Market Overview

Currency Markets

The US dollar is trading softer, generally within the ranges established yesterday. An unexpected rise in Japan’s unemployment rate has weighed on the yen, which is the sole G10 currency weaker against the dollar today. The subdued greenback has resulted in the Canadian dollar underperforming, showing only marginal strength. Sterling is also among the weaker currencies, following the final composite PMI for September, which slipped to just above the 50 boom-bust threshold. Most emerging market currencies are firm, with the JP Morgan and MSCI emerging market currency indices gaining between 0.2% and 0.3% for the week.

Equity Markets

Global equities continue their upward momentum. In the Asia-Pacific region, Hong Kong was the only major index to decline, while Japan’s primary indices rose over 1%. Despite US pressures to relocate half of its semiconductor manufacturing capacity, Taiwan’s stock market advanced 1.45%, recovering roughly half of this week’s gains. South Korea’s Kospi had a notable rally of 2.7% today and is up 2.25% for the week.

Europe’s Stoxx 600 is rising for the sixth session in a row, marking its strongest week in five months with a near 2.8% gain. US index futures are also trending higher.

Fixed Income and Commodities

Benchmark 10-year yields in Europe are mixed, apart from the UK 10-year gilt yield, which has fallen by a couple of basis points. The US 10-year Treasury yield is steady, edging up one basis point to 4.09%, lingering around the midpoint of its recent range.

Gold remains robust, although retreating slightly from yesterday’s record high near $3897, extending its winning streak to a seventh consecutive week. Meanwhile, November WTI crude oil prices have stabilized after falling more than 2% yesterday, nearing a four-month low around $60 per barrel.

Currency Analysis

US Dollar (USD)

Yesterday, the Dollar Index ended a four-day decline after retracing nearly half of the gains made post-Fed announcement, reaching a three-day high of approximately 98.15. Monday’s peak was near 98.20. However, there has been no sustained buying momentum today, with the index holding below 98.00 and dipping to around 97.70 during European trading.

The spotlight is on today’s September employment report, although the ongoing US government shutdown continues to disrupt the release of official economic data. Nonetheless, market participants are increasingly relying on private sector indicators—from industrial orders and transportation data to surveys like the University of Michigan’s consumer sentiment and the Conference Board’s confidence metrics—to gauge economic conditions. A range of Federal Reserve regional surveys also provide timely insights unaffected by political impasses.

Today’s calendar includes the final services and composite PMIs along with the ISM services index. Preliminary PMI figures showed slowing growth in services and overall output, moving to three-month lows at 53.9 and 53.6, respectively. The ISM services index is forecasted to soften modestly from 52.0 to 51.7, with the employment sub-index remaining at a contractionary level of 50 since June.

Euro (EUR)

The euro dipped below the $1.17 mark for the first time in three sessions yesterday, touching a new weekly low slightly beneath $1.1685. Resistance emerged near $1.1780 on Wednesday, aligned with the 50% retracement of its post-Fed pullback. Nearly €3 billion in options expired higher yesterday.

Today, the euro is trading within a narrow band between $1.1715 and $1.1745. The final flash PMIs are expected to confirm the steady but subdued expansion, with the composite PMI rising marginally to 51.2 from 51.0 for the fourth month in a row, marking the highest level since May 2024. The Q3 average composite PMI of 51.0 is the strongest quarterly reading since Q2 2024.

Meanwhile, France’s industrial output for August fell sharply by 0.7%, underperforming consensus expectations of a 0.3% gain. July’s data was also revised upward from a 1.1% decline to nearly flat (-0.1%), somewhat mitigating the impact. Eurozone producer prices declined by 0.6% year-over-year in August—the first negative reading this year—following a 0.2% increase in July.

Reports indicate the EU may raise steel tariffs to 50%, matching US levels. The current temporary levy of 25% above quotas is set to expire next year.

Chinese Yuan (CNY)

The US dollar has held a narrow range against the offshore yuan (CNH) around 7.1225-50 for the last three sessions. During broad USD strength in the North American morning, it briefly reached 7.1370, near Wednesday’s high around 7.14, but has remained close to the 7.13 level today. Overall, the greenback remains confined to the range established on Monday (approximately 7.1185-7.1430). Mainland Chinese markets will remain closed until next Thursday, October 9.

