The dollar index made new 2023 highs as EUR/USD fell below major support and the Fed's higher-for-longer rates got another endorsement, while ECB speakers and dour German data reinforced the impression that the euro zone might not see any more rate hikes in this cycle.

The U.S.
currency index rose 0.32% and traded above 2023's prior peak from March at 105.88 to a 106.10 high on Monday.
A close above could pave the way to major retracement and weekly cloud top resistance, both at 107.17.

EUR/USD fell 0.46% and broke below the 38.2% Fibo of 2022-23's huge 0.9528-1.1276 recovery at 1.0608, as well as 1.0600 figure support.
Technicals and the bearish bias derived from the latest Fed and ECB guidance, as well as U.S. economic data outperformance, could see supports either side of 1.0500 tested next.

Though off August's most negative levels, 2-year bund-Treasury yield spreads at -1.9% remain a major weight on EUR/USD, particularly with the ECB and Fed guidance suggesting less scope for spreads to tighten anywhere near as much as had been expected in 2024 before the central banks' meetings.

USD/JPY rose 0.28% as the 8bp rise in 10-year Treasury yields and Treasury-JGB yields spreads got prices almost up to daily range resistance at 149.

BoJ Governor Kazuo Ueda sent mixed messages at a meeting with business leaders in Osaka on Monday.
He warned there was "very high uncertainty" over whether companies would continue raising prices and wages, stressing anew the bank's resolve to maintain ultra-loose monetary policy.
That mostly reiterated Friday's BoJ meeting conclusions.

But Ueda also said the bank would work closely with the government regarding risks from FX moves.
That as the market ponders MoF intervention risk near or above 150 and on the approach to 2022's 32-year peak at 151.94.

Sterling fell 0.2%, continuing its recent slide that was hastened by the BoE last week ending its streak of 14 consecutive rate hikes after the Fed's hawkish hold.

USD/CNH rose 0.23% as property sector worries and higher bond yields in the U.S. and Europe took a toll on global demand prospects and high-beta currencies.

Tuesday features U.S. consumer confidence and housing data, with some attention paid to a potential U.S. government shutdown that Moody's said would be "credit negative."

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• EUR/USD opened NY near 1.0635 then the overnight slide extended

• US yield US10YT=RR gains drove US$ buys, USD/CNH rallied to 7.3175

• Comments from Fed's Goolsbee added buoyancy to yields and the US$

• Early equity ESv1 drop and gold XAU= selling helped prop up US$

• EUR/USD hit 1.0575 on EBS; equity bounce, US$ dip saw pair near 1.0595 late

• Techs are bearish; RSIs falling 38.2% Fib of 0.9528-1.1276 was pierced

• Data risks Tuesday from US Sept. consumer confidence, Aug. new home sales

• For more click on FXBUZ

Credit Agricole offers a fresh perspective on the Bank of Japan's (BoJ) strategy, emphasizing the central bank's nuanced approach to verbal cues. The narrative revolves around interpreting Governor Kazuo Ueda's statements and the broader implications of the BoJ's tactics for investors.

Key Takeaways:

1. Interpreting BoJ's Actions:

   • Despite market expectations, the BoJ remained steadfast, not altering its YCC and forward guidance post its Friday meeting.
   • The market, however, expects a departure from the Negative Interest Rate Policy (NIRP) by April 2024.

2. Deciphering Ueda’s Statements:

   • Governor Ueda's press conference left many in anticipation, offering little clarity.
   • A particular spotlight was on a specific question, referencing Ueda’s previous Yomiuri Shimbun interview. Ueda's response was notably evasive, suggesting no imminent shift towards policy normalization.

3. Decoding the Yomiuri Interview:

   • Credit Agricole hypothesizes that the interview was crafted more as a measure to bolster the yen, rather than hinting at an impending policy shift.
   • This tactical maneuver of utilizing deliberate ambiguity is viewed as a modern approach by the BoJ to moderate the yen's depreciation.

4. Consequences for Investors:

   • Investors should now brace for both verbal cues from the Japanese cabinet and the BoJ.
   • It is crucial to discern between genuine policy indicators and interventions meant to stabilize the yen.

