Forex today: dollar back on top of its game, pound sharply lower on Brexit/ Tory MP angst

• Forex today was setting up for the week ahead where US Durable Goods and real US GDP Q3 are on the cards, along with the BoC and ECB. 
• Sterling stole the show with a big decline as investors become even more concerned over the Tory party's confidence of leadership, in PM May after untold Brexit blunders.
• The greenback is testing the waters of the 96 handle and US 10 year real yields were up to the highest they have been since 2011. 

Forex today was giving signs of what is to come in the week ahead, with some pretty fierce moves in some of the most liquid pairs such as cable, EUR/GBP and EUR/USD. The day was centred around China to start with after the benchmarks made an impressive recovery, (Shanghai Composite +4.1%), following Chinese officials attempting to jawbone the markets higher and restore confidence in the economy, (China is one of the world's worst-performing stock markets and the Shanghai index is down more than 25% this year alone so far). Official data recently showed that the Chinese economy expanded just 6.5% in the third quarter, its weakest growth since the depths of the global financial crisis. However, on Friday, central bank chief Yi Gang said that the recent slump in the stock market didn't reflect the state of the economy, which he described as "moving forward" in a stable manner.  He also lifted spirits by saying that the government would take more measures to support the economy. However, the optimism soon faltered in European markets whereby European equities finished the day lower, with the DAX down 0.3%, the CAC 40 off 0.6%, and the FTSE 100 down 0.1%. There are overriding political concerns over Italy and Brexit. However, there was some temporary relief in that Moody’s announced they would keep Italian bonds at investment grade and Brexit Raab insisted that Tory MPS all just needed to hold their nerves. The US markets were also mostly a sea of red - DJIA and S&P 500 slip on Monday, technology lifts Nasdaq - However, Gold was softer at USD1222, down 0.4%. Oil prices were lower, with WTI spot off 0.25% at USD68.95/bbl.

Currency action

EUR/USD was lower on Monday as the dollar regained the top spot vs the G10s and sent the single currency packing down for a North American close ta 1.1475, -0.35% within the NY range of between 1.1506 - 1.1456. The European session low was 1.1485 from a high of 1.1550. The Italian budget remains a weight on EZ investors after Italy told EU that it will stand firm on its budget plan. Also, Moody downgrade to just above a junk rating, to Baa3, its lowest investment-grade rating, on concern the government’s budget will erode its fiscal strength and stall plans for structural reform. However, Moodys gave a stable outlook for the nation, (Italy 10-yr yield drops by most since June ), but whatever gains bonds made on the back of that were dialled back sharply on growth outlooks. Cable was quite the show and fell hard to a two-week low in Europe amid Brexit concerns as PM May prepared to face criticism from MPs in Parliament on Monday following a number of 'vile' abuse from anonymous MPS over the weekend that came in response to her failures to bring home a Brexit deal from last week's EU summit. Sterling had dropped to 1.2956 by the NY open. GBP/USD ended the North American session at 1.2975 -0.71%, within an NY range of between 1.3029-1.2957. The cross was up to 0.8834, its highest level since Oct 5 as a result of the Brexit blunders. The pair ended North America at 0.8840 +0.39%, within the NY range of between 0.8857-0.8808. USD/JPY, despite all of the political havoc, performed on the bid as the DXY found traction toward the 96 handle and the 10-year real yield hit the highest since 2011. USD/JPY hit a high of 112.88 and closed NY at 112.82. This was a correction of the 112.65 lows made in early NY and an extension of the post-Asian equities sell-off levels of just below the 112 handle. AUD/USD was extending the downside as the dollar firmed and the CNH was tracking back tot he 6.95 handle level again - And this begs the question that if Chinese officials can't jawbone their markets to stability, then what will? Traders are now getting set for a real test of the psychological 7.00 handle in USD/CNH and that is unlikely to favour the Aussie in anyway shape or form. Trade tensions are mounting higher ahead of the November G20 which will be pivotal for the commodity complex, (CRB looking heavy), and antipodes. 

Key notes from US session

• DJIA and S&P 500 slip on Monday, technology lifts Nasdaq