U.S. stock crash! Will risk-off continue? Attention on Europe and the United States ~ October 11 Strategy ~
◎ Current positions and strategies
Short positions on EUR/USD are held. We are considering a stop around 1.1575 for additional positions. The base plan is to long-hold for core positions, but the main factor driving euro weakness is largely Italy’s budget. Therefore, if the budget bill passes smoothly, we would exit all positions.
EUR/USD Daily Chart
EUR/USD Intraday Chart
AUD/USD Short positions are held. We expect a rebound up to the 61.8% retracement on the intraday chart. If it breaks above that level, we would consider closing the position. There are many negative factors such as the FX reports and yuan weakness. Therefore, we also plan to long-hold AUD/USD.
AUD/USD Daily Chart
AUD/USD Intraday Chart
Consider Long GBP/JPY. Personally, with yesterday’s drop in U.S. equities and the safe-haven yen buying, I don’t think this is limited. I would like to add a long GBP/JPY when the downside stabilizes. This is a position built on the assumption of limited yen buying and already priced-in negative factors for the pound, so if entered, I would keep the stop tight.
GBP/JPY Daily Chart
GBP/JPY Intraday Chart
◎ Today’s Highlights
1)Brexit issues
Yesterday there were reports of progress in Brexit negotiations and the possibility of some agreement this week. Personally, since concrete confirmation is not visible, I could not actively buy pounds. However, as I have written before, the worst news for Brexit negotiations is largely priced in. Negative factors tend to be less impactful than positive factors. The Ireland border issue is the main concern, so I’m watching for any positive developments there. If positive content emerges, large pound buying is expected.
Ireland border issue – The toughest part of Brexit negotiations –
2)Italy budget and long-term interest rates
Italy is in a three-way standoff over the budget. The coalition government wants fiscal expansion. The European Commission wants the budget reduced in line with EU rules and deficit plans. The Italian coalition finance minister is caught in between. Each party repeats different statements, and there is little new information. First, will the budget be approved by the Italian Parliament and submitted over the weekend? Then, will the European Commission approve the submitted budget? As the deadline approaches, there may be decisive reports. If the budget is not approved or negative news arises, EUR selling could occur. Italy’s fiscal concerns are contributing to higher long-term yields, which hurts Italy. I will monitor whether the spread between German and Italian yields widens.
Ireland border issue – The toughest part of Brexit negotiations –
3)Global stock markets
Yesterday U.S. stocks fell about 4%! A 4% drop is as large as during Brexit. Is the decline in U.S. stocks temporary? With stock indices down in Japan, China, and Europe, risk-off conditions may persist. It could be a day to watch closely.
October 10 Diary – Long-term yields and key officials’ remarks –
4)G20 Finance Ministers and Central Bank Governors Meeting (Bali, Indonesia)
When leaders gather, there may be notable statements. I want to be cautious about officials’ remarks, as there could be discussions on protectionist policies, tariffs, and trade. I will pay attention to those statements.
18:00 GBP Carney BOE Governor Speech
20:30 EUR ECB Meeting Minutes (9/12–13)
00:00 USD Messter - Cleveland Fed President's Speech
06:30 NZD NZ Manufacturing PMI