5. USD/JPY Dynamics:

   • The slow and steady appreciation of the USD against the yen reduces the immediate threat of hands-on FX interventions. This approach appears less alarming to the US Treasury, given the relatively stable volatility levels.

Deep Dive:

• For Forex Traders:

  • Tread Cautiously: Given the BoJ's latest communication tactics, traders should be vigilant of potential verbal interventions and their impact on the yen's valuation.

• For Investors:

  • Stay Alert: Investors need to stay abreast of both the cabinet's and BoJ’s remarks, recognizing the dual strategy of genuine policy communication and strategic interventions.

• For Policy Analysts:

  • Analyzing Central Bank Communications: The BoJ’s evolving communication strategy showcases a blend of tactical interventions and genuine forward guidance, underlining the significance of understanding central bank communications' underlying tones.

Concluding Remarks:
Credit Agricole's insights shed light on the BoJ's refined communication approach. While the immediate focus is on managing the yen's valuation, it underscores the increasing significance for market participants to distinguish between actual policy signals and strategic verbal interventions.

GBP/USD kicked off the week on the backfoot, testing the 1.22 handle as the dollar remains in the driving seat, and could remain vulnerable after last week's contrasting central bank meetings and with a dearth of nearby chart support.

Holding policy unchanged after 14 consecutive rate hikes, the BoE appeared dovish compared to the Fed, which signalled another increase by year end and fewer cuts in 2024.

Stagflation concerns are once again picking up in the UK with inflation at 6%, while PMIs and growth data have weakened notably in recent months.
Consequently, the pound has unwound near the entirety of its 2023 gains.
Therefore, should UK data continue to deteriorate, risks will likely remain skewed to further downside.

What’s more, techs have become increasingly bearish, as flagged previously, a close below the 200-DMA had left GBP/USD at risk of a deeper setback.
Now that the pair is through the May lows, there is little in the way of notable support until the psychological 1.20 handle.

Elsewhere, with U.S. stocks posting negative returns month-to-date, month-end flows are likely to keep the dollar in demand, thus limit rallies in GBP.

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TD Securities sends a cautionary note to USD bulls this week, pinpointing the convergence of diverse and shifting market dynamics and emphasizing the possible sudden shifts in market sentiments.

Key Points:

1. Encounter at the Inflection Point:

   • Diverging Focus: With inflation concerns on the backburner, market attention has pivoted to assessing the critical equilibrium between growth, elevated rates, and ongoing disinflation.
   • Currency Dynamics: The CHF, SEK, GBP are potentially in the line of fire, while MXN, NOK, CAD are emerging as potential frontrunners.

2. Probing Market Equilibriums and USD Valuations:

   • Spotlight on September PMIs: These indicators are bound to be market movers, with China’s release this week having a heightened focus.
   • Potential Dents in US Narrative: The ongoing political turmoil, UAW strikes, and a squeezing Financial Conditions Index (FCI) are potential soft spots in the US market stance.
   • Fading Momentum in MRSI’s USD Signal: This fading momentum is ringing alarm bells, showcasing the possibility of rapid market realignments if the interest in the USD wanes.

3. China’s Economic Indicators in the Limelight:

   • Bounce-back in China FCI and Growth Factor: Both indicators have shown a noteworthy upward adjustment recently, indicating shifts in economic outlooks.

In-Depth Analysis:

• For Forex Traders:

  • Strategic Reassessment Needed: The intricate market landscape necessitates a heightened level of caution and swift adaptability to new market currents for traders.

• For Investors:

  • Synchronized Risk Assessment: A careful watch on the varying market indicators and the evolving balancing act between growth, rates, and disinflation is pivotal for devising resilient investment strategies.

• For Policy Analysts:

  • Analyzing Market Paradigm Shifts: The market’s transitional focus from inflation to other economic variables indicates evolving policy considerations and implications that warrant closer examination.

Final Thoughts:
The explicit warning from TD Securities underscores the importance of nuanced analysis and strategic adaptability in the face of rapidly evolving market dynamics and potential vulnerabilities in the USD narrative. Keeping a close eye on unfolding economic indicators and market sentiments is crucial for navigating through the upcoming market tides effectively.

