China's faltering economy sets the mood

The G-10 rundown

USD – The government shutdown is now the longest ever and must be solved at least partially in coming days as major airports are beginning to shut down terminals and bills and wages are not being paid. The overarching question is the degree to which the USD is being managed lower and whether the confidence in global markets this has inspired can extend. USDCNY is the chief driver of USD direction at the moment, in my estimation.

EUR – the reversal of the 1.1500 break is an ugly development for bulls, and must be overcome quickly in the coming session or two or we risk getting bogged down in the lower range again.

JPY – yen strength returns on the weak risk sentiment at the beginning of the week. Highest beta for JPY pairs in the JPY/risk crosses and versus EM.

GBP – sterling bid at the margin on hopes that Brexit process is derailed and ends in no change to the status quo – but this can go anywhere and may just shift to a chaotic endgame that stretches over the horizon we risk a delay and the any or both of elections or a referendum.

CHF – the rally last week, likely correlated with the EURUSD move, was a red herring and has retreated on the setback to risk sentiment as the week gets underway. Likely to see continued correlation with EURUSD? To the downside, 1.1200 is pivotal.

AUD – as we have noted above, AUDUSD likely to maintain the highest correlation with the ongoing twin impacts of the dovish downshift from the Fed and CNY strengthening. Still, let’s not forget the concerns for the domestic credit crunch in Australia.

CAD – USDCAD finally bounced and for the moment looks passively correlated with oil markets and risk appetite.  

NZD – AUDNZD support in the 1.0550 area hanging in there for now and New Zealand short rates have more aggressively slipped lower recently – and are now yielding 165 basis points, 10 bps below the Reserve Bank's official cash rate and 15 bps below Australia’s 2-year paper. Still long-term supporter of upside outlook there. 

SEK – core CPI coming in a touch hotter than anticipated, but massive decreases in Swedish housing prices last week caught our attention and set up the idea that the Riksbank is only normalising because QE and NIRP don’t work, not because the desired inflation and growth normalisation outcomes have been achieved. The proposed new Löfven government coalition with passive support from the traditional centre-right opposition is not necessarily good news for Sweden as it is a spin on a German-style grand coalition that risks only emboldening the populists if the growth trajectory weakens from here.

NOK – oil prices correcting at a pivotal level have NOK on the defensive again as EURNOK couldn’t quite make the plunge through the 9.75-80 pivot zone.

Upcoming Economic Calendar Highlights (all times GMT)

1000 – Eurozone Nov. Industrial Production
1330 – Canada Dec. Home Price Index