Euro wins back its slide to a 17-month low as French bond stress eases

The dollar slipped from 18-month highs on Tuesday, and by the close the euro had won back all of Monday's slide to a 17-month low: EUR/USD settled at 1.1259 on our feed, back at Monday's opening level. Brent fell below $98 and bond yields eased, gold touched a two-month low near $4,100, and Canada's Ivey PMI sank to 58.2 against a 65.2 forecast.

What the data showed

• Canada's Ivey purchasing managers' index (PMI) came in at 58.2, far below the 65.2 forecast and the previous 64.3. Canada's trade surplus widened to C$4.2 billion in August, against C$1.55 billion expected, investingLive reported, and on our feed USD/CAD closed 0.37% lower at 1.4208, off Monday's 18-month high near 1.4300.

• The US trade deficit widened to $105.6 billion in August from $92.8 billion, against $102.0 billion expected, investingLive reported.

The euro and the dollar

• The euro stayed under selling pressure in the European morning, said MUFG's Lee Hardman, with EUR/USD testing 1.1200 after Spanish Prime Minister Pedro Sánchez called a snap election for 29 November.

• Brent fell below $98 a barrel as Gulf exports picked up, and bond yields in Europe and the US fell with it, FXStreet said in the afternoon; France got the most relief, as the extra yield investors want to hold its 10-year debt over Germany's narrowed to about 1.3 percentage points from more than 1.5 on Friday. After the close, FXStreet tied the euro's recovery to France filing its budget.

• The Dollar Index held around 102.10 in the European morning, in what FXStreet called overbought territory, and by the afternoon FXStreet had it slipping from its 18-month high. TD Securities called the dollar resilient but its upside limited: a US economy and labour market that are resilient without overheating led it to push its Fed hike calls to December 2026 and March 2027.

• Kansas City Fed President Jeffrey Schmid said the labour market was in a good place and the high cost of living remained a concern, warning that the fight against inflation still had a way to go, FXStreet reported.

• GBP/USD was up 0.40% on Tuesday afternoon, FXStreet said, crediting hawkish comments from a Bank of England (BoE) policymaker. Its wrap after the close put the gain on the dollar's side: the pair stayed flat through external member Mann's inflation warning, then climbed back to the top of its range as bond yields eased.

• Against the pound the euro was close to unchanged, FXStreet said after the close. On our feed EUR/GBP still closed lower for an eighth straight session, at 0.8481, its lowest close since 15 July, though above Monday's 0.8458 low. EUR/JPY ended its run of seven lower closes, finishing at 177.97.

The yen, gold and oil

• USD/JPY barely moved in Asian trading, around 157.90, as the yen steadied amid expansionary fiscal plans and uncertainty over rate hikes, FXStreet said. Bank of Japan Governor Ueda, in his first major speech since the 18 September hike to 1.25%, said the economy was recovering moderately and the price trend was approaching 2%, FXStreet reported; Action Forex read it as a shift from reaching 2% to keeping inflation from overshooting it. The pair's whole range stayed inside Monday's, and it closed at 158.08 on our feed.

• Gold hit a two-month low near $4,100, then rose above $4,150 in the European morning as the dollar saw some profit-taking, FXStreet said. Société Générale sees an interim target near $4,095, and a break of it opening the way to $4,000, after gold failed to hold its 200-day moving average near $4,510-$4,540. On our feed gold closed at $4,169, up 0.7%, and its high of $4,184 stayed short of the $4,200 area that turned it back three days running last week.

• WTI slipped to around $88.60 early in Asian trade on planned G7 reserve releases, then rebounded as risks around the Strait of Hormuz tempered the relief from rising Gulf exports, FXStreet said. In Asian trade on Wednesday, after the close, FXStreet had WTI near $89.50, a second day of gains.

Market gauges and what's next

Our proprietary metrics at the close of the session:

• Readings: an MRS of 69, unchanged; a CTS of 54, also unchanged, with its carry backdrop at 60; and an FSI of 59, Neutral, from 58 on Monday.

• Top of our strength table: no currency led. The yen spent 251 of the session's 1,439 minutes on top, the Australian dollar 241 and the US dollar 238. The euro, the leader in the previous two sessions, had 164; the pound, up 0.40% in the afternoon by FXStreet's count, had the fewest, 51. The table counts minutes in each place, not how far a currency moves.

• Bottom: no currency clearly trailed.

• Last week's test: our weekly wrap named 1.1215 on EUR/USD as the euro's test: a session close below it. The pair dipped to 1.1203 early in the European morning but closed at 1.1259 on our feed, so the level held for a second session.

Still ahead: the minutes of the Fed's September meeting are due at 18:00 UTC on Wednesday, and our weekly wrap flagged Canada's jobs report on Friday.