Market Commentary: November 1 – November 7

Business Travel Notice

Commentary updates will be paused for the remainder of the week due to business travel commitments. The next comprehensive weekly update will be published on November 8. Wishing success to all market participants.

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Market Overview

Global markets experienced a pronounced risk-off environment today, characterized by sharp declines in equities and a retreat in bond yields. The US dollar largely advanced against major currencies, while the Japanese yen showed resilience after verbal intervention and softer Treasury yields alleviated some dollar strength. Approximately half of tracked currencies depreciated by 0.5% or more, perpetuating their recent downtrends. Emerging market currencies broadly weakened, with the Mexican peso notably leading losses in Latin America, slipping nearly 0.75%.

Asia-Pacific equity markets were heavily sold off, with Japan’s Nikkei falling 1.75% and South Korea’s Kospi declining 2.4%, marking the steepest losses in the region. Europe’s Stoxx 600 index plummeted 1.5%, recording its largest one-day drop since early August. US futures for the S&P 500 and Nasdaq were off by over 1%, signaling a probable gap lower at the open.

In fixed income, 10-year benchmark yields eased modestly in Europe, with the UK Gilt yield dropping close to two basis points—the largest decline in the region. The US Treasury 10-year yield decreased by just over two basis points, dipping below 4.09%. Gold traded quietly within yesterday’s range, marginally down by less than $10, while December WTI crude oil retreated from recent highs near $61.50, hovering around $60.

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US Dollar Dynamics

Today marked the longest recorded US federal government shutdown, with no resolution in sight, maintaining a void in government data releases. Market focus remains on tomorrow’s ADP employment numbers and ISM Services report. Futures markets currently imply roughly a 66% probability of a Fed rate cut next month. The Dollar Index has gained momentum over the past four sessions, approaching the early August resistance near 100.25 and the 200-day moving average around 100.40—a level not breached since March. A consolidation zone has formed near 99.70.

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Euro Area Currency Developments

The euro extended its decline for a fifth straight day, breaking below the $1.15 threshold for the first time since early August. It settled beneath its lower Bollinger Band for the second session in a row, currently positioned slightly above $1.1510. Today, options expiring total approximately €1.1 billion at the $1.1525 strike. A sustained break under $1.15 opens the door for testing lows from late July and early August in the $1.1390–$1.1400 range. The economic agenda intensifies tomorrow, featuring final services and composite PMIs alongside German factory orders and French industrial output data.

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Chinese Yuan (CNY) and Currency Policy

The US dollar rose against the offshore yuan for a fifth consecutive session, breaching CNH7.1320 briefly—its strongest level since October 17—before retreating slightly to the CNH7.1280 region. The People’s Bank of China set the reference rate at CNY7.0885, mildly higher than yesterday’s CNY7.0867. Tomorrow’s calendar includes the RatingDog (formerly Caixin) services and composite PMIs, although the managed exchange rate appears largely unaffected by high-frequency data. Meanwhile, debates continue over the implications of recent US-China leadership meetings. From a policy perspective, US tariffs on Brazil and India presently exceed those on China, reflecting complexities in trade and currency dynamics.

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Japanese Yen (JPY) and Intervention Risks

The US dollar inched closer to JPY154.50 before sharply retracting following cautionary remarks from Finance Minister Katayama, who reiterated the government’s heightened vigilance over foreign exchange movements. This verbal intervention helped push the dollar down from yesterday’s lows around JPY153.95 to near JPY153.30 during European hours, where some buying interest emerged. The dollar has recovered over 75% of the depreciation seen in the first four months of the year but remains above the 20-day moving average near JPY152.50.

Although verbal interventions by the Ministry of Finance (MOF) continue, actual intervention appears less likely given the Bank of Japan’s reluctance to tighten monetary policy and the new government’s tilt toward fiscal support. The diminishing effectiveness of verbal warnings, alongside potential US Treasury criticism, complicates Tokyo’s strategy on exchange rate management.

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British Pound (GBP) Update

Sterling traded in a confined range between $1.3110 and $1.3150 yesterday, closing below last Friday’s settlement. It has weakened further to approximately $1.3060 today, reaching a seven-month low amid concerns over the upcoming budget announcement. The lower Bollinger Band lies just below $1.31, with proximate support levels in the $1.2990–$1.3000 region. Market attention focuses on Thursday’s Bank of England meeting, where swaps indicate roughly a one-third chance of an interest rate cut—higher than the 19% probability suggested by Bloomberg’s economist survey.

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Canadian Dollar (CAD) Performance

Despite the US dollar’s overall strength, the Canadian dollar underperformed among the G10, depreciating about 0.35%. Since coordinated rate cuts by the Bank of Canada and the US Federal Reserve last week, the CAD has declined approximately 0.75% versus the greenback, matching the Australian dollar’s losses. The dollar tested a six-month high around CAD1.4080 yesterday and remains close to these levels. Options worth $620 million at CAD1.4110 expire today; a break above this level could target CAD1.4150–1.4165, aligned with the February low and the 50% retracement of this year’s USD depreciation.

The Canadian merchandise trade report scheduled for today is delayed due to the US shutdown, also impacting the timing of Q3 GDP figures. Finance Minister Champagne will present the upcoming budget, which is expected to prioritize enhancing Canada’s competitiveness amid rising fiscal deficits projected to widen from 1.6% to nearly 3% of GDP next year. The ruling Liberal Party holds a minority by three seats.

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Australian Dollar (AUD) and RBA Outlook

The Reserve Bank of Australia maintained its cash rate at 3.60% as widely anticipated. The futures market attaches roughly a 25% probability to a December rate cut, essentially unchanged. Despite a technical “outside day” pattern appearing yesterday, the AUD closed near its previous close after briefly breaching the five-day low just under $0.6520. The currency has dropped below the 61.8% Fibonacci retracement of the rally from last month’s low (~$0.6510), now approaching support around $0.6490. Options totaling around A$830 million at $0.6500 expire Friday, with nearby support seen between $0.6470 and $0.645. Australia is scheduled to release September’s goods trade balance on Thursday, with recent data showing a reduction in the trade surplus and weakening export growth contrasted by increasing imports.

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Mexican Peso (MXN) and Emerging Market Currencies

The Mexican peso rallied nearly 0.4% against the US dollar yesterday—its best performance in over two weeks—despite softer manufacturing PMI data and weaker worker remittance inflows. The peso, alongside the Chilean peso and Brazilian real, ranked among the top emerging market performers. The USD-MXN pair remained within last Thursday’s established range (~MXN18.4515–18.6045), but the risk-averse mood pushed it towards MXN18.65 today, the strongest level since September 11. Early European session saw the greenback retreat to about MXN18.61. Banxico’s recent 25 basis point rate reduction last Thursday may temper aggressive peso appreciation.

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_Disclaimer: Market conditions and opinions expressed herein may change without notice. This analysis is intended for informational purposes and should not be considered financial advice._