JGBS: 5Y Leads Yields Lower, MoF Considering Cutting LT Issuance

• RES 4: 1.3550 High Feb 24 ‘22
• RES 3: 1.3510 1.236 proj of the Feb 28 - Apr 3 - 7 price swing
• RES 2: 1.3444 High Apr 28 / 29 and the bull trigger
• RES 1: 1.3404 High May 19   
• PRICE: 1.3373 @ 06:14 BST May 20
• SUP 1: 1.3140 Low May 12   
• SUP 2: 1.3126 50-day EMA
• SUP 3: 1.3041 Low Apr 14  
• SUP 4: 1.2968 Low Apr 11 

GBPUSD traded higher Monday, extending the recovery from 1.3140, the May 12 low. A bullish engulfing candle on May 13 highlights a bullish reversal signal. The pattern remains valid and if correct, signals the end of the recent corrective cycle and a resumption of the uptrend. Key support to watch is 1.3126, the 50-day EMA. A continuation higher would refocus attention on the key resistance and a bull trigger, at 1.3444, the Apr 28 / 29 high.

JGB futures are sharply weaker, -24 compared to settlement levels, but well above session cheaps seen in the aftermath of today’s very poor 20-year auction. 

• The low-price underperformed dealer forecasts, according to a Bloomberg poll. Moreover, the cover ratio decreased to 2.5007x from 2.9639x in the previous auction, and the auction tail lengthened dramatically from 0.34 to 1.14 – the longest since 1987. In post-auction dealing, the 20-year JGB hascheapened 13bps.
• Cash US tsys are slightly cheaper in today’s Asia-Pac session after yesterday’s modest gains.
• (Bloomberg) -- “House Speaker Mike Johnson said “we are almost there” on passing a sweeping US tax bill. Republicans are pushing to implement Medicaid work requirements in 2027, two years earlier than planned, Majority Leader Steve Scalise told CNBC.”
• (Bloomberg) - “Washington lawmakers are risking a "fiscal disaster" if a recession hits as they continue with their package of sweeping tax cuts, according to Guggenheim Securities Co-Chair Jim Millstein.”
• Cash JGBs have bear-steepened across benchmarks, with yields 1-13bps higher. The benchmark 20-year yield is 13bps higher at 2.543%.
• Swaps have also bear-steepened, with rates 1-11bps higher.
• Tomorrow, the local calendar will see Trade Balance data. 

• RES 4: 119.960 High Apr 7 and the bull trigger          
• RES 3: 119.780 High Apr 22          
• RES 2: 119.600 High May 7
• RES 1: 118.880/118.950 Intraday high / High May 12                                     
• PRICE: 118.810 @ 05:50 BST May 20 
• SUP 1: 118.420 Low May 19        
• SUP 2: 118.060 Low May 14 and 15 and the bear trigger
• SUP 3: 117.680 Low Apr 9 and a key support
• SUP 4: 117.600 Low Mar 28     

The recovery from last week’s low in Bobl futures signals a possible reversal and the end of the corrective cycle between Apr 22 - May 15. A continuation higher would open 118.950 next, the May 12 high. Clearance of this level would strengthen a bullish theme. On the downside, a resumption of weakness would instead expose 117.680, the Apr 9 low and a key support. The bear trigger is 118.060, the May 14 / 15 low.