FOREX: Asia FX Wrap - BBDXY Probing The 1200 Area Again

ACGBs (YM -5.0 & XM -2.0) are weaker after trading in narrow ranges on a local-data-light session.

• Cash US tsys are little changed in today's Asia-Pac session ahead of today's CPI data. Analyst unrounded estimates see core CPI inflation accelerating mildly to 0.27% M/M (median, 0.28% average) in May after 0.24% M/M in April. (See link)
• Focus has also been on US-China trade talks, with headlines from London crossing earlier. The market reaction has been fairly muted, with the main outcome being agreement to move forward with what was agreed at the Geneva talks in May (although both US and Chinese leaders need to sign off on implementation).
• Cash ACGBs are 2-4bps cheaper with a flatter curve and the AU-US 10-year yield differential at -20bps.
• The bills strip has cheapened, with pricing -2 to -3.
• RBA-dated OIS pricing is firmer across meetings today. A 25bp rate cut in July is given a 79% probability, with a cumulative 72bps of easing priced by year-end.
• Tomorrow, the local calendar will be empty apart from a speech from RBA Jacobs, Head of Domestic Markets Department – Australia’s Bond Market in a Volatile World – at the Australian Government Fixed Income Forum, Tokyo. 

Headlines have crossed via BBG from Japan's MOF that speculation around July bond buybacks is unrealistic. 

• BBG notes: " Buying back of super-long government bonds from July is unrealistic and not envisioned, an official from Japan’s Ministry of Finance said in an email to Bloomberg News."
• This follows recent speculation around various shifts/efforts that the Japan authorities may enact to calm longer dated yields. This could involve shifts in BoJ taper plans, along with potential changes to government bond issuance plans (with a focus on more shorter dated issuance).
• Note Rtrs reported yesterday: "Japan is considering buying back some super-long government bonds issued in the past at low interest rates, two sources with direct knowledge of the plan said on Monday, underscoring its focus on reining in any abrupt rises in bond yields."  See this link.
• Market reaction has been limited in terms of JGB futures. June futures are still close to session highs, last near 139.30, while USD/JPY is relatively steady, near 145.00.

The BBDXY has had a range of 1209.44 - 1212.04 in the Asia-Pac session, it is currently trading around 1211.”With weaker data eroding the UK’s relative yield advantage and the Federal Reserve clinging to its higher-for-longer script, GBP/USD now faces a more challenging landscape. The pound has rallied nearly 8% year-to-date against the dollar, but the backdrop may be shifting”(BBG). PPG Macro on X: “UK (un)employment. HMRC PAYE employees total for May fell 109k. Even allowing for revisions, payrolled employment has fallen for 7 months in a row. 6-month average fall of 41.7k. The equivalent of nonfarm payrolls falling at over 200k a month.”

• EUR/USD -  Asian range 1.1406 - 1.1439, Asia is currently trading 1.1415. EUR has drifted down during the Asian session in response to the move lower in US stocks. Dips should continue to find demand, first support around 1.1350 then the 1.1100/1200 area.
• GBP/USD - Asian range 1.3475 - 1.3510, Asia is currently dealing around 1.3485. The GBP looks to be failing in its attempt to gain any momentum above the pivotal 1.3500 weekly pivot. Poor data yesterday capped the move, support seen back towards 1.3400 and then 1.3200.
• USD/CNH - Asian range 7.1823 - 7.1897, the USD/CNY fix printed 7.1815. Asia is currently dealing around 7.1865. Sellers should be around on bounces while price holds below the 7.2500 area. 
• Cross asset : SPX -0.29%, Gold $3340, US 10-Year 4.47%, BBDXY 1211, Crude oil $64.95

• Data/Events : US CPI

  Fig 1: GBP/USD Spot Daily Chart

  

  Source: MNI - Market News/Bloomberg Finance L.P