FX Update: JPY is making its move, key trigger levels approaching in the crosses

USDCAD and Bank of Canada
An interesting article from Bloomberg this morning discusses the Bank of Canada’s government bond purchases and how it has been forced to go hunting for securities to buy around the very recently issued bonds as its purchase rate is challenging to maintain. This has gotten the BoC in hot water with the PM Trudeau’ political opposition, which doesn’t want the bank to be effectively providing the support for the government’s fiscal agenda. This is a signal of the unavoidable politicization of central banks once the policy rates reach zero and fiscal is the only real game in town – and must be supported by the central bank acting as auxiliary. Central banks are effectively independent no more. As well, CAD is on offer this morning as the general weight of Covid-19 news weighs on market sentiment and perhaps as that news and Libya’s oil production expansion are weighing on oil prices. USDCAD is suddenly back close to the upside trigger area around 1.3250. If sentiment and oil prices remain weak and if the Bank of Canada proves the expected non-event, USDCAD could pop back toward the 1.3400+ highs quickly in coming sessions – perhaps even testing toward the 1.3540+ 200-day moving average.

EM notes
The Turkish lira situation getting somewhat dire, as USDTRY rips above 8.25 this morning and the war in Azerbaijan over the Armenian enclave there turns hot again. The backdrop now far less friendly in terms of global risk sentiment – train wreck risk has notched higher. Have been scratching my head at the ZAR resilience, but weak sentiment is finally beginning to wear on ZAR – after touching the key post-srping low in USDZAR, the pair is sharply higher this morning. And USDRUB is up sharply after a Kremlin aide said the Russian Central Bank needs to continue cutting rates as long as inflation is south of 4% as the government has already done “massive fiscal”.

The G-10 rundown

USD – the US dollar perking up here. Not entirely sure if this has to do with simple weak risk sentiment and the fact that the epicentre of Covid-19 concern is in Europe, but there is an argument for a weak US dollar if the Senate fails to go to the Dems – a split Congress would mean

EUR – the long shadow of Covid-19 continues to hang over the outlook – ECB may feel forced to bring forward its announced QE programme expansion at the meeting tomorrow or raise the rate of purchases as a signal that it is doing all it can.

JPY – the yen the centre of attention as long as USDJPY trades below 105.00 on the risk that the range to 100.00 is opening up and trading ranges in higher beta JPY crosses could be set to spike suddenly. A further reversal in long US treasury yields could continue to pump fuel into this broad JPY rally.

CHF – time is too precious these days to spend it on the franc. CHF a nonfactor within 1.06-1.09 range in EURCHF.

GBP – our thesis on a Brexit talk breakthrough is increasingly that this may prove a damp squib, given the Covid-19 backdrop and the UK’s external deficits. The Irish foreign minister seems to suggest a deal possible in up to two weeks’ time, although today could gives us a status check as the EU’s Barnier theoretically set to wrap up his stay in London today (we were told at beginning of this week.)

AUD – note entirely sure why it took the Aussie so long to finally back down this morning as the CNY has been consolidating sharply for days, risk sentiment is worse than wobbly. Australia’s CPI did beat by 0.1% in Q3 overnight. Watching for AUD volatility to possibly pick up suddenly if AUDJPY dumps through what should be a technical trigger level for order flow below 74.00.

CAD – as noted above, CAD likely passive to developments in oil markets and risk sentiment on the

NZD – the kiwi has been on a blistering run lately and is finally pushing back lower as AUDNZD has interacted with the 200-day moving average. NZDUSD looks a tactical sell as long as market sentiment continues to wobbly, but needs to work all the way back toward the 0.6500 area for a more structural downside threat on the chart.

SEK – EURSEK managed to work all the way below 10.30 this morning, a remarkable performance giving the SEK-hostile backdrop of mounting Covid-19 concerns for Europe and weak risk sentiment. This morning finally proved to much and we may have just put in a local support level for EURSEK this morning.

NOK – the 200-day moving average in EURNOK appears made of rubber – and nothing to like for the krone in today’s weak risk sentiment drag and weak oil prices. Another approach of 11.00 may not survive if the situation deteriorates further.

Upcoming Economic Calendar Highlights (all times GMT)

• 1230 – US Sep. Advance Goods Trade Balance
• 1400 – Canada Bank of Canada Decision
• 1500 – Canada Bank of Canada Governor Macklem Press Conference
• 2100 – Brazil Selic Rate
• 2200 – US Fed’s Kaplan (FOMC Voter) moderating a panel discussion
• 0030 – Australia Q3 NAB Business Confidence