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Daily FX View: U.S., Italy Political Risks Key; Data Secondary

Key drivers today will be whether U.S. avoids partial govt shutdown, Italy govt faces confidence vote Wed.; U.S. regional activity indexes, Canada GDP may provide secondary impacts on FX.

• Depending on duration, U.S. government shutdown may shave up to 1.4ppts off 4Q GDP growth, current consensus 4Q GDP 2.5%
• Italian 10Y yield spread +8.7bps to 273bps, high since early-Aug.

• U.S. data:
• Chicago PMI, Sept., est 54.0, modest uptrend from Dec., Apr. lows
• Dallas Fed mfg. est. 5.0, stuck in -20 to +20 range since 2010
• ISM Milwaukee est. 50.0, maintaining historically low 45-56 range since 2H 2012

• EUR/USD: Modestly higher overnight; range-bound around 1.35 for 8th day as market awaits developments on U.S., Italian govts
• Daily technicals, options indicators, CFTC all suggest next trend likely lower
• MACD, stochastics extreme, RSI correction from extreme, 25D, 1M R/R, imp. vol. both falling; CFTC position 66.4k, nearing May 2011 high, above Oct. 2009 high when EUR reached medium-term peaks
• Support: 1.3462 Sept. 25 low, 1.3452 Aug. 20 high, 1.3417 Jun. 19 high

• USD/JPY: Gaps lower, breaching uptrend from mid-Aug., 97.75 Sept. 18 low
• CFTC -92.2k, near record short, suggestive of FX decline
• Daily MACD, RSI, stochastics all trending lower, no sign of being oversold
• Support: ~97 late-Aug. lows, 95.81 Aug. 8 low;

• USD/CAD: Risk today from GDP, Jul., est. 0.5% M/m, rebounding sharply from June -0.5% due to Alberta flooding, Quebec construction strike
• Daily chart: Downside bias as USD slips from 1.0341 Sept. 26 rebound high, declines in two significant correlates past 30 days: copper, UST 10Y yield
• Support: 1.0246 July 31 low; 1.0182 Sept. 19 low

• USD/MXN: Daily uptrend continues, 5th consecutive session high; further upside potential exists, as none of MACD, RSI, stochastics showing overbought
• Resistance: 13.4383 Aug. 30, 2012 high, 13.4618 June 20 high
• Little scheduled risk: Mexico net outstanding loans 10:00, budget balance 15:30

• USD/BRL: Testing higher in daily uptrend, now rebounded in full from Sept. 18 collapse
• Resistance: ~2.26 Aug. 12, Sept. 10 lows, 2.3219 Aug. 30 low
• Technicals signal upside momentum, with daily MACD, RSI, stochastics rising, none overbought;
• Scheduled risks today: BCB weekly eco survey 07:30, swap auction results 08:50, net debt % GDP 13:30