USD: Bounces As Risk Comes Under Pressure
The BBDXY range overnight was 1207.08 - 1211.11, Asia is currently trading around 1214.80, +0.3%. The BBDXY has opened higher this morning, breaking through the 1213.00 area in reaction to the US bombing and the implications of potential extended US involvement in the conflict. The Market is caught short USD’s and the reasons for a retracement are beginning to mount, focus will turn toward the 1225/30 area if this holds.
- Bloomberg - "The dollar will strengthen when it opens, but what will matter more to markets in the long-run is the degree to which it can retain its safe-haven status. If the greenback can maintain the gains, breaking the bearish consensus that’s been in place since the start of April, it will make other US assets look much more attractive. But if the increase proves to be just a knee-jerk reaction to what is perceived as short-lived US involvement in the Middle-East conflict, the dollar’s downward path is likely to resume.”
- “Asian currencies are likely to see further downside in the near-term, amid rising vulnerability to oil prices.”(BBG)
- The BBDXY has bounced strongly off its 1200 support area, it is still in a clear downtrend but with positioning at extreme levels and headwinds increasing the potential for some sort of a retracement is increasing.
- The BBDXY rejected the 1225 area pretty strongly, the USD should continue to be met with supply towards this 1225/30 area, only a sustained break above here would start to get the bears worried.
- There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
- Data/Events : S&P Global US PMI’s, Existing Home Sales
Fig 1: BBDXY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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JGB TECHS: (M5) Rallies off Lows
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 139.40 @ 15:42 GMT May 23
- SUP 1: 138.54 - Low May 22
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs have rallied off recent lows and for now, however a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.
US FISCAL: Total Tariff Income Jumping In May As New Rates Hit
Treasury reported a record $16.5B in customs/excise taxes on May 22, reflecting the large increase in tariff rates that went into effect in April.
- Today's report is important because it represents the largest tariff collections of the month which are typically on a due date around the 22nd, when most corporate importers make their payments.
- Thursday's one-day collection is a record, and the month has already set a new record. Tariff revenues have totaled $22.3B so far in May, and are came in at $17.4B in April (after averaging $8.1B/month in 2024).
- For the fiscal year as a whole so far, customs duties have totaled just under $93B, per the Treasury Daily Statement.
US FISCAL: Extraordinary Measures Continue To Dissipate Alongside Treasury Cash
Treasury's latest estimate of the size of "extraordinary measures" available to use "in order to prevent the United States from defaulting on its obligations as Congress deliberate[s] on increasing the debt limit" is down to $67B on May 21 (of an available $299B), vs $82B a week earlier.
- The amount hit the 2nd lowest level since the debt limit impasse started, at $46B, on May 20 (the low was $34B on Feb 24).
- With $476B in cash in the Treasury General Account on May 21, that left the total resources available to Treasury at $543B, the least since April 14 - the day before the annual April 15 tax deadline.
- Treasury Sec Bessent warned Congress earlier this month that "there is a reasonable probability that the federal government's cash and extraordinary measures will be exhausted in August while Congress is scheduled to be in recess. Therefore, I respectfully urge Congress to increase or suspend the debt limit by mid-July".
