EUR

The government shutdown has officially ended, bringing some optimism for upcoming data releases next week. The dollar is showing softness, influenced by several factors: renewed market euphoria with the government reopening, buoyant equities, expectations of weak September data potentially leading to a Fed rate cut in December, and comments from Hassett suggesting a larger December cut. Additionally, Bostic’s retirement opens speculation about the appointment of another dovish Fed Governor, fueling market sentiment—even if unconfirmed. The USDCNH breaking through 7.10 has also acted as a further trigger.

This week, I’ve been somewhat cautious, maintaining shorts on GBP, supported by another round of weak UK data this morning, while holding longs in NZD, which have started to perform well. I added to this position earlier today following the rejection of the AUDNZD extension overnight. Emerging markets have been challenging to engage with; however, I sold USDZAR yesterday and earlier today following a positive MTBPS outcome. It seems the market is losing its footing here, which could accelerate further.

The euro continues its upward grind, though I’ve hesitated to re-enter due to the divergence between dollar bearish sentiment and our flows (notably, significant tickets have been sellers). The ZEW and Sentix data have also held me back. The break of 1.16 this morning, driven by broader dollar moves, triggered some chasing, but stronger resistance lies around 1.1660 where the 50- and 100-day moving averages converge. For now, I remain neutral but may need to chase if this level breaks next week.

GBP

GBP remains under pressure with more poor UK data, some of it affected by the JLR debacle, adding to the sour sentiment on UK prospects. While BoE pricing hasn’t shifted much, the UK CPI release next week will be pivotal. Concerns are also emerging about the stability of Starmer and Reeves post-delivery, adding to the bearish outlook for GBP crosses ahead of the Budget event. Hedge funds continue to reduce GBP shorts (now six consecutive weeks), while real money accounts have sold GBP in three of the last four weeks. Yesterday’s fresh cycle highs in EURGBP broke resistance at 0.8865/75, with the next level at 0.8920/30. Cable remains mixed, influenced by the CNH impulse this morning. Short-term support lies at 1.3085/95, but I’m looking to add closer to 1.32 with the 200-day moving average in mind (1.32785).

JPY

Attention now shifts to the timing of upcoming data releases. October data appears to be off the table per the White House, with estimates for September’s NFP starting early next week. USD has been offered this morning, particularly after USDCNH broke through 7.10. USDJPY is struggling to participate, driving fresh highs in EUR/CHFJPY as we approach key round numbers (180 and 195). It’s difficult to see what could halt this in the current risk-on environment. Franchise inquiries yesterday focused on MoF dynamics after USDJPY touched 155. Despite rhetoric, action seems distant given that JPY short positioning isn’t at extreme levels seen in past cycles. The MoF likely recognizes this and would need external actors to generate JPY buying. If they cannot achieve this by pressuring a stretched market, weaker US data could prompt engagement. As USDJPY approaches 157, keep this in mind for potential US data misses. Beyond the 155 round number, the next topside level is 156.80/90.