Analysis

Subdued trading ahead of a busy week

Friday's trading sentiment was initially slightly risk-off. European equities and the euro held a downward bias during a mainly technical driven trading session. Risk climate turned for the better as the US joined however. Markets took comfort in a few headlines by trade negotiators suggesting the US and China "made headway". All looks set to sign the phase 1 deal at the APEC summit in November. EMU stocks reversed intraday losses, US equities headed north. The SP 500 even set a new record high. The dollar outperformed on FX markets. EUR/USD slipped below 1.11 (1.108), USD/JPY inched higher towards 108.67.

Asian markets begin the week on decent footing in the wake of WS's fresh alltime highs. China outperforms amid trade optimism. USD/CNY declines to 7.06. In Argentina, current president Macri conceded losing the elections to opposition candidate Fernandez over the weekend. The central bank already announced tighter capital controls in the vote's aftermath. USD/ARS stopped short of closing at another record high last Friday. EUR/USD is marginally grinding higher close to but below 1.11., but struggles not to fall below 1.11. USD/JPY is holding in the 108.70 area. Yen investors are looking forward to this week's BoJ meeting.

Today's economic calendar contains only secondary data and does no justice to what will be an important week. US investors brace for the Fed, the manufacturing sector's ISM and the payrolls report. Q3 GDP growth figures are due in the EMU and the US. The backloaded agenda might keep investors sidelined for today though. EUR/USD technical picture didn't alter dramatically even after slipping below 1.11 – but holding well above 1.10. Brexit uncertainty hasn't been removed (yet?), capping the pair's upward potential. At the same time, the dollar probably won't make much headway ahead of the Fed meeting. This should give EUR/USD some downside protection.

Sterling reversed Friday's intraday losses mainly on a U-turn in sentiment. EUR/GBP closed marginally lower near 0.864 even as France voiced opposition to a three-month delay in Brexit. This morning's headlines however suggest that Macron caved in after all. The EU's draft proposal would now postpone the deadline until January 31 with the option to leave on November 30 or December 31 if both sides ratify the deal earlier. EUR/GBP barely moves, confirming our view that sterling discounted quite some positive news already. Focus now turns to early elections: will Johnson's call now get the support it needs?

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