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FOREX: Trump Odds Continue to Dictate Sentiment

FOREX
  • The JPY is weaker for a second session, with AUD/JPY breaking through last week's highs to narrow the gap with 101.42 - the next notable resistance at the Oct07 high. The US yield curve remains a defining factor, with the short-end providing the lever for risk-on/risk-off. Yesterday's pushing through 4.00% for the 2yr yield has spilled over into Tuesday trade, pressing to a new high of 4.0516% this morning.
  • Positioning for the two key risk events in the coming weeks - the US Presidential election and the UK Budget - is playing a key part here, with Kashkari's comments late yesterday ("If the deficit goes to the moon, then rates will be higher") neatly summarising the market's views of the expansionary policies from both the potential Harris and Trump administrations when the victor takes office next year.
  • Pressure on EUR/USD present into the Monday close has abated somewhat, with the pair off lows and aided higher by an ECB sources report from the MNI Policy team, which reported that ECB officials currently view market pricing for six consecutive cuts as slightly exaggerated barring a change in circumstances. As a result, EUR/USD has neared 1.0850 resistance, but progress through the 1.0872 200-dma will be needed to signal any near-term reversal.
  • Tuesday trade will remain characterised by sentiment, with the data schedule again quieter. The speaker calendar if far busier, with appearances due from ECB's Centeno, Knot, Lagarde, Villeroy, Rehn and Panetta all on the docket, as well as Fed's Harker, BoE's Bailey & Breeden. 
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