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  • Writer's pictureMike Paterson

Fragile risk sentiment prevailing still

Friday 30 October 2020

Risk sentiment remains fragile with the usual suspects in play and heightened by the serious acceleration in COVID with equities and oil in retreat still after some serious tumbles again yesterday around the globe but FX markets have for the most part been quite resilient in recent hours.

Yesterday the ECB produced dovish tones as expected but no action, preferring instead to signal clearly that they will move in December. The question now for me is whether the recent EUR selling related to a dovish ECB is now satisfied given that its actions have just been pushed back. Still a few unknowns in the mix though.

Month-end flow forecasts have reversed and are now showing a moderate need to buy USD as per my tweet yesterday afternoon with the EUR and GBP now in slight sell mode adding to the risk-off USD demand. AUDUSD is reported to be the largest to be impacted and that is also being reflected in current price action. The signal change is largely driven by the recent sharp fall in equity markets which are down month-to-date in both the US and Europe and foreign investors’ needs to reduce hedges on US equities. Citbank conclude that given the USD demand already in recent sessions they do not expect a strong imbalance at today's London 4pm fix.

GBPUSD had another lively day with some srong sell interest to finally break down through those 1.2910-20 recent lows and test 1.2880. Buy-backs duly made in the retreat as per my tweets. Seemingly a base building now at 1.2900 but rallies limited too. EURGBP had its own roller coast ride again but held 0.9000 once more helped by the usual month-end demand but failing above 0.9060 again on the bounce with those large expiries at 0.9050 helping to cap and now dropping below 0.9020 as I type. I remain a dip buyer overall but respecting the current two-way business still.

No change in my basic view and I stay poised to sell GBP rallies as my preferred side and buy back in the dips as ever. Patience continues to be a virtue and entry level key as always. I still see dip demand though with markets and risk sentiment still in a state of uncertainty overall.Brexit remains the very big elephant in the room.

USDJPY remains range bound contained by large option interest still and more in play today at 104.00 and 104.50.EURJPY found a lower cap into the pivotal 122.50 area this time amid the softer risk and testing 121.75 this morning. EURUSD continued its retreat amid the dovish ECB and softer risk plays/USD demand to test 1.1650 support/bids.Pips banked in the retreat but staying core short from higher re-sells as per my tweets.

USDCHF has based at 0.9120 this time on the EURUSD retreat and now back up through 0.9150 with EURCHF finding bids at 1.0675-80 and SNB casting its shadow still.

AUDUSD has retreated again, this time from 0.7080 to post lows of 0.7012. Pips gratefully banked into the retreat with AUDJPY supply evident again but now testing 0.7050 again. USDCAD remains underpinned amid the softer risk/oil tones and dovish BOC but failed around 1.3385 but still holding 1.3280-00 in the retreat.

Markets are ever-fickle so don't forget to take contact me if there's areas that you might need some further help with.

I'm hoping the currently not so mighty Shrimpers can celebrate surviving yet another HMRC winding-up petition this week with a win tomorrow at the hallowed Hall where my cardboard cut-out now proudly sits albeit probably not as vocal as me !

Let's continue to be careful out there in all things. Staying safe must be our main priority still. Have a good week-end.

Interbank rates:  08.05 GMT

GBPUSD   1.2931

EURUSD   1.1682

EURGBP   0.9033

GBPEUR   1.1069

GBPAUD   1.8395

GBPCAD   1.7233

GBPJPY   134.90

GBPZAR   21.1137

GBPHKD   10.0220

USDJPY   104.31

USDZAR   16.3160

EURJPY   121.85

EURCHF   1.0681

EURHKD   9.0542

AUDUSD   0.7030

USDCAD   1.3326

USDCHF   0.9144

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