GBP: Yesterday, sterling recorded its high, slightly shy of $1.3440, and low, almost $1.3370) in North America. sterling trade at an eight-day low yesterday near $1.3370. After the low was recorded, sterling was straddling the $1.3400 area in late turnover in NY. Follow-through selling today has pushed sterling to almost $1.3340. Last month's lows were in the $1.3325-35 area, and a break of that area could signal scope for losses that extend back to the August 1 low near $1.3145. The UK's sparse economic calendar continues but next week is a different story with the employment report next Tuesday and August GDP and details next Thursday. Meanwhile, Chancellor of the Exchequer Reeves has received some good news in the form a GBP2 bln underestimate of receipts for the value-added tax. Still, the UK is overshooting its official budget forecast by around GBP9.4 bln. Her Autumn budget will be delivered on November 26. The yield on the 10-year Gilt reached an eight-month high in early September near 4.85%. It is now near 4.73%. The UK 2-10-year yield curve peaked in early September a little above 80 bp, which had not been seen since early 2018. It is now near 72 bp. 

CAD:  The US dollar posted an outside down day against the Canadian dollar by trading on both sides of Tuesday's range. Settlement was little changed and well within Tuesday's range, neutralizing the technical signal. It is trading quietly inside yesterday's range so far today, confined to about CAD!.3935 and CAD1.3965. Last week, the greenback was turned away from the 200-day moving average, which it has not closed above in six months, and the CAD1.40 area. Initial support is seen in the CAD1.3885-CAD1.3900 area, and the daily momentum indicators look poised to turn lower. However, as we have observed, the Canadian dollar is sensitive to the US dollar's broad direction. It tends to outperform in a firm US dollar environment but lag in a weak one. The Canadian economy has also been hit by US trade policy and the swaps market anticipates another Bank of Canada rate cut, if not later this month, then before the end of the year. Canada reports September employment tomorrow. The unemployment rate is seen creeping up to 7.2%, a new post-pandemic high, while the economy is expected to have added 5k jobs, according to the median forecast in Bloomberg's survey, after a 65.5k job loss in August (which were mostly part-time positions). 

AUD: The Australian dollar was initially sold yesterday to a new low for the month, slightly below $0.6560 before recovering, mostly in North America to the session high near $0.6590. It settled near session highs. A bullish hammer candlestick appears to have been forged. Today’s follow-through buying tested the band of resistance, which extended to $0.6615. Sellers reemerged and took the Aussie back to $0.6570 before recovering in the European morning. The light Australian economic diary turns more active next week with the RBA minutes due next Tuesday and the September employment data at the end of next week. 

MXN: As soon as the dollar stabilized yesterday, the peso was bought. The dollar had briefly taken out Tuesday's high (~MXN18.4160) but was offered in North America. It traded slightly below MXN18.32. A break of MXN18.30 could signal a retest on the October 1 low near MXN18.24. Mexico reports September CPI today. Both the headline and core rates are expected to edge higher from August's 3.57% and 4.23% pace, respectively. The uptick in price pressures will be followed by a stabilization of industrial output, which will be reported tomorrow. August industrial production is projected to rise by 0.4%, according the median forecast in Bloomberg's survey after July's 1.2% drop. 

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