GILTS: Bear flattening as oil price moves higher
- The announcement of the cuts in oil output by OPEC+ has seen gilts move lower, largely in line with other core fixed income this morning. The curve has bear flattened as more hikes from the BOE are priced in.
- 2-year yields are up 8.6bp at writing with 10-year yields up 6.4bp.
- Pricing for the May MPC meeting is at 19bp (down from an intraday high of 21bp but up from the 17.5bp Friday close). The terminal rate has also moved up to a cumulative 46bp by September (from Friday's close of 41bp).
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USDCAD TECHS: Strong Friday Close
- RES 4: 1.3808 High Nov 34
- RES 3: 1.3795 2.0% 10-dma envelope
- RES 2: 1.3705 Dec 16 and the bull trigger
- RES 1: 1.3665 High Feb 24
- PRICE: 1.3508 @ 16:29 GMT Mar 3
- SUP 1: 1.3515 Low Feb 22
- SUP 2: 1.3476 50-day EMA
- SUP 3: 1.3400 Round number support
- SUP 4: 1.3358 Low Feb 16
USDCAD bulls remain in the driver’s seat for now and short-term pullbacks are considered corrective, Sights are on the key near-term resistance at 1.3705, Dec 16 high. A clear break of this hurdle would strengthen bullish conditions and clear the way for a test of the 1.3800 handle. The support to watch lies at the 50-day EMA. It intersects at 1.3476 and a clear break would be seen as a short-term bearish development.
US TSYS: Market Roundup: Bonds March Steadily Higher
Tsys finish near late session highs, yield curves bull flattening - completely reversing the prior session move: 2s10s -6.376 at -89.840. Bonds lead the rally early, similar drift in EGBs with no new inflation metric surprises overnight.
- Tsys pared gains briefly after higher than expected ISM Services composite of 55.1 (54.5 est), components: Business: 56.3; Prices Paid: 65.6 (-2.2); New Orders: 62.6 (+2.2); Employment 54.0 (+4.0).
- Tsys quickly rebounded with Bonds to early Wednesday levels (pre-ISM prices paid driven sell-off). Short end, however, lagged the move: Fed funds implied hike steady for Mar'23 at 31.2bp, but gained in May'23 cumulative 59.4bp (+2.0) to 5.170%, Jun'23 77.0bp (+2.1) to 5.345%. Fed terminal climbed to 5.480% high in Oct'23, but receded to 5.450% at the close.
- Salient events later in the week:
- Fed Chair Powell semi-annual mon-pol report to Congress, Tue 1000ET
- Fed Chair Powell report to Congress: House Fncl Srvcs, Wed 1000ET
- ADP employment data for Feb (106k prior, 200k est), Wed 0815ET
- NFP employment data for Feb (517k prior, 200k est), Fri 0830ET
AUDUSD TECHS: Bear Flag Formation
- RES 4: 0.6989 High Feb 15
- RES 3: 0.6921 High Feb 20
- RES 2: 0.6857 Former trendline support drawn from Oct 13 2022 low
- RES 1: 0.6784 High Mar 1
- PRICE: 0.6750 @ 16:28 GMT Mar 3
- SUP 1: 0.6695 Low Mar 01
- SUP 2: 0.6664 50% retracement Oct - Feb bull cycle
- SUP 3: 0.6629 Low Dec 20 and a key support
- SUP 4: 0.6585 Low Nov 21
AUDUSD’s February downtrend remains intact with price trading closer to its recent lows. The recent consolidation appears to be a bear flag - reinforcing the downtrend. The recent breach of both the 200-dma and 100-dma, reinforced bearish conditions and note too that the pair has cleared a trendline support drawn from the Oct 13 2022 low. The focus is on 0.6629, the Dec 20 low and the next key support. Resistance to watch is at 0.6857.
