FX Update: Market hopeful on US stimulus and Brexit breakthroughs

Sterling – market continues to lean in favour of a breakthrough.
The market continues to look through UK Prime Minister Boris Johnson’s exhortations for the UK to prepare for a no deal Brexit, and has bid sterling up close to the range highs against the euro and GBPUSD is poking back above 1.3000 as of this writing. Boris Johnson is said to be likely to roll back some of the controversial portions of the Internal Market Bill that would have overridden portions of the Withdrawal Agreement in a bid to get a deal. That bill might not have cleared the House of Lords anyway. In any case to support the current sterling price, we need a headline touting a real breakthrough soon – more below on thoughts for how to trade either directional outcome for GBP.

The G-10 rundown

USD – the US dollar’s fate tactically linked to risk sentiment and stimulus prospects, with no stimulus deal a possible supporter, but still looking for USD weakness for the long term.

EUR – the new Covid-19 lockdowns and case counts across Europe making the bullish story for the Euro a tough sell – does the EU risk a double dip recession?

JPY – safe haven yields are creeping back higher again, eroding some of the support for the JPY here – but only a story if US yields from 10 years and longer pop to a new highs.

GBP – as noted above, the market continues to lean in favour of a breakthrough and we’re likely to see a considerable leap higher in sterling (2%?) on a clear agreement-in-principle headline as early as this week or next. GBP calls for expiry in less than four weeks one way to position for a breakthrough, with GBP puts beyond December 31 are more appropriate for a “No Deal” scenario

CHF – no real growth in sight deposits this and if safe haven yields rise further, fundamental support for CHF weakens, but having a hard time paying attention to CHF as long as we remain in 1.06.

AUD – the negative reaction to the RBA halted after a single day and needs to get on the move lower again soon if it is meant to sell off further as last week’s negative momentum is already fading. The latest RBA meeting minutes and an RBA speaker are up tonight.

CAD – USDCAD consolidated to the 1.3250 resistance area. CAD seems likely to coil passively with overall USD direction awaiting the US election outcome.

NZD – NZD firms after the strongest result ever for NZ’s Labour party in the election, giving it an outright majority. The AUDNZD is looking below last support levels ahead of the 200-day moving average near 1.0620. The pair is big-picture cheap at 1.0500.

SEK – EURSEK gapped higher overnight but is back where it came from and seems ready to work towards the range lows of the summer as long as risk sentiment stays stable despite growing concern of a double dip slow-down in the EU on the Covid-19 resurgence.

NOK – we like long-term EURNOK downside, but will have to steer clear of near term double-dip concerns in Europe and any new crude oil sell-off on the ongoing supply overhang. Local resistance in the 11.00 area here.

Upcoming Economic Calendar Highlights (all times GMT)

• 1230 – ECB President Lagarde to Speak
• 1400 – US Oct. NAHB Housing Market Index
• 1430 – Canada Bank of Canada Q3 Business Outlook
• 1545 – US Fed’s Clarida (Voter) to Speak on Economic Outlook
• 1900 – US Fed’s Harker (Voter) to Speak
• 2300 – Australia RBA’s Kent to Speak
• 0030 – Australia RBA Oct. Meeting Minutes
• 0130 – China Rate Announcement