USD: De-leveraging probably favours the USD – ING

Risk assets continue to trade on the fragile side. The epicentre here is the US. High-yield credit spreads have pushed out to the widest levels since June as investors continue to assess the questions raised by the First Brands bankruptcy and what it says about the slippage of credit rating standards in that sector, ING's FX analyst Chris Turner notes.

This week's DXY rally has stalled at 99.65/70 resistance

"While US tech stocks have fallen nowhere near as far as bitcoin (-25%), markets remain nervous. The magnificent seven tech stocks are around 7% off their highs – a drop in the ocean compared to the 70% rally since April. But the understandable fear is that this is a very crowded trade and that a casual walk to the exit could turn into something less orderly should cause be found. Hence, the intense interest in tonight's release of third-quarter results for Nvidia and whether Softbank's decision to sell its entire holdings of Nvidia was something more than a reallocation of its investments in the US tech sector."

"Beyond Nvidia, the focus over the next 24 hours will be on Fed policy. Tonight sees the release of the October FOMC minutes, where 'strongly differing' views on the future path for monetary policy pose an upside risk to the dollar. And then tomorrow's release of the delayed September jobs report will probably be the best chance for the dollar to go lower this week. Should the jobs data fail to swing the market towards a Fed cut in December (currently 50% priced), then pressure remains on equity markets."

"De-leveraging is probably a dollar positive in the first instance, particularly against the most risk-sensitive currencies, such as the Australian dollar and Mexican peso. Normally, a cross rate like AUD/JPY would be the vehicle to follow a sharp pull-back in risk assets, but USD/JPY is following its own path at present. The Swiss franc is probably the preferred safe haven right now, particularly given the Swiss National Bank's limited options to cut rates or intervene. Should we ever get a sizeable US equity correction, however, it should ultimately prove dollar negative, where the downturn in US consumption and the jobs market would cement a deeper Fed easing cycle. This week's DXY rally has stalled at 99.65/70 resistance. There is no obvious catalyst for it to come lower today, and we imagine there are buy stops above the 99.75 area."