EUR/USD fell toward the 38.2% fibo retracement of the 0.9528-1.1276 rally and psychological 1.0600 level Monday and those supports may give way as bearish influences from German data and Fed and ECB rhetoric pile on.

German business sentiment worsened in September, reflected in the fall in the Ifo to 85.7 from 85.8 in August, fueling fears of recession in the euro zone.

ECB President Christine Lagarde said inflation is still expected to remain too high for too long but added that recent indicators point to further weakness in the third quarter and moderating service sector job creation.

Lagarde's comments could lead investors to expect a more dovish ECB in future.

A slight hawkish shift from Chicago Fed President Austan Goolsbee helped buoy U.S. yields US2YT=RR and the dollar.
Goolsbee said the risk of inflation staying higher is still the bigger risk and the Fed should have "100% commitment" to returning inflation to 2% and that the target will not change.

The data and central bank rhetoric combined to increase the dollar's yield advantage over euro.
German-U.S.
2-year spreads US2DE2=RR widened which helped EUR/USD hit a fresh 6-month low.

Bearish influences seem set to persist and could lead to a test of 1.0480/1.0515.

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Societe Generale (SocGen) foresees the US dollar (USD) maintaining its bid momentum in the upcoming week. However, they emphasize caution if this momentum exhibits any signs of slowing down.

Key Points:

1. Drivers for Continued USD Rally:

   • US Data: For the USD rally to persist, strong US economic data is vital.
   • European/Asian Data: Alternatively, weaker European or Asian data could sustain the USD's momentum.

2. Shifts in Central Bank Policy:

   • Not Universally Dollar Friendly: The expectations around central bank policies haven't consistently supported the USD.
   • Rate-pricing Dynamics: While UK and US rate-pricing has declined over the past week, the ECB's rate-pricing hasn’t shown the same trend.
   • Implications for Euro: Unless there's more optimistic economic data from Europe, ECB's potential rate hikes during a slowdown won't be favorable for the Euro. However, this scenario does set the stage for a possible pause or correction in USD's momentum.

3. Potential Market Movers:

   • European Commission’s Confidence Indicators: SocGen suggests that these indicators, set to release on Thursday, might influence the market sentiment.

4. Outlook Strategy:

   • Respecting the USD's Momentum: SocGen plans to respect the prevailing momentum of the USD.
   • Watchful for Signs of Weakening: If the USD's momentum shows any hints of waning, SocGen advises caution.

Analysis:

• For Forex Traders:

  • Trade Strategy: Traders should keep an eye on incoming US, European, and Asian data as potential drivers for currency movements. Given the momentum, maintaining a USD-biased position seems reasonable, but traders should remain vigilant for signs of slowing momentum and adjust accordingly.

• For Investors:

  • Risk Management: Monitoring central bank policy shifts, especially those from the ECB, is crucial. It's important to assess how rate-pricing dynamics across different regions could influence currency movements and broader market sentiments.

• For Policy Analysts:

  • Monitoring Policy Shifts: As central bank policy expectations can significantly influence currencies, tracking these shifts and analyzing their broader implications is paramount.

The Takeaway:
While the USD's momentum is anticipated to continue into the forthcoming week, Societe Generale emphasizes caution. They believe that the sustainability of this rally is contingent on economic data from the US and other major economies. Potential shifts in central bank policy expectations, particularly from the ECB, also hold weight. Keeping an eye out for signs of a weakening USD momentum is essential.

Goldman Sachs remains bullish on USD/JPY, predicting the pair to touch 150 by the end of this year and 155 in the subsequent six months. This outlook is underpinned by the bank's anticipation of sustained high rates, robust US economic growth, and a more dovish BoJ policy stance.

Key Points:

1. US Economic Outlook: Goldman Sachs expects continued strength in the US economy, characterized by "higher for longer" rates and robust growth. This positive US economic momentum contrasts with more muted expectations for other major economies, underpinning a scenario of US outperformance.

2. Negative Mix for the Yen: The confluence of resilient US growth, sustained high rates, and heightened cyclical pricing presents a bearish backdrop for the Japanese Yen, especially when juxtaposed against a strong US economic backdrop.

