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EUR / USD

 

The Euro-zone PMI manufacturing index retreated marginally to an 8-month low of 58.5 from 58.6 with the services index dipping to a 6-month low of 54.7 from 56.4. There were further strong employment gains while upward pressure on costs remained strong with services-sector selling prices increasing at the fastest rate for close to 20 years. Euro-zone long-term inflation expectations hit 2% for the first time since 2014, maintaining pressure for a slightly more hawkish tone from the ECB, but the Euro was unable to make headway ahead of this week’s policy meeting.

The US PMI manufacturing index dipped to a 7-month low of 59.2 from 60.7 previously with a sharper lowdown for the output index. There were further supply-side difficulties with delivery times increasing by a record amount. The services sector, however, strengthened to a 3-month high of 58.2 from 54.9 the previous month. Input prices increased at the second-fastest rate on record while output charges increased at the fastest rate on record.

Fed Chair Powell stated that high inflation is likely to abate, but will last well into next year. He confirmed that the central bank is on track for tapering, but not raise rates and also commented that the bank needs to be patient. The overall comments suggested that the central bank is becoming more concerned over inflation pressures and the dollar gained some ground after the rhetoric despite no plans to raise interest rates. Overall, the Euro retreated to near 1.1620 before stabilising later in the session.

CFTC data recorded a decline in short Euro positions to 12,000 from 18,000 the previous week. Markets were struggling for sustained direction with the dollar losing ground on Monday as the Euro strengthened to 1.1660 given expectations that real rates will remain negative.

 

JPY

 

Chinese real estate company Evergrande stated that it could not guarantee that financial obligations will continue to be met with little progress in asset disposals.

San Francisco Fed President Daly stated that inflation numbers are high and have lasted longer than expected. She did, however, also comment that raising rates just on the forecast of higher inflation could cost the economy and jobs. There was a net decline in longer-term bond yields and the dollar dipped to lows below the 113.50 level.

CFTC data recorded a further sharp increase in short yen positions to near 103,000 contracts in the latest week from below 77,000 the previous week. This was the largest short yen position for 34 months, maintaining the potential for a sharp shake-out in short positions if there is a shift in sentiment and weaker equities.

US Treasury Secretary Yellen remained confident that inflation would remain under control with a gradual reduction next year.

Risk appetite held steady on Monday amid more positive news from Evergrande with the dollar retreating to near 113.50 against the yen with the Euro around 132.40.

 

GBP

 

The UK PMI manufacturing index strengthened to a 2-month high of 57.7 for October from 57.1 previously and above consensus forecasts of 56.1. The services-sector index also strengthened to a 3-month high of 58.0 from 55.4 previously and well above expectations of 54.5 as new orders increased at a faster pace.  Manufacturing output was hurt by supply shortages while new orders increased at a faster rate. Manufacturing costs increased at the fastest rate for close to 20-years while services-sector costs increased at the fastest rate since the survey began in 1996. Sterling strengthened after the data but struggled to sustain any traction.

There were reports that the EU would take a tough stance on Brexit talks which served as an excuse to take profits on long Sterling positions with a dip towards 1.3750 against the dollar while the Euro strengthened to above 0.8450.

CFTC data recorded a switch to a small net long Sterling position from a short position of around 12,000 the previous week. Following the latest Brexit discussions on Northern Ireland, the UK government stated that talks had been constructive, but that substantial differences remain. There were expectations that Chancellor Sunak would make substantial spending commitments and Sterling edged higher on Monday, but was held just below 1.3800 against the dollar with the Euro around 0.8460.

 

CHF

 

The Swiss franc maintained a firm underlying tone on Friday with the Euro settling around 1.0670 while the dollar dipped to test the 0.9150 level.

The Swiss currency gained net support from concerns that longer-term inflation expectations in the US and Europe would reinforce longer-term demand for the franc.

The franc edged lower on Monday as risk conditions held firm and markets were also wary over the threat of National Bank intervention with the ECB rhetoric this week also an important element. The Euro edged higher to 1.0675 while the dollar was held close to 0.9150.

Technical Levels 

Contents

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