EUR

It was a completely uneventful day yesterday as we gear up for month-end, trade discussions, and central bank meetings later in the week. Our trading volumes were extremely low, which indicates a lack of enthusiasm, even though optimism around trade talks remains high with Trump and Takaichi now on friendly terms—what could possibly go wrong?

In terms of risk, I still hold euro longs against the dollar (with levels looking attractive around 1.1550), and the AUD (at least the AUD seems to have stabilized ahead of local CPI and discussions with China that could pose downside risks). Additionally, I added GBP to my portfolio this morning, as an article from the FT last night indicated that the OBR is likely to lower productivity forecasts, leading to a larger fiscal gap for Reeves to manage; EUR/GBP has been lingering near the highs, so let's see if it can break out further.

This morning I needed my glasses to double-check the USD/JPY big figure—it was a pleasant surprise for those looking at tactical shorts. I'm uncertain how sustainable this is given the lack of significant news overnight (aside from people blindly buying into the highs because Takaichi is saying all the right things, which doesn’t make sense to me). However, if it dips into the low 151s, I might cash in unless we get a local news story related to the BOJ.

I have not changed my outlook on the euro; IFO expectations were encouraging following last week’s PMIs. I'm maintaining small long positions, both outright and on crosses, given that pessimism in the area has crept in over recent weeks, yet the data now seems somewhat supportive. With small ranges and minimal flows, it's challenging for me to add anything beyond what I stated yesterday.

GBP

We've finally received the leaked OBR productivity revision, and it's not good news. Many commentators had been concerned it would be 0.2%, and I initially thought it might be less severe at 0.1% due to the Government's secrecy. However, the Financial Times is now reporting a 0.3% revision. Allan estimates that each tenth corresponds to £9bn, rather than the £7bn cited by the IFS. If the government aims to create a larger buffer, it seems increasingly probable that the recent hints of a manifesto break will turn into significant changes. I purchased some EURGBP last night when the news broke and added more this morning. Gilts are now open and trading slightly better, buoyed by movements in US fixed income last night, and they haven't responded dramatically to the news. I believe this won't hinder things, as the market assumes Reeves will adhere to her rules; the real question is what actions she will take regarding the UK's economic outlook to uphold that commitment. I'm looking for a breakout from some persistent resistance levels in the cross; 0.8745/50 has seen around 10 daily highs in the last few months, while 0.8765/70 has recorded 5 daily peaks since May 2023. The next target is 0.8865/75 if we manage to surpass those levels.

JPY

There was some activity in the JPY overnight, with reports from the Japan-US meetings appearing positive, which supports the idea that the perception of Takaichi might be somewhat misguided. Additionally, US yields are dropping again, with the 10-year yield quickly falling below 4%, likely influenced by recent Amazon headlines (30,000 layoffs). Overall, I'm inclined to maintain the tactical USDJPY shorts for now, although I don't believe they will last into Thursday morning. Thus, the risk won’t seem as favorable if we continue to decline, but the plan is to exit if there's no news leak, avoiding another potentially frustrating episode with Ueda. The resistance level for the day is now at 152.20/30, while the next support level is at 151.50 (short-term triple bottom). So far today, JPY is the most purchased currency for DHF, and there's also been a minor amount of local RM buying.