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USD Advances Amid Geopolitical Tensions, Antipodean FX Suffers

FOREX
  • Ongoing tensions in the middle east continue to undermine risk sentiment and underpin the US dollar. The USD index stands 0.20% higher as we approach the APAC crossover, extending on Tuesday’s strong price action. Cycle highs for the index remain around 85 pips above current levels.
  • The higher US yields (steeper curve) and weakness for equities has prompted particular weakness for higher beta currencies such as the antipodeans, with both AUD and NZD falling over 0.5%, and some weakness for emerging markets FX.
  • AUDUSD reversed the entirety of the CPI-inspired run higher, retreating over 50 pips from the session high of 0.6400 in early European trade. The pair gathered momentum through the Tuesday NY lows of 0.6344 and has since narrowed the gap substantially with the Monday and weekly lows of 0.6289.
  • The pullback in AUD, shows how US yields remain a more influential factor for the currency relative to domestic developments, with intraday price action closely following the creep higher in long-end TSY yields.
  • With price action largely mimicking that of the broad USD index, EURUSD has edged lower in sympathy, spending the majority of Wednesday trade consolidating below 1.0600. Price action reinforces a bearish theme and suggests that recent gains have been a correction. A continuation lower signals scope for 1.0496, the Oct 13 low. The key support and bear trigger lies at 1.0448, the Oct 3 low.
  • Another very narrow trading range for USDJPY results in the pair oscillating either side of 150.00. Key resistance remains at the recent 150.16 high (Oct 3) and will be eyed for a further bullish technical development.
  • While Chair Powell is delivering some opening remarks later today, he is unlikely to mention monetary policy given the blackout period for communications. Focus turns to the ECB decision and press conference on Thursday, as well as a raft of US data. This includes third quarter GDP, core PCE price index, durable goods and weekly jobless claims.
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