FX Update: Dollar index near cycle highs – where is the policy response?

The G-10 rundown

USD – the strong treasury auction with solid participation from indirect bidders suggests confidence in US paper and supports USD at the margin. Next week is a key US economic data week and attention may turn away from liquidity issues briefly once we get beyond quarter end.

EUR – more noise on fiscal as the former Bundesbank head Axel Weber supported ECB President Draghi’s call for fiscal stimulus, saying that “it is high time for the fiscal policy to change” and the French finance minister late yesterday said that the sooner Germany moves forward with an investment package, the better.  EURUSD traders don’t see the Germans changing their minds just yet.

JPY – the JPY going nowhere in a hurry as we face the long wait for the Bank of Japan’s likely new policy push at its late October meeting and yields and risk appetite are not throwing off any strong signals at the moment.

GBP – Sterling weakened sharply this morning as the BoE’s Saunders was out saying that even in the event of avoiding a no-deal Brexit, the BoE may need to cut rates. Saunders is considered one of the more hawkish BoE members.

CHF – the EURCHF price action a bit heavy here as we have only closed below 1.0850 a couple of times previously.

AUD – market leaning on highs odds that the RBA will cut rates cut at next Tuesday’s RBA meeting, but the price action in AUDUSD recently moribund as we await the direction of the US-China trade relationship next month.

CAD – Let’s revisit USDCAD on the other side of 1.3325 or below 1.3200 – until then seeing current pricing of CAD as rather optimistic unless we see a major break higher in global risk appetite next month on US-China trade policy developments or other.

NZD – the weakest New Zealand consumer confidence reading since late 2015 out overnight and could suggest that AUDNZD has already based recently in the 1.0700 area (RBA important for that pair next week)

SEK and NOK – price action is moribund as we await macro- and especially policy signals of a fiscal nature from Europe. The Norway credit growth indicator nudged to a new cycle low at 5.5% year-on-year growth, with a similar indicator for Sweden dropping under 5% over the last  couple of months and suggesting a recession risk incoming.

Upcoming Economic Calendar Highlights (all times GMT)

• 0900 – Euro Zone Sep. Confidence Surveys,
• 1230 – US Fed’s Quarles (Voter) to Speak
• 1230 – ECB’s Lane to Speak
• 1230 – US Aug. PCE Inflation
• 1230 – US Aug. Durable Good Orders
• 1400 – US Sep. University of Michigan Confidence