Japanese Yen (JPY)

The dollar found support near 146.60 yen on Wednesday and Thursday, slightly above the trendline connecting this year’s lows from April and early July. While the trendline was briefly breached intraday on September 17 after the Fed’s rate cut, the dollar settled above it. Yesterday’s session saw a recovery to around 147.50, and today the dollar has advanced slightly further above 147.80, close to the 20-day moving average.

The 38.2% retracement of the decline from last Friday’s high (~149.95 yen) sits near 147.90. Earlier today, Japan reported an unexpected rise in August’s unemployment rate to 2.6%, the highest since March 2023, up from 2.3%. Concurrently, the job-to-applicant ratio declined to 1.20, the lowest since 2022.

Final PMI data showed little change from preliminary readings; the composite PMI eased slightly to 51.3 in August (from 51.1 preliminary), maintaining a strong quarterly average of 51.6—the best since Q3 2024.

The ruling Liberal Democratic Party is scheduled to select a new leader tomorrow, who will become the next prime minister. Koizumi, son of a former prime minister, currently leads but is unlikely to secure a first-round majority. He faces a probable runoff against Takaichi, a conservative female candidate and last year’s runner-up to the incumbent.

British Pound (GBP)

Following a rebound from last week’s low near $1.3325—the lowest level since early August—sterling appreciated by roughly two cents to approach last week’s high around $1.3535 before stalling midweek. This resistance coincides with a 50% retracement of sterling’s losses since the Fed’s September 17 rate cut.

Sterling breached Wednesday’s low near $1.3435 in North American trading yesterday, falling nearly to the $1.3400 mark. The week’s low remains near $1.3390 set on Monday. Today, the pound is trading quietly within the $1.3430 to $1.3465 range.

The UK’s final PMI readings were revised lower, with the composite score dropping to 50.1 from an initial 51.0 and the August peak of 53.5. This is the lowest reading since April. The UK economic calendar remains light next week.

Canadian Dollar (CAD)

Despite a softer US dollar environment this week, the Canadian dollar is underperforming within the G10 group. The USDCAD pair reached 1.3985—exceeding last week’s high and marking the highest level since May—approaching the 200-day moving average, which it has not crossed since April.

The 1.4000-1.4020 range has technical significance, with little chart resistance until the 1.4150-1.4160 area. Canada will release September services and composite PMIs; the composite reading has not surpassed 50 since last November, oscillating between slight gains and losses since April.

August’s composite PMI moderated to 48.4 from 48.7, representing the highest level since January. Market-implied rates suggest about a 54% probability of another rate cut this month and more than a 90% chance of easing by year-end.

Australian Dollar (AUD)

The Australian dollar declined below the $0.6600 level before the expiration of a sizable A$1.9 billion option at that strike yesterday. A similar option position is set to expire today. The low reached was just above $0.6575, coinciding with the 50% retracement of last week’s bounce from near $0.6520.

The AUD is presently trading near $0.6600, with minimal intraday movement. Australia’s final services and composite PMIs slightly upgraded the composite reading to 52.4 from 52.1, following August’s robust 55.5—the highest since before the pandemic.

Mexican Peso (MXN)

On Wednesday, the dollar recovered from 18.24 to above 18.39 MXN against the peso, extending yesterday to nearly 18.5160, a level last tested in July and August. Last week’s high stood near 18.5640.

Mexico’s Bolsa stock exchange hit record highs on Wednesday but reversed sharply, closing below recent lows and forming a bearish key reversal. Continued selling pressure likely contributed to peso weakness, with the USD/MXN pair holding below 18.45 today and dipping briefly under 18.40 during European trading.

Auto and truck sales in Mexico dropped 5.6% in September, though they remain marginally above September 2024 levels. Through Q3, domestic vehicle sales are effectively unchanged compared to the first nine months of last year.

Disclaimer

This analysis is provided for informational purposes only and does not constitute investment advice.