Pay attention to the Italian budget, Brexit negotiations, and the exchange rate report! — Strategy for October 12

◎ Current Positions and Strategy

EUR/USD Short position is held. Additional positions have been fully closed for now. (excluding the initial core position that was added)

For the core position, I am considering a long-term hold, but the primary factor behind euro selling is largely Italy’s budget. So if the budget bill passes smoothly, I will close all positions. There is also the Bavaria state election this weekend. To manage risk, I have closed all additional positions to stay light.

The EUR/USD picture suggests that after the daily chart’s yellow circle did not break down and rebounded, the decline may settle for now. The intraday chart also showed a rebound near the yellow circle, but then broke higher, so the image shifted, which is another reason for closing the additional positions. However, be careful because elections over the weekend can cause sharp moves either way.

EUR/USD Daily Chart

EUR/USD Intraday Chart

AUD/USD Short position is held. I expect a rebound up to the Fibonacci 61.8% level on the intraday chart (red circle). If it breaks above that level, I would consider closing. Currently there are many negative factors such as the Forex report and yuan weakness. Therefore, I am also considering a long-term hold on AUD/USD。

AUD/USD Intraday Chart

AUD/USD Daily Chart

New Long position on GBP/JPYwas taken. As Brexit negotiations approach the deadline, although there is no definitive news, positive information seems to be increasing. Therefore I bought pounds, with a tight stop at “147.80.” It is near the lower bound of the purple upward parallel channel on the daily chart. I expect it to rise from here.

GBP/JPY Intraday Chart

GBP/JPY Daily Chart

◎ Weekend Focus Points

1)Italy Budget-related

This weekend Italy must finalize its budget (approved by the Italian Parliament) and submit it to the EU (European Commission). First, will the budget pass domestically? Next, how will the EU respond when submitted? The budget deadline is approaching. Very noteworthy.

Euro fluctuations around Italy’s budget bill explained

2)Brexit negotiations and the Ireland border issue

With the EU leaders' summit looming next week, there is a desire to see progress in Brexit talks. Currently, there are statements related to accelerating talks, with particular focus on the Ireland border issue. Given the weekend approaches, I will pay attention to statements from key figures.

Ireland Border Issue – The Most Difficult Part of Brexit Negotiations

3)Libya Turkey Branson pastor release hearing

Today a hearing will determine whether Turkey will release Pastor Branson. Market expectations suggest release, easing the lira sell-off. The US is likely to re-impose sanctions if the pastor is not released. All eyes on whether the pastor will be freed.

4)Germany: Bavaria State Election

A state election is held in Germany this weekend. It is seen as a precursor to next year’s EU and European Parliament elections. Bavaria is a stronghold for Merkel's party CSU; while victory is expected, the extent of any decline in seats is watched. If protectionist parties gain seats, it could be construed as a reduced influence for Chancellor Merkel and a potential euro selling pressure. Also, the euro may gap open on Monday, so weekend position adjustments should be carefully monitored.

5)Stock declines, rising yields, yuan weakness, focus on risk-off

Global stock markets are under focus. The U.S. stock market fell about 4% the day before yesterday. Following that, the Nikkei dropped nearly 1,000 points yesterday. This is the largest drop since the U.S. presidential election. Despite the depth of the drop, Europe and the U.S. saw large declines for two consecutive days. The causes include a rapid rise in long-term yields and tariff issues, though not clearly defined. I will watch whether stocks stay weak today. In risk-off mode, crude declines and gold rises. There is talk of a US forex report being released over the weekend. All eyes on whether China will be labeled a currency manipulator and how the US will respond.

USD/CNH Daily Chart

6)G20 Finance Ministers and Central Bank Governors Meeting, IMF

The G20 meetings and IMF are ongoing. This is a period with increased headine and official statements, so stay cautious about headlines and statements.

◎ Weekend Event Schedule

10/12 (Friday)

G20 Finance Ministers and Central Bank Governors Meeting (Bali, Indonesia)
IMF and World Bank Annual Meetings (Bali, Indonesia)
Branson Pastor Release Hearing

09:30 AUD Mortgage
15:00 EUR Germany HICP (Consumer Price Index)
22:30 USD Evans, President of the Chicago Fed Speech
23:00 USD University of Michigan Consumer Confidence Index

10/13 (Saturday)

IMF and World Bank Annual Meetings (Bali, Indonesia)

01:30 USD
02:00 USD Baker Hughes Rig Count

10/14 (Sunday)

Germany Bavaria State Election