EURJPY TECHS: Corrective Pullback

The early Tokyo cheapening impetus held through Wednesday’s session after Japanese participants returned from Tuesday’s holiday and reacted to a moderation in systemic fears surrounding the global banking sphere.

• That leaves JGB futures the best part of 80 ticks lower into the close, with bears unable to force a test of early session lows despite various rounds of selling pressure becoming evident as the session wore on.
• Cash JGBs sit 1-8bp cheaper with 7s leading the weakness given the move in futures.
• Meanwhile, swap rates are 3-10bp higher as that curve steepens, with swap spreads wider across the term structure, meaning that payside swap flows exerted some pressure on JGBs at different stages of the day.
• Some light richening in U.S. Tsys and the proximity to the impending FOMC decision probably provided some light counter to the broader weakness in JGBS.
• Local news flow was dominated by the loose outlining of a Y2tn fiscal package (drawn up from reserve funds) that will aim to lessen the inflationary burden in Japan (handouts for low-income households and support for those using LNG as an energy source). This comes ahead of next month’s local elections.
• Looking ahead, global matters are set to continue to dominate on Thursday, with a liquidity enhancement auction for off-the-run 5- to 15.5-Year JGBs the only point of note on tomorrow’s local docket.

• RES 4: 108.00 Round number resistance
• RES 3: 107.78 High Feb 2 and a key resistance (cont)
• RES 2: 106.00/107.33 Round number resistance / High Mar 20
• RES 1: 105.22 High Mar 21
• PRICE: 104.85 @ Close Mar 21
• SUP 1: 104.12 Low Mar 16
• SUP 2: 103.26 50.0% retracement of the entire rally from Feb 28
• SUP 3: 103.11 20-day EMA
• SUP 4: 102.40 Low Mar 13

Gilt futures remain above support at 103.12, the Mar 15 low. The outlook is bullish - for now - and the latest pullback appears to be a correction. Potential is seen for a climb towards the 108.00 handle. The contract traded higher last Friday and again Monday to reinforce bullish conditions. Firm support is seen at the 20-day EMA, where a break would strengthen any developing bearish threat. The average intersects at 103.11.

TYM3 deals at 114-09, +0-05, with a 0-08 range observed today on volume of ~91k.

• Cash tsys sit 1-4bps richer across the major benchmarks, the curve has steepened
• In early dealing, Asia-Pac participants faded yesterday's cheapening, perhaps using the opportunity to square short positions ahead of today's FOMC rate decision.
• The bid marginally extended on reports that US bank First Republic may need government support to encourage buyers for the troubled bank.
• Further support was seen as USD/JPY was offered after testing resistance level at ¥132.65, the high from 20 March, which spilled over into mild USD weakness. However there was little follow through in the move and tsys ticked away from session highs.
• FOMC dated OIS currently price a 20bps hike for today's meeting, with a terminal rate of ~4.95% seen in May. There are ~65bps of cuts priced for 2023.
• In Europe today UK CPI and ECB speak from Lagarde headlines. However the Fed rate decision and Powells post meeting press conference are today's highlights; our preview is here.