RF45 mill with HSS86 hybrid drivers, 7i96S 7i85 , linear encoders, PID

Hello,I’m setting up an RF45-style mill with LinuxCNC on a Mesa 7i96S 7i85. The machine uses 86HSE12N-BC38(NEMA34 12nm) motors with HSS86 hybrid drivers, and I have installed linear encoders on X, Y, and Z. The encoder resolution is 0.005 mm, so I set the encoder scale to 200. I’m using switch homing only — I do not have an index pulse on the encoders.The machine already homes and moves, so the basic step/dir side is working. The encoders are assigned as:

• X = encoder 0
• Y = encoder 1
• Z = encoder 2

My goal is to use the linear scales for closed-loop correction in LinuxCNC while still keeping the HSS86 closed-loop stepper drivers in the system. The question is will these two fight for dominance? Second question is what is the correct way of doing it ?
The main problem is that i don't know what i am doing .
Second main problem is when i move x y is moving also ?!?!? And Linuxcnc e-stops with following error. None of changes i make in  PID values makes any meaningful change in my opinion (but i don't know what i am doing soooo....).
I have uploaded my .hal and .ini files any help will be greatly appreciated. 

X,Y moving together sounds like a hardware/wiring issue of some kind.

Can you check if the cross talk is from the encoders or stepgens?