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USD Index Off the Mat, But Still Much Lower on the Week

FOREX
  • Markets trade with a broad risk-off backdrop - the USD is making furtive gains to stage a minor bounce off the week's lows. Nonetheless, the USD Index remains well below the 50-dma support that had contained price action earlier in the week.
  • Month-end models continue to point to moderate USD sales for October, with flows likely to pick up in NY hours as Thursday marks month-end value date for FX rebalancing purposes.
  • JPY trades well, boosted by general weakness across global equity markets and a break below the Monday low for USD/JPY. Support at 145.57 has given way, but there are few signs of official intervention at this stage, with the price action more leisurely relative to recent bouts of JPY strength.
  • Elsewhere, the CNH is among the poorest performing currencies globally, putting USD/CNH back toward 7.25 to partially erase Wednesday's move lower. The moves come despite a brief move higher in the Chinese currency, with markets clearly remaining wary of state-run Chinese banks selling USD to shore up the exchange rate. 7.25 had previously been a closely watched level for USD/CNY.
  • Focus turns to the ECB rate decision, with the bank expected to raise rates by 75bps and lay the groundwork for matched move higher of another 75bps in December. TLTRO terms are also a hot topic, with reports circulating this week that the ECB could change borrowing terms on TLTROs in order to reduce the payments due to the banking system for parking liquidity at the central bank.
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