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London session setting the scene - BMO Capital Markets

FXStreet (Barcelona) - Stephen Gallo, European Head of Currency Strategy at BMO Capital noted that G10 ranges were fairly narrow and price action was rather uneventful during the London morning, ahead of the September FOMC minutes this afternoon.

Key Quotes:

"Most of the post-NFP position adjustment in the USD appears to have been completed before today, leaving incrementally less pressure on the USD to depreciate."

"But bond yields have been in decline, more concern is being voiced about ‘frothy’ equity markets, and the lower trend in inflation expectations has yet to reverse. This dynamic is sapping away some of the USD’s ability to rally."

"USD/CAD has roughly traded in a 1.1150-1.1190 range throughout the Asian session and London morning. Following Monday’s USD sell off, the pair remains a bit better aligned with its key determinants on the rate differentials front."

"With the exception of Canadian new housing starts (BMO: 195K, median: 198K), the North American data calendar is empty this morning. This leaves room for a clean response to the FOMC minutes."

"The impact on the USD of a surprisingly dovish set of minutes will, on balance, probably be a bit bigger than in the case of a hawkish set. A tone that it is decidedly dovish will come as a shock in view of the latest read on the labour market, and the way the dots were presented at the September FOMC."

"In contrast, with weak inflation pressures, weak growth elsewhere and weakness in equity markets, we’re not entirely convinced the bond market will take hawkish rhetoric from the FOMC as decisively bond bearish, since quicker policy normalisation could add to the aforementioned dynamic. 1.1200-1.1230 in USD/CAD should therefore cap the pair today through the minutes, while the better near-term buying opportunities in the pair are probably within the 1.1100-1.1125 range."

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