EUR

Last week was a tale of two halves. At one point, it felt like the world was unraveling, but with the Supreme Court signaling that Trump may have overstepped his bounds, and the shutdown seemingly nearing its conclusion, markets have started to recover. For currencies, however, uncertainty still looms large, particularly around the Greenback in G10. Emerging markets (EM), on the other hand, have been relatively stable, navigating hiccups and rallies with surprising composure. The market remains eager for data as it attempts to gauge the Fed's trajectory. Yet, interpreting October's data will be challenging—has the prolonged shutdown inflicted enough damage to justify further rate cuts, or will the reopening boost the economy, reinforcing Powell's resilience narrative and limiting the Fed's flexibility heading into the new year? With the Cook ruling and a potential new Chair announcement on the horizon, the market's rangebound nature is likely to persist for now.

November typically favors risk assets, and while the month began on shaky ground, receding headwinds could give the market one last push as positions seem sufficiently trimmed. Personally, I find it difficult to re-engage with EM at these levels, and G10 remains complex, keeping my overall risk exposure low. I’m inclined to fade the kiwi, which has been heavily beaten down, especially as our local economist anticipates a modest economic rebound, similar to Sweden's recent trajectory. I’m still holding small short positions in EUR/SEK, which was painful last week. I narrowly avoided losses in euro and cable longs, but I’m hesitant to re-enter euro positions for now. Instead, I’ve taken a short position in EUR/GBP, as sterling still appears to have some positioning support, bolstered by our UK labor market Nowcaster showing strong upward momentum.

The euro, while stabilizing around the 1.14 handle, is puzzling. Growth data continues to show positive momentum, defying many expectations that initially gave me confidence. However, persistent selling from European real money and corporates during rallies undermines the dip-buying mentality that has worked over the past six months. While I believe the euro could surprise with continued outperformance as fiscal measures kick in and structural hurdles clear, this is likely a Q1 story. For now, I’m staying neutral given mixed dollar signals and the current flow dynamics. Key resistance lies around the 50- and 100-day moving averages near 1.1660, which capped late October rallies.

GBP

The short GBP trade continues to unwind following Bailey’s firm stance, with bad news seemingly priced in for Reeves as the manifesto is widely considered defunct. Breaking the manifesto to uphold fiscal rules is positive for UK assets, provided Reeves avoids internal rebellion—otherwise, sterling could face significant downside. Hedge fund flows reflect reduced short positions, with systematic hedge funds (SHF) on a three-day buying streak and discretionary hedge funds (DHF) buying four out of the last five sessions. Real money (RM), however, has shown better marginal supply since the MPC. This week’s data will be pivotal, with the LFS report tomorrow and the REC survey on Friday. The sharp rebound in PMI employment components last week has pushed Allan’s employment nowcast to its highest levels in a year. Positive surprises in these reports could be tradable, as I expect further reductions in GBP shorts ahead of the Budget. Key levels to watch in GBP/USD are 1.3250/70 (previous pivot and 200-day moving average), while 0.8750/65 is a significant pivot for EUR/GBP. Given recent EUR/USD supply from RM and corporates, EUR/GBP remains my preferred vehicle for expressing tactical sterling length.

JPY

In JPY markets, uncertainty persists, though the end of the government shutdown could bring some clarity, with November 15 being the likely resolution date according to Polymarket. However, even with the shutdown ending, stale data and impaired collection processes mean it will take time for more recent prints to regain credibility. For now, we’re left analyzing second-tier data. On Friday, a weak UMich report briefly pushed USD/JPY lower, but a recovery in tech and crypto markets has brought it back to the 154 handle, making for frustrating trading conditions. Hedge fund buying from Thursday reversed on Friday (1.25z), while local participants remain absent. Tactical trading remains the strategy in this choppy environment. Key resistance lies at 154.35/50, a quintuple daily top, while short-term support is at 152.80/85. Overnight BoJ opinions offered little to influence December expectations.