EUR/USD, USD/JPY, AUD/USD flows - French disorder; Lagarde dovish on bond spillover

Tense weekend developments in France leaving spreads towards the upside of their recent consolidative band, with Macron stopping short of declaring a national emergency after the rioting and looting across several cities after mass marches. From a purely market point of view, the environment clearly makes it harder for unpopular fiscal stances to go through amid the pressure for more expansive support from education onwards.

ECB Lagarde also notes that the bond selloff will slow inflation (“will ​slow growth and reduce ⁠pass-through by more than projected in our September exercise”), so rather dovish.

Euro very mildly underperforming, but still broadly consolidating the dollar-driven bounce at the end of last week. Price action would likely be heavier if it wasn’t for the recent backdrop and the dregs of last week’s corrective dollar action from the overbought run. The US bond relent has also been leading and trimming spreads of late, though Lagarde’s comments remind that this speed limit effect carries across to the euro side too (and others re: the BoE’s remarks concerning scepticism over the amount of tightening priced in). .

USD/JPY pretty flat. BoJ’s Ueda says underlying inflation 'quite close' to price goal, seen supporting tightening, so a slight outlier in the direction of central bank rhetoric. EUR/JPY eases off 178~ resistance, 176-8 consolidation off Sep+ selloff, with medium-term negative tone ongoing. 

AUD slightly outperforms after recent underperformance, helped by the stronger China activity data (GDP, retail sales…) and by short positioning. Cross has been technically capped though and this just consolidates the pullback in the top range.  

Pressure on Indonesia, stocks off another 5%, on the back of the MSCI move, remaining a specific, isolated issue for regionals.