Can't take your eyes off Italy, the EU, and the UK! - Strategies for October 10 -

◎Holding positions and strategies

Short position in EUR/USD is held. We added a short position at “1.1460.” We are considering a stop around “1.1575” for the added position. Basically, for the core position we are thinking long-held, but the euro selling factors largely come from Italy’s budget. So if the budget bill passes smoothly, we will close all positions. I would like to consider euro long again.

EUR/USD Daily chart

EUR/USD Hourly chart

AUD/USD Short position is held. I expect a rebound to the 61.8% Fibonacci level on the hourly chart. If it breaks above that, I would consider closing. However, as noted today, there are many negative factors such as the forex reports and yuan depreciation. Therefore, I am keeping AUD/USD as long.

AUD/USD Daily chart

AUD/USD Hourly chart

Other, focusing on the Pound. It may be fine to aim for a short-term pullback after yesterday’s negative headlines, but the basic view is long. If there is agreement on the Ireland issue or Brexit, the Pound could rally, but even if there isn’t, it’s unlikely to fall sharply. Therefore, when a long-term factor appears, I would enter if there is a good opportunity. The key is viewed within a purple upward parallel channel.

GBP/JPY Daily chart

GBP/JPY Hourly chart

◎Today's focal points 

1)Euro weakness and Italy’s budget bill

Recently, Italy’s budget bill has dominated the spotlight. Yesterday, the long-term Italian yield stayed high, causing the euro to rebound from its lows and retrace. However, the upside remains heavy, and I expect further probing of the downside.

Yesterday the budget bill was due by the 15th, with reports that it may not be approved by Italy’s parliament. Also, Italian Finance Minister Tria made a cryptic remark: “If a financial crisis occurs, Draghi/EBC President will take action.” The true meaning is unclear, but it’s becoming complicated with turmoil inside Italy and between Italy and the EU. In the current situation, it’s difficult to actively buy euros. If such statements escalate or provoke each other, I think a euro-selling strategy would be prudent.

EURO fluctuates wildly around Italy budget! What’s the issue? Explained

2)UK data and Brexit dynamics

The UK has notable data releases today, but the focus is on key Brexit-related statements. Both sides seem to feel time pressure. Yesterday there was talk that some agreement could be reached by the 15th, and the pound surged. Yet, the telltale pattern is negative headlines. The source papers report quotes, but who said what and to whom is not always clear. Also, both sides are aligning in many places. Statements by influential figures can vary. Be cautious with the information. A strategy could be to sell the pound on negative headlines and consider closing at full retracement as one scenario.

Ireland border issue — The toughest Brexit negotiation

3)Yuan depreciation and the FX Report

The yuan continues to weaken. There are even comments from China about the yuan’s depreciation. The US FX report is due soon (early as today, though weekend is likely). The report is expected to list China as a currency manipulator or include it on a list, which is already priced in. The focus is on how the US will respond, possibly influencing dollar strength and further yuan weakness if additional tariffs are imposed.

USD/CNY Daily chart

4)G20 Financial Ministers and Central Bank Governors meeting

The G20 begins tomorrow. When key figures gather, there is potential for statements,

so be mindful of important remarks.

5)Long-term yields and stock markets

Long-term yields rose yesterday and remained elevated. Stock markets declined sharply in Japan. Today, will US trends support a rebound in Japanese stocks, or will risk-off continue and lead to another drop? I am watching closely. In particular, I’m focusing on US, Italian, and German long-term yields and the Japan/US stock performance.

◎ Today’s events

10/10 (Wednesday)

08:30 AUD Westpac Consumer Confidence
15:00 SEK Sweden Unemployment
15:00 NOK Norway CPI (Consumer Price Index)
17:30 GBP UK GDP and Industrial Production
18:00 GBP BoE Chief Economist Haldane
20:00 GBP NIESR GDP estimate

21:30 CAD Housing Permits

10/11 (Thursday)

G20 Finance Ministers and Central Bank Governors Meeting (Bali, Indonesia)

01:15 USD Evans, President of the Chicago Fed02:00 USD 3-year and 10-year Treasury auctions
07:00 USD Bostic, President of the Atlanta Fed

07:30 AUD Governor Lowe's Deputy Speech

Please refer to the weekly events schedule below

Attention on the statements from important figures — Strategy and events for the week of October 8

◎ Recording Room

Please refer to yesterday’s major currency strength/weakness graphs, stock prices, long-term yields, and important statements

October 9 Recording Room — Important statements and long-term yields