Good morning

	High	Low			High	Low
EUR/USD	1.1385	1.1353		USD/ZAR	12.395	13.2516
GBP/USD	1.5365	1.5305		GBP/ZAR	20.52	20.29
EUR/GBP	0.7430	0.7404		USD/RUB	63.14	59.70
USD/JPY	120.29	120.08		USD/ILS	3.8382	3.8129
GBP/CHF	1.4776	1.4704		S&P 500	2,020	2,009
GBP/AUD	2.0985	2.0854		Oil (Brent)	53.44	52.61

Casting your eyes over the high/low’s above you can see just how tight the majors and EM currencies traded overnight (and European open). Reason, very little fundamental events to drive the currencies one way or another.

FX volatility remains pretty stagnant with EURUSD trading 1m 9.25/9.50, 6m 9.40/9.60 and 1y 9.45/9.70, while in GBPUSD 1m 6.80/7.10, 6m 6.90/7.20 and 1y 7.85/8.10 while EURGBP trades at a premium to the latter with 1m 8.75/9.15, 6m 8.60/8.85 and 1y 8.70/8.95 – you can see the pattern here, the “EUR” is the driving force behind both EURUSD and EURGBP trading at a premium to GBPUSD which has not budged over the past week. Traders believe there is more risk from the EUR and therefore EURXXX vol remains bid. I must tell you I think EURUSD vol should (and has already) started to show signs of cracking given the latest rhetoric from the FED and the likelihood (or not in this case) of a US rate hike in December. FX traders are increasingly becoming “bullish” the EUR and therefore with the risk reversal (RR) showing a premium for EUR PUTS (over EUR CALLS) , when the currency (EUR) appreciates volatility levels should start to come down and the RR premium (puts over calls) should trend to flat for the time being.

Overnight saw the Chinese stock market rally +3% (don’t get too excited yet) supported by signs of improved consumer growth and the PBoC expanding its asset lending programme to 11 provinces from 2 previously. Bear in mind we have said many times, the PBoC are going to throw everything at Chinese growth and this is yet another “programme” to kick start the economy. I have NOT ruled out and still call for FURTHER rate cuts and currency devaluation. You heard it first here.

Key economic events to watch this week include speeches by Atlanta FED President Lockhart (FOMC voter) and Chicago FED President Evans (FOMC voter) on the US economic outlook and monetary policy (Monday), China’s September trade (Tuesday) and inflation data (Wednesday), EU area Industrial Production (Wednesday) and final September inflation data (Friday) and US retail sales (Wednesday), CPI – inflation (Thursday) and Industrial Production (Friday). Key numbers for sure, but really all eyes now on China and 28 October FOMC meeting. This is what matters most to FX traders and so the coming weeks I expect the FX ranges to stay intact awaiting fresh data and events.

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