EUR

The key developments impacting FX markets this week included Powell's pushback and the BOJ's lack of action. While the "trade deal" provided a temporary reprieve for dollar strength yesterday morning, the demand for the Greenback continued to seep through the markets, affecting even popular positions in emerging markets. Given Powell's desire for a more balanced outlook for a potential December rate cut (currently about a 50/50 split), and with minimal data available, it remains uncertain whether this momentum can sustain itself. Claims data remained relatively stable, aligning with Powell's remarks despite recent corporate layoff news.

As a result, I've shifted to a slightly more dollar-neutral stance recently, exiting my USDCAD longs and reducing AUD shorts at slightly higher points. Currently, I'm holding long EURUSD positions, which are nearing significant support, and I'm not opposed to shorting USDZAR at these levels. I left some buy orders in yen overnight (adopting the "if you can’t beat them, join them" mindset), but I missed the target by a few pips. I believe if the market doesn't pick up soon, it will be challenging for authorities to justify any currency fluctuations. I'm still short on EURSEK, as strong domestic data continues to support this stance, even though price movements remain sluggish.

Overall, I would describe this week's portfolio performance as trying to maintain position despite limited progress. Lagarde appeared quite positive in yesterday’s press conference, although she faced questions about whether her optimism was warranted. This mirrors our own analysts’ and strategists’ optimistic view on the region, while many clients seem less enthusiastic. My perspective remains slightly bullish as well, with the recent positive data contributing to a rebound in our economic surprise indices, which had previously raised concerns leading to reduced long positions and increased short positions on currency pairs. Additionally, the US government shutdown, which may prolong economic stagnation, could weigh on growth, making the current currency valuations appealing. I would like to see the 1.1540/50 range hold, though it does seem somewhat fragile at the moment.

GBP

The price movement since the Fed's press conference has been somewhat complex, but it's clear that the USD has strengthened following Powell's comments. It's difficult to determine if this indicates a shift in the reaction function, as it seems unreasonable to anticipate an event so accurately six weeks out without supporting data. With a more realistic pricing adjustment (14 basis points), the prospects for continued movement are challenging. The USD's strength has pushed cable below the triple bottom at 1.3140/45, but the lack of further decline is disappointing. If we close above this level, it's noteworthy that we could see an RSI shift back to neutral from oversold conditions, which is a favored mean reversion indicator. Regarding the EURGBP chart, we have yet to reach overbought levels, which may weaken the reversal signal; however, there has been considerable interest in breaking the 0.8750/70 level this week, making it a key level to monitor. Additionally, it seems Reeves is not at risk anymore, as the letting agent has assumed full responsibility for the mistake. At this point, no significant concerns regarding her potential departure impact on sterling appear to be priced in, so it's likely not a tradeable situation. Finally, it's the end of the month for rebalancing, but there are no strong indicators present. I still favor EURGBP but am cautious that things may be slightly overextended in the short term, looking to buy the cross back toward 0.8750. There were no significant net flows yesterday, with the next targets for cable at 1.3020/40 and 0.8865/75 for the cross.

JPY

It's never pleasant to switch positions, but looking back, I wish I had taken more action! I can't say I've done particularly well with JPY this month, but it's clear we're back in a situation where the market is testing the Ministry of Finance. We had another relevant update overnight with Katayama in the spotlight; the key takeaways were the urgency in monitoring forex movements and observing rapid, one-sided FX changes. This situation falls somewhere between levels 2 and 3 on our strategy escalation chart (with 5 indicating intervention). We experienced a small dip in USDJPY following these comments, which is quite remarkable since rhetoric without concrete action suggests that the price movement may continue. However, we are quickly approaching the highs again. I'm maintaining tactical long positions, with the risk point holding at 153.20/30 and the next resistance level at 154.65/80.