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THE EUROPE FX/RATES DAYBOOK: FX/RATES DAYBOOK EUROPE: Dollar Up With Yields; Eurozone PMI

(Bloomberg) — Dollar starts fourth quarter on strong footing as U.S. yields continue to rise on prospect that Kevin Warsh, a former Fed governor and perceived hawk, may be the next Fed chair. Euro falls after Catalan separatist leaders say they may declare independence as early as this week after the illegal referendum. TODAY

  • Eurozone Sept. manufacturing PMI; Aug. unemployment rate
  • UK, France, Spain, Italy Germany Sept. manufacturing PMI
  • ECB’s Praet speaks

OVERNIGHT TRADING SESSIONS

  • U.S. FRIDAY
    • The dollar was little changed while posting its first monthly gain since February. The greenback gained the most against the Canadian dollar, with USD/CAD rising ~0.4% to 1.2477 after flat Canadian July GDP. USD/JPY rose as high as 112.74 on news Trump met with Warsh, before settling to 112.45 area
    • USTs flattened over the Friday session after a morning selloff spurred by Warsh headlines. Yields ended higher by 2bp-4bp across 2Y-10Y, with 30Y yields lower by less than 1bp
  • EUROPEAN BONDS FRIDAY
    • Bund futures closed higher, as month-end index flows boosted the long-dated Austrian bonds from the open, where large extensions were seen, dragging bunds and core bonds higher
    • Treasuries snapped lower, briefly weighing on bunds after WSJ report Trump is said to meet with Kevin Warsh about the Fed Chair post. While bunds stabilized, Treasuries continue to slide, with 10y UST-Bund spread closing over 4bps wider on the day
  • ASIA MONDAY
    • Dollar advances across board versus G-10 peers and 10-year yield rises 3bps as traders begin to price in prospect that Warsh may be the new Fed Chair
    • U.S. 2-yr yield reaches 1.50%, highest this year and since 2008
    • Asia equities grind higher following China’s move to ease RRR

TOP OVERNIGHT NEWS

  • Catalan separatist leaders signaled they may be moving toward a unilateral declaration of independence as early as this week after hundreds of activists were injured on Sunday as they sought to stop Spanish police from shutting down an illegal referendum
  • President Donald Trump’s admonishment of Secretary of State Rex Tillerson for “wasting his time’’ in seeking negotiations with North Korea further highlighted differences within the administration on how best to get Kim Jong Un to halt his nuclear weapons program
  • Confidence among Japan’s big manufacturers has improved to the highest level in a decade, underscoring Prime Minister Shinzo Abe’s run of success on the economy as he heads into an election later this month
  • National Economic Council Director Gary Cohn said Sunday that the Trump administration’s proposed tax on offshore profits would be in the “10 percent range.”
  • U.K. Prime Minister Theresa May heads into her Conservative Party’s big annual gathering fielding questions over why she hasn’t fired Foreign Secretary Boris Johnson, who’s set out an independent course on Brexit and further undermined her authority
  • The People’s Bank of China announced late Saturday it would reduce the amount of cash that banks must hold as reserves from next year, with the size of the cut linked to the flow of funding to parts of the economy where credit has traditionally been scarce

KEY VIEWS

  • Expectations of Higher U.S. Yields Underpin USD/JPY, FPG Says
    • Expectations for rising U.S. Treasury yields are underpinning USD/JPY amid solid risk appetite, says Koji Fukaya, chief executive at Tokyo-based FPG Securities
  • USD Seen Driven by Short Treasury Positions Before Jobs: BTMU
    • The dollar’s direction will likely be dictated by whether speculative shorts in U.S. Treasuries increase further ahead of Friday’s nonfarm payrolls data, according to Naohiro Nomoto, manager of FX trading at Bank of Tokyo-Mitsubishi UFJ

ECONOMIC DATA RELEASED:

  • Japan Tankan 3Q large manufacturing index 22 vs est. 18
  • Japan Tankan 3Q large manufacturing outlook 19 vs est. 16
  • Japan final Sept. PMI 52.9 vs previous 52.6
  • China Sept. manufacturing PMI 52.4 vs est. 51.6

ECONOMIC DATA:

  • 9:55am: (GE) Sept. Markit/BME Germany Manufacturing PMI, est. 60.6, prior 60.6
  • 10am: (EC) Sept. Markit Eurozone Manufacturing PMI, est. 58.2, prior 58.2
  • 11am: (EC) Aug. Unemployment Rate, est. 9.0%, prior 9.1%

GOVERNMENT:

  • 4pm: (FI) Nato’s Stoltenberg, EU’s Mogherini Visit Finland

CENTRAL BANKS:

  • 11:15am: ECB’s Praet to speak at conference in London

BOND SALES/PURCHASES:

  • For corporate bonds, see New Issue Monitor

MARKETS

  • USD/JPY +0.3% to 112.85 (range 112.40-112.91)
  • EUR/USD -0.3% to 1.1777 (range 1.1771-1.1820)
  • AUD/USD -0.2% to 0.7820 (range 0.7817-0.7848)
  • NZD/USD -0.2% to 0.7196 (range 0.7189-0.7234)
  • GBP/USD -0.2% to 1.3367 (range 1.3358-1.3402)
  • USD/CAD +0.2% to 1.2491 (range 1.2468-1.2497)
  • USD/CHF +0.2% to 0.9702 (range 0.9675-0.9720)

TECHNICAL OUTLOOK by Bloomberg strategist David Finnerty

  • USD/JPY – Consolidating under 113.26, last weeks high
    • Resistance: 113.26, Sept. 272 high; 114.49, July 11 high; 114.96, Feb. 15 high
    • Support: 112.02, 200-DMA; 111.48, Sept. 25 low; 111.05, Aug. 4 high
  • EUR/USD — Consolidating under 50-DMA
    • Resistance: 1.1846, 50-DMA; 1.2004, Sept. 22 high; 1.2092, Sept. 8 high
    • Support: 1.1717, Sept. 27 low; 1.1662, Aug. 17 low; 1.1572, 100- DMA
  • EUR/JPY — Consolidating under last week’s high
    • Resistance: 133.12, Sept. 29 high; 134.24, Sept. 25 high; 134.41, Sept. 22 high
    • Support: 131.71, Aug. 30 high; 130.80, 50-DMA; 129.38, Sept. 5 low

To contact the reporter on this story: David Finnerty in Singapore at dfinnerty4@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Patricia Lui

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