EURGBP TECHS: Bear Cycle Remains In Play

European curves flattened Wednesday, with Bunds underperforming Gilts.

• Bunds were steadily weakening with Gilts a little stronger on the day when an WSJ afternoon sources article pointed toward potential for the US relaxing tariffs on China sent core FI sharply lower. While this was later talked down by US Tsy Sec Bessent, Bunds and Gilts largely held their losses.
• The Eurozone-wide services PMI was on the soft sign of expectations, with weaker-than-expected French and German data appearing to be offset by stronger performances elsewhere in the Eurozone.  
• Meanwhile in the UK, public sector net borrowing was higher than expected, though like the Eurozone, Services PMI disappointed. BoE Gov Bailey's speaking appearance was not market-moving.
• While the German and UK curves moved in parallel across the short-end/belly, Gilts outperformed in the segments beyond that with the UK curve twist flattening (vs German bear flattening).
• EGB periphery/semi-core spreads closed tighter amid equity gains and the Bund sell-off, with BTPs and OATs outperforming.
• German IFO leads Thursday's data docket, while we get multiple ECB speakers including Lane.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 8.5bps at 1.746%, 5-Yr is up 6.6bps at 2.048%, 10-Yr is up 5.4bps at 2.497%, and 30-Yr is up 5.2bps at 2.911%.
• UK: The 2-Yr yield is up 8.6bps at 3.916%, 5-Yr is up 5.9bps at 4.039%, 10-Yr is up 0.7bps at 4.552%, and 30-Yr is down 5.9bps at 5.309%.
• Italian BTP spread down 3.3bps at 113.3bps / French OAT down 3.7bps at 73.8bps  
   

Wednesday's Europe rates/bond options flow included:

• OEM5 118p sold at 14.5 and 14 in 16.25k

• ERH6 98.43/98.12ps 1x2, bought the 1 for 2.25 in 3k

   

• RES 4: 1.3550 High Feb 24 ‘22  
• RES 3: 1.3500 Round number resistance  
• RES 2: 1.3434 High Sep 26 ‘24 and a key resistance
• RES 1: 1.3424 High Apr 22 and the bull trigger 
• PRICE: 1.3276 @ 16:04 BST Apr 23
• SUP 1: 1.3234/3207 Intraday low / High Apr 3 1 
• SUP 2: 1.3099 20-day EMA
• SUP 3: 1.2923 50-day EMA 
• SUP 4: 1.2807 Low Apr 10 

The trend direction in GBPUSD remains up and fresh cycle highs this week reinforces current conditions. The pair has recently breached 1.3207, the Apr 3 high and a bull trigger. This highlights a resumption of the uptrend. Note that moving average studies are in a bull-mode position, signalling a dominant uptrend. Sights are on 1.3434 next, the Sep 26 ‘24 high. Support to watch is 1.3099, the 20-day EMA. The latest pullback appears corrective.