FX Update: Both the dollar and yen dropped back quite sharply.
FX Update: Both the dollar and yen dropped back quite sharply, the yen in particular, after seeing fresh highs against the other main currencies. This saw EUR-USD rally back to the 1.1075-80 area after making a three-week low at 1.1055 and EUR-JPY also jump from a three-week low, at 120.14, to levels above 120.60. Yen underperformance was enough to drive a bounce in USD-JPY from a two-day low at 108.64 to a high of 109.12. AUD-USD and AUD-JPY saw similar price actions, while the Canadian dollar and other currencies also saw rebound gains versus the dollar and yen. The dynamic was driven by a sudden burst of risk-on positioning, which happened just as the London interbank market was kicking into gear, and saw most of the main equity indices in Asia jump from losses to net gains. Most narratives are pointing to a remark from a spokesperson at China's commerce ministry, that both the U.S. and China must negotiate how much tariffs should be cancelled, as having sparked the sudden point of risk-on positioning, reportedly sending algo-trading systems into a frenzy. This came after BoJ Governor Kuroda said that the central bank will remain committed to monetary easing to achieve its 2% inflation target, though admitting "it's taking time" (there is a theory that QE, or QQE with yield curve control in Japan's case, is backfiring in the sense that it fosters excess capacity, thereby generating deflationary forces). Regarding the U.S.-China trade front, there is a risk that markets are being too optimistic. The small print of the "phase 1" deal is only an unwinding of existing tariffs. There is a view that while China is likely to be damaged more economically that the U.S., that President Xi is using the trade spat to strengthen his position politically, while President Trump may be apt to twitter-amplify his strong stance against China as a rallying cry to his base into next year's election.