JGBS: Curve Steepens, BoJ Steps In To Defend YCC
JGB futures sit -28 as we work towards the Tokyo close, after the contract shifted lower at the open, in sympathy with the moves witnessed in wider core global FI markets on Monday, before stabilsiing.
- Bears now target the 20 Jun low (140.07) in the contract as the next meaningful point of support.
- Cash JGB trade has seen bearish steepening on the curve, with the major benchmarks running 1.0-8.5bp cheaper, with the long end suffering from the lack of relative BoJ control.
- Note that the BoJ stepped in to defend its YCC mechanism, with the latest round of off-schedule Rinban purchases covering 5- to 25-Year JGBs.
- At least some of the weakness in the longer end of the curve was owing to setup ahead of today’s 40-Year JGB auction. The high yield witnessed at the auction matched wider expectations, while the cover ratio fell back towards the lows seen at March’s 40-Year auction. It would seem that ongoing market volatility and fear surrounding a potential continued sell off dominated any outright or relative value propositions, limiting demand.
- Tomorrow’s local docket is limited, with the outdated minutes from the BoJ’s July meeting and lower tier domestic data due.
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AUSSIE 10-YEAR TECHS: (U2) Outlook Deteriorating
- RES 3: 97.455 - High Mar 18
- RES 2: 97.185/275 - High Apr 5 / 200-dma
- RES 1: 97.040 - High Aug 03
- PRICE: 96.395 @ 15:51 BST Aug 26
- SUP 1: 96.275 - Low Aug 25
- SUP 2: 96.208 - 3.0% Lower Bollinger Band
- SUP 3: 95.663 - Low Jun 16
Aussie 10yr futures slipped further Thursday and have dipped below key support at 96.355, Jul 22 low. This weakens the bull cycle posted since mid-June, opening the gap with the 200-dma on the continuation contract, at 97.275. The bull trigger is 97.040, the Aug 3 high. On the downside, recent weakness suggests scope for a deeper retracement towards the mid-Jun low of 95.663.
US TSY FUTURES: BLOCK, Late Dec 2Y Buy
+5,000 TUZ2 104-09.62, buy through 104-09.38 post-time offer at 1549:16ET
USDCAD TECHS: Still Trading Below Tuesday’s High
- RES 4: 1.3224 High Jul 14 and key resistance
- RES 3: 1.3135 High Jul 15
- RES 2: 1.3107 76.4% retracement of the Jul 14 - Aug 11 downleg
- RES 1: 1.3063 High Aug 23
- PRICE: 1.2998 @ 16:37 BST Aug 26
- SUP 1: 1.2887 50-day EMA values
- SUP 2: 1.2828/2764 Low Aug 17 / 200-dma
- SUP 3: 1.2728 Low Aug 11 and key support
- SUP 4: 1.2685 76.4% retracement of the Jun 8 - Jul 14 upleg
USDCAD rallied into the Friday close having found support at the Thursday low, however, the pair remains below Tuesday’s 1.3063 short-term trend high. Near-term trend conditions still appear bullish following the recent strong recovery from 1.2728, the Aug 17 low. A resumption of gains and a break of 1.3063 would open 1.3107 next, a Fibonacci retracement. Note that MA studies are in a bull mode condition, highlighting an uptrend. Initial firm support is at 1.2887, the 50-day EMA.
