BONDS: EGBs-GILTS CASH CLOSE: Long-End Rally Continues In Risk-Off Session
Feb-12 18:58
European yields continued to descend Thursday in a risk-off session, with long-end cash instruments gaining for a 3rd consecutive day.
- A sharp pullback in global equities starting in the middle of European afternoon trade helped early EGB and Gilt gains extend into the cash close.
- While core instruments gained, with Gilts outperforming Bunds across the curve, periphery/semi-core EGB spreads largely held in despite the flight to safety.
- In data, UK December monthly GDP printed in line with consensus at 0.1% M/M - entirely services-driven - however downward revisions were also due to services - which left Q4 growth weaker than expected at 0.1% Q/Q (vs 0.2% cons).
- Markets didn't react as the data weren't seen having much impact on BOE policy, with MPC's Breeden reiterating that it's "reasonable to expect" a cut in March or April. Even so, on the day 2Y UK yields fell to a post-Aug 2024 low as part of the broader rally.
- The German and UK curves leaned bull flatter. Semi-core EGBs outperformed periphary instruments, with Spain/Portugal underperformers.
- Friday brings Eurozone GDP, labour market