US TSYS: Vol. Bid As The Curve Bear Flattens
TYU2 operates around late NY levels shortly after the re-open, +0-03 at 117-26.
- Cash Tsys were 1.5-9.0bp cheaper come the close on Monday, bear flattening, after another leg higher in European gas prices and general inflationary worry added to Asia’s reaction to Friday’s cheapening. Broader focus remained on the upcoming Jackson Hole Symposium.
- 10-Year Tsy yields moved back above the psychological 3.00% level, closing above there for the first time since 20 July, although Tsys finished off session cheaps.
- Wider 10- & 30-Year swap spreads indicated payside swap flows aided the cheapening.
- Desks flagged interest in the downside via put options, along with a continued bid in vol., although a block buy of WN futures (+2.832) helped the space to find a bit of a base during the NY afternoon. Roll activity also aided volume.
- Flash PMI data from across the globe will be eyed in pre-NY trade.
- Tuesday’s NY session will be headlined by flash PMI readings from S&P Global, new home sales data and the Richmond Fed manufacturing index. Elsewhere, 2-Year Tsy supply is due and Minneapolis Fed President Kashkari (’23 voter) is due to speak late in the NY day/early in Wednesday’s Asia session.
Fig. 1: ICE-Bank Of America Move Index
Source: MNI - Market News/ICE/Bank Of America/Bloomberg
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USDCAD TECHS: Takes Out 20-, 50-Day EMAs
- RES 4: 1.3300 High Nov 4 2020
- RES 3: 1.3272 2.0% 10-dma envelope
- RES 2: 1.3224 High Jul 14
- RES 1: 1.3166 3.0% Upper Bollinger Band
- PRICE: 1.2853 @ 16:25 BST Jul 22
- SUP 1: 1.2823 Low Jul 22
- SUP 2: 1.2819 Low Jun 28 and key support
- SUP 3: 1.2763 Low Jun 13
- SUP 4: 1.2701 2.0% 10-dma envelope
USDCAD dipped further Friday, narrowing the gap with intraday support at 1.2819 - the late June low. The pair has now traded below both the 20- and 50-day EMA, denting the outlook and turning the near-term outlook negative. A deeper pullback opens 1.2763 and the 2.0% 10-dma envelope of 1.2701.
US TSYS: Weak Global PMIs
Tsys finish the week with a risk-off tone after weak PMI services read, Tsy broadly higher, curves initially steeper as hawkish forward rate hike guidance for the latter half of the year cooled -- a 75bps hike is still expected next week Wednesday while a 50bps move at the Sep policy meeting looks more likely.
- Tsys surged in early London trade after France and Germany mfg PMIs both missed expectations overnight, contractionary sub-50 reads at 49.6 and 49.2 respectively (UK mfg PMI bucked trend, coming out at 52.2 vs. 52.0 est).
- Volumes spiked as Tsy futures furthered the rally (30YY 2.9477% low) after preliminary July reading of the SP Global mfg PMI of 52.3 vs. 52.0 exp (52.7 in June), service sector miss at 47.0 vs. 52.7 est (steady to June read).
- Heavy volumes by the close w/ TYU2>1.6M. Yield curves turned mixed amid some profit taking in the short end: 2s10s -0.212 at -21.661 vs. -17.316 high, 5s30s however, +7.060 at 12.689.
- Fed terminal rate now seen at 3.33%, from what had been seen at 3.69% after last week's US CPI beat.
- Cross assets: Spot gold firmer but well off highs +4.78 at 1723.59, crude sold off late: WTI -1.54 to 94.81.
AUDUSD TECHS: Pierces 50-Day EMA
- RES 4: 0.7141 76.4% retracement of the Jun 3 - Jul 14 downleg
- RES 3: 0.7069 High Jun 16
- RES 2: 0.6977 High Jul 22
- RES 1: 0.6957 50-day EMA
- PRICE: 0.6955 @ 16:19 BST Jul 22
- SUP 1: 0.6786/6682 Low Jul 18 / 14 and the bear trigger
- SUP 2: 0.6647 0.764 proj of the Apr 5 - May 12 - Jun 3 price swing
- SUP 3: 0.6588 Low May 28 2020
- SUP 4: 0.6538 Low May 26 2020
AUDUSD traded well into the Friday close, piercing the 50-day EMA on an intraday basis. This improves the near-term outlook and opens next resistance at the Jun 16 high crossing at 0.7069. A solid break and close above here would cement the next upleg, which targets 0.7141, the 76.4% retracement of the Jun 3 - Jul 14 downleg. Any reversal lower would refocus attention on the 0.6682 bear trigger where a break would confirm a resumption of the downtrend.
