The towel-throwing persists, more widespread and frantic today in the FX space compared to yesterday, despite our flows being slightly less pronounced than on Wednesday. Could this be a sign of final capitulation? Personally, I still don’t believe the dollar can rally significantly from here, especially without any new US data and the looming uncertainty of a government shutdown. While political turmoil is evident elsewhere, this likely signals a broader two-sided range for now. If data is to provide direction, we’ll wait patiently. Reports from last night suggest the CPI print may be available before month-end, though there’s no word on payrolls or whether it will arrive before the next FOMC meeting. It seems that while discretionary traders have been intellectually dollar-bearish, positioning hasn’t reflected this sentiment. If we do reach an inflection point, it will be intriguing to see how the market reacts.In line with this outlook, I’ve followed through on my plan and shifted from tactical euro shorts to longs, as anticipated once we hit the 1.15 handle. It’s naturally uncomfortable to be here initially, but this was always the strategy. Elsewhere, I took a hit on EUR/SEK shorts yesterday amid widespread capitulation (painful). However, I still believe Sweden’s story is solid—today’s decent, albeit volatile, data supports this view—so I’m continuing to hold on there. I’ve also resold the rally in USD/ZAR, albeit cautiously and at worse levels than the current spot, leaving room to add at higher levels if needed. News from France points to a fragile peace—not exactly positive, but at this currency level and with no elections in sight, France may fade into the background as a focal point. It will be fascinating to see whether, following this widespread position cleansing, we stabilize enough for medium-term structural interest to emerge. This is something to monitor closely.  For now, I’m watching the reaction around 1.15. The last significant lows in August were just below 1.14, so we are approaching key medium-term support. A move back above the 100-day moving average (1.1635) would provide some short-term stability. As stated earlier, my medium-term view remains cautiously bullish, and I’m taking this opportunity to act now that we’re at more reasonable levels.

The REC survey released overnight indicates that while conditions are still deteriorating, the rate of decline is slowing, offering some commentators a sense of relief. Overall, there doesn’t appear to be much to react to at this stage, as momentum for sterling remains minimal. Additional data is expected next week with the Labour Force Survey (Tuesday) and GDP figures (Thursday). GBP continues to trade poorly, and with GBP/USD breaking the stubborn 1.3325/35 level, there is limited support until the 1.3140 mark (a six-month double bottom). On the USD side, flows showed strong real money buying from our franchise yesterday, marking a four-day streak, while systematic hedge funds extended their buying run to six days. GBP net flows were more mixed.  For now, the approach remains cautious and tactical. While bearish sentiment toward GBP persists, it remains on the back burner for the time being.

Japanese politics took a turbulent turn this morning as Komeito officially withdrew from its coalition with the LDP. This development delivers a significant setback to Takaichi’s aspirations of becoming Prime Minister. Initially, the market interpreted this as a positive for the Japanese yen (JPY), reasoning that it reduces the likelihood of Takaichi’s policies being implemented. However, I remain skeptical, as the resulting political uncertainty may not be particularly favorable for JPY assets or the currency, aligning with my analysis from yesterday. Overnight, we also received additional comments from the Ministry of Finance (MoF), which were relatively subdued. The message conveyed was that immediate intervention is unlikely, offering little reassurance for JPY. I maintain a bearish outlook on the yen, especially given the absence of weak U.S. labor data to provide any relief. Yesterday, I took a position on short-dated USD/JPY topside. In terms of flows, sovereign hedge funds (SHF) and real money (RM) continued their selling streak yesterday, while dynamic hedge funds (DHF) remained relatively flat. Key levels to watch include resistance at 153.70/80, with further resistance at 154.90/00. Initial support lies at 152.00/10, with additional support at 151.20/30.