3. BoJ Policy Stance: Goldman's outlook factors in a dovish policy stance from the Bank of Japan, which is anticipated to further weigh on the Yen in the medium term.

Analysis:

• For Forex Traders:

  • Trade Strategy: Traders bullish on USD/JPY should consider potential entry and exit points, factoring in the 150 and 155 levels as significant milestones in the near to medium term.

• For Investors:

  • Hedging Strategy: Investors with exposure to JPY-related assets might consider hedging strategies to mitigate potential downside risks stemming from the Yen's anticipated depreciation.

• For Policy Analysts:

  • Monetary Policy Dynamics: The divergence between the BoJ's dovish stance and the relatively hawkish US outlook is key. Analysts should monitor how this disparity evolves and its resultant impact on currency dynamics.

The Takeaway:
Goldman Sachs' projection for the upward trajectory of USD/JPY is grounded in their assessment of US economic strength, interest rate dynamics, and the anticipated dovishness of BoJ policy. As the pair approaches the 150 mark and potentially 155 in the next six months, market participants need to stay abreast of economic indicators and central bank signals to inform their strategies effectively.

• AUD/USD hit 0.6467 overnight then traded 0.64135, NY opened near 0.6435

• USD/CNH rally to 7.3165 (D3), iron-ore DCIOc2 & stock Esv1 drops weighed

• Softer US yields US2YT=RR, AUD/JPY rally off low likely limited the fall

• AUD/USD holds just above the 10- & 21-DMAs but holds within recent range

• Techs lean bearish; RSIs falling & pair consolidating drop off July's high

• September's monthly bull hammer candle may be a concern for shorts however

• Chicago Fed national activity index, Dallas Fed mfg bus index are risks

• Comments from Fed's Kashkari (voter, hawkish) are an event risk in NY

• For more click on FXBUZ

• AUD/USD option dealers continue selling FX implied volatility (short vol)

• Comes despite broader risk aversion stemming from China economic woes

• Such trades benefit from low realised FX volatility and/or falling implied

• 1-month implied volatility eyes long term low at 9.0

• 1-month daily realised volatility suggests implied fair value just 7.1

• Should maintain pressure on option premiums unless mid 63's threatened

• Early Sep and 2023 lows are 0.6358, option barrriers/defence 0.6350/25/00

For more click on FXBUZ

Price action in forward looking FX options might offer clues about expectations from the Bank of Japan on policy and intervention as USD/JPY trades new 2023 highs in the mid 148's after the central bank left policy unchanged last week.

Implied volatility is the FX option market gauge of actual volatility expectations and traders will look to take advantage of any disparity between the two.
Implied volatility has fallen sharply since last weeks BoJ decision, with the benchmark 1-month contract now 7.7 from 9.2 prior - its lowest level since March 2022.
Three-month expiry includes December 19.
BoJ and sales threaten long term implied volatility lows from June at 8.8 versus 9.8 early Friday.

Risk reversals show the implied volatility premium for JPY calls over puts - the right to sell USD/JPY versus buy it.
The benchmark 1-month expiry is 0.75 and only 0.25 above June's 2023 low, while 3-month expiry at 0.9 is just 0.15 above 2023 lows.

FX option implied volatility and its downside strike premium would spike higher and reward holders if the BoJ were to change policy at future meetings or to intervene in the interim and hit USD/JPY, so the fact those levels are falling hard would suggest there's now a lower perceived risk of this happening, than there was before Friday's BoJ.

However, look out for any renewed demand for these options to signal a change in sentiment, which is more likely if USD/JPY threatens a break above 150.00.

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Adds charts

Traders have had a great year buying EUR/USD before it began to rise and then adding to bets during the surge from 0.9528 to 1.1276, before timing their exit well.

This very profitable period may have a big influence because those who made money are likely to return to the same bets now they have been afforded the levels to do so.

The EUR/USD uptrend which began at 0.9528 in September 2022 has been impressive while the correction from July's 1.1276 high hasn't.
It is yet to reach the target for a mininum technical correction at 1.0608 and that's very important.

A strong rise followed by a minor correction that resulted from profit taking has virtually halved the number of bets on rise with the uptrend intact.

In the process EUR/USD has flipped from overbought conditions toward an oversold situation, heightening the probability of a bounce, and resumption of the rally that could take EUR/USD much higher.
Topside targets are: 1.1283, 1.1489, 1.1695 and 1.2363.

Changes in betting leaves traders better prepared for the deterioration in economic data like Monday's IFO survey.

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• EUR/USD daily chart remains negative, expect a deeper dive

• 14-day momentum remains negative, reinforcing the overall bearish market

• The tenkan and kijun lines are negative aligned, adds to the downside bias

• Last Wednesday's 1.0737 (EBS) high should continue to limit the upside

• We are looking to get short at 1.0710, in anticipation for a bigger drop

• EUR/USD Trader TGM2334. Previous update nL1N3AY0FI

• Remains constructive buy momentum readings are over bought

• Daily RSI diverging bearishly and fourteen day positive momentum stretched

• We have a counter trend short play from 0.8689 for 0.8598 with a tight stop

• Key resistance at 0.8712, 200DMA, May last time above

• There is a late October cloud twist, 0.8593-97, which could drag on price

  For more click on FXBUZ

• Bear run holding despite over sold daily RSI (23 reading)

• Fourteen day negative momentum also looking stretched

• A trend low of 1.2231 in place but price hovering just above

• Weekly close below the 50-day moving average significant, currently 1.2325

• Rebound risk to 1.2352, a minimum correction off 1.2745-1.2231

• We lean bearish but stand aside for now

  For more click on FXBUZ

• -0.05% in a low-key 1.2238-1.2250 range on D3 - little market-moving news

• No tier-one UK, EU, or U.S. data today - risk appetite likely leads sterling

• Weak UK fundamentals and outlook to cap gilt yields and sterling

• Charts: 10 weeks of lower GBP/USD highs leaves the pound trending lower

• 5, 10, and 21 daily and weekly moving averages trend south, a bearish setup

• Downtrend targets a test of 1.2067, 38.2% retracement of the 2022-2023 rise

• Close above the 1.2435 200 DMA needed to end the downside bias

• Last week's 1.2230 low and NY 1.2285 high are initial support and resistance

For more click on FXBUZ

• AUD/USD at session low around 0.6425 as China related assets under pressure

• SSEC down 0.40%, USD/CNH back above 7.3000 and Dalian iron ore down 2.0%

• Evergrande uncertainty weighing on China stock market nL1N3B005H

• AUD/USD below the 10 & 21-day MAs - which come in at 0.6430/35

• Buyers are tipped ahead of 0.6400 with support at double-bottom at 0.6358

• Key support is at the double-bottom at 0.6358

• For more click on FXBUZ

• +0.05% after closing up 0.55%, as the BoJ maintained ultra-loose policy

• Divergence between BoJ and Fed yield outlook continues to underpin USD/JPY

• No Japanese data today - BoJ Gov Ueda to hold a news conference in Osaka

• Market eyes a 150 test, but will be wary of potential BoJ intervention

• Charts; daily Tenkan line, 5, 10 & 21 day moving averages all climb

• Positive setup - 147.24 21 DMA a base on the close of this move higher

• Topside bias while the USD/JPY continues to close above the 21 DMA

• Long-term target is a test of the 151.94 2022 trend high

For more click on FXBUZ

• EUR/USD trading around 1.0650 after closing -0.17% at 1.0644 Friday

• EUR/UDF dips Thursday-Friday held above key Fibo support at 1.0608

• The 38.2 of the Nov 2022 low (0.9528)/July 2023 high (1.1276) is at 1.0608

• A clean break below 1.0608 targets the 2023 low at 1.0516

• EUR/USD trending lower with the 5, 10 & 21-day MAs in a bearish alignment

• Resistance is at the 10-day MA at 1.0658 and 21-day MA at 1.0733

• A close above 1.0735 would suggest a bottom is in place

• For more click on FXBUZ

• AUD/USD opens 0.6440/45 after rising 0.39% Friday despite broad USD strength nL1N3AY226

• AUD gained against most currencies even though market was mostly risk-averse nL1N3AY27I

