EUR

Optimism in the markets is thriving following a mild CPI and strong PMIs reported last week, coupled with encouraging second-tier data from yesterday (job confidence data is stabilizing, and the ADP weekly metrics show improvement over last month's unfavorable figures). There's a positive sentiment ahead of trade discussions with China, along with amicable interactions during Trump's Asia tour. Metals are stabilizing after a recent significant downturn, and a surge of AI-related deals is also supporting equity markets. I still question whether substantial progress will be made in trade negotiations, but unless talks collapse—which seems unlikely—markets might overlook this risk and continue to rise despite uncertainty. The Fed's announcement this evening should have a limited impact, as the absence of significant data is likely to lead to a rather standard message from Powell, with the main point of interest being whether quantitative tightening will continue.

In terms of risk, there's a mixed performance; I have closed my GBP short positions here (I believe everyone recognizes the UK's challenging situation, and it's a long wait until the Autumn Statement—can we truly expect a steady trend in the interim?). I've also significantly reduced my AUD shorts (I admit I was completely mistaken about the inflation report and seemingly about trade talks too), but at least those positions have balanced each other out! I remain long on some euros (though I've slightly reduced my holdings out of boredom and because of difficulties in breaking the initial resistance, plus it's corporate month-end today which might influence dollar demand) and I'm short on USD/JPY (I think the price movement looks good here given local reports suggest no hike is expected tomorrow). I also maintain a short position on EUR/SEK through options, as domestic news this morning adds to the overall narrative, though the price movement at these levels seems somewhat sluggish after the recent fluctuations.

I'm slightly let down by the euro's failure to advance, as I believed last week’s news was quite reassuring for the overall positive outlook. Today marks the value date month-end, so there is likely to be some dollar demand; thus, I reduced part of my long holdings yesterday to prepare for possible price movements today. I’m still inclined to hold onto the core bullish stance as long as we stay above 1.1550, but the reality is the market is rather uninspiring at the moment, and tactically navigating around the core seems to be the only way to remain viable.

GBP

Alert on fresh handle! The cross has traded on a handle outside of 86 or 87p for the first time since June in a notable move in sterling. I was somewhat surprised that it took so long for momentum to pick up, especially since the news was released a full 12 hours before the downturn began, but here we are. Upon reviewing Allan's analysis, he doesn't seem overly pessimistic, as there are still many variables that could lead to a closer to £20bn deficit, which the market would welcome at this point, though he recognizes the chance of a worse outcome. It felt as if technical factors aided the cross yesterday with increases in DHF interest through the two levels at 0.8750 and 0.8770, confirmed by the break overnight and the price action below the 200-day moving average (1.3241) in GBPUSD this morning. This suggests that the decline could persist, yet we have been reducing our position in the cross at these levels due to the typical volatility associated with month-end. The next level to monitor is 0.8865/75 in the cross, and 1.3150 represents the six-month double bottom in cable. GBP was the most sold currency for hedge funds yesterday (1.7z), and as noted, about 85% of the selling was against the EUR. We're closely observing the RM sector, which was only marginal sellers yesterday; if they start participating more actively, we will begin to increase our cross long positions again.

JPY

We are leaning towards a positive outlook on the Bessent tweet regarding "JAPAN'S WILLINGNESS TO ALLOW BOJ POLICY SPACE IS KEY," but we are taking a contrary stance on the Nikkei article that indicates a hold. It noted the expectation of at least two dissenting opinions, which is rather evident considering the outcome from September. We slightly reduced our USDJPY short positions yesterday due to the recent shift and the fact that today marks the end of month value date. We will assess our position tonight to determine our next steps, but it seems that the December pricing is undervalued here (approximately 16bp) as it becomes clearer that Takaichi is deviating from the strategies of the previous Abe administration. We don't anticipate much from the Fed; while the ADP weekly figures were somewhat better yesterday, I doubt this will alter the overall message – the debate around QT could lead to short-term reactions, with JPMorgan predicting its conclusion. The short-term support level to monitor is now at 151.50, while 153.30 continues to serve as a strong resistance level.