Drawn and Quartered

Markets chopped but settled at a virtual standstill on Tuesday. The New Zealand dollar was the top performer while the Canadian dollar lagged and hit a fresh 11-year low. Japanese retail sales and industrial production are up next. Ashraf has a new 40-minute video for Premium subscribers, laying out the strategies and charting behind intermarket trades.

A 50-point drop in the S&P 500 on Monday had traders on edge and that's where they remained Tuesday. The major FX pairs finished within a quarter-cent of opening levels and stocks were fractionally higher.

Flows dominate at this time of year. Wednesday is the final day of Q3 and asset managers are squaring books and trades. Those flows overwhelm fundamentals.

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The most-negative headlines hit the euro as German and Spanish CPI data was well-below estimates. The euro fell below 1.1200 for a period but slowly clawed its way back to finish slightly higher on the day at 1.1253.

Cable remains in a slump. It fell for the eighth consecutive day and hit a fresh low since early May at 1.5129. It was a marginal fresh low but the inability to bounce is a concern. Perhaps more concerning is that the entirety of the GBP skid is without any strong fundamental driver, aside from BoE warnings with bond market liquidity and sort-term risks of deflation. The market is concerned about global growth but the BOE has remained hawkish and optimistic.

Another optimistic sign came from US consumers as Sept consumer confidence rose to 103.0 from 101.5 and beat the 96.8 consensus. That was balanced by US goods trade balance numbers that showed a hefty August deficit in another sign that the strong US dollar is hurting exports. The report led economists to downgrade Q3 GDP estimates. Many are now below 2% and that strengthens our conviction that the Fed won't hike this year.

Up next, the focus is on Japan with industrial production and retail sales numbers for August due at 2350 GMT. Abe was out in the media talking about Abenomics 2.0 and pumping up the economy. The BOJ eased last October, could his comment be a sign of another Halloween trick? For the data, production is expected up 1.0% m/m and retail sales forecast at +0.5% m/m. It would take a hefty miss to ramp up BOJ talk and boost yen crosses.