• AUD/USD was underpinned by AUD/JPY demand in wake of BoJ decision on Friday

• AUD/USD closed above 10 & 21-day MAs to give it a slightly upward bias

• The 10-day MA is at 0.6436 and the 21-day MA is at 0.6433

• AUD/USD has traded in the 0.6358/0.6522 range for over six weeks

• Key in Asia will be AUD/JPY flows, moves in USD/CNH & mood in equity markets

• For more click on FXBUZ

Repeat with no changes

• USD net spec short flips to long $4.567 in Sept 13-19 period; $IDX +0.51%

• EUR$ -0.67% in Sep 13-19 period, specs -11,099 contract, now +101,981

• Hawkish Fed posturing at Fed hold Wednesday pushed EUR lwr in current period

• $JPY +0.55%, specs -2,906 contract as pair hovers near 2023 highs

• Dogfight b/w bulls & bears as longs profit, new longs eye US-JY yield diffs

• GBP$ -0.87% in period, specs -12,491 contracts on less-hawkish BoE rate view

• Weak BoE data, recent hold hints at further GBP weakness

• AUD$ (+0.54%), $CAD (-0.9%) sold aggressively despite higher commod prices

• BTC +4.29% in period, specs -635 contracts; higher Fed rate musing stir long unwind

• Uptrend now finding buyers on dips toward the rising daily tenkan

• Back by 2023's highs slightly below upper 21- and 30-day Bollis

• Main topside targets 150 big fig by 10-day week Bolli, 2023's channel top

• Yet to see a new higher daily RSI high to signal a breakout

• That due to slow, low volatility grind higher since Sept. 6

• Uptrend's ok unless the 30-DMA and kijun, 146.72/45 last, are closed below

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• EUR/USD opened NY near 1.0635 after hitting a 6-month low overnight

• Pair rallied as US yield US2YT=RR drops extended after S&P PMI data

• US$ softened, USD/CNH fell to 7.2950 on D3 & equities ESv1 rallied

• EUR/USD hit 1.06715 on EBS, pair dipped & sat near 1.0655 late

• Comments from Fed officials help lift yields, US$ to weigh on EUR/USD

• Pair was down -0.09% late in the day and tech signals were mixed

• Monthly RSI falling but another daily long legged doji formed

• US PCE data Sept. 29 will likely be on investors minds next week

• For more click on FXBUZ

Danske Bank maintains a modestly bearish outlook on AUD/USD, forecasting the pair at 0.64 by year-end. The bank believes the Reserve Bank of Australia's (RBA) rate hiking cycle has likely concluded and anticipates the pair to follow a downward-sloping trajectory in the 12M horizon.

Key Points:

1. RBA’s Stance: The RBA held rates in September, concluding the rate-hiking cycle. Despite speculation of additional hikes due to August's employment growth, Danske Bank remains skeptical of any further materialization.

2. Commodity Prices Influence: The recent surge in commodity prices, particularly energy, is primarily supply-driven, casting doubt on its persistence. While it has bolstered Australian terms of trade, the sustainability of this support is uncertain.

3. Fed’s Monetary Policy Outlook: The Federal Reserve’s policy and the relative strength of the US economy play pivotal roles in shaping AUD/USD. While no further rate hikes from the Fed are anticipated, the buoyant outlook for the US economy could sustain higher US rates for a prolonged period.

Analysis:

• For Forex Traders:

  • Market Positioning: Traders should account for the possibility of a sustained bearish trajectory for AUD/USD, particularly in light of prevailing economic conditions and central bank policies.

• For Investors:

  • Investment Strategy: Investors should consider the forecast in framing their investment strategies and hedge against potential downsides in the AUD, with careful consideration of the evolving economic landscape.

• For Policy Analysts:

  • Central Bank Policies: Analysts need to focus on the ongoing dynamics between the RBA’s and the Fed’s policy stances and their implications on currency values.

The Takeaway:
Danske Bank’s projection for AUD/USD to reach 0.64 by year-end is based on the assessment of central bank policies and market conditions. The influence of transient commodity price movements and the potential continuation of higher US rates, coupled with the conclusion of RBA’s rate hiking, are pivotal elements underpinning this outlook. Market participants need to closely monitor developments in these areas to navigate the evolving market landscape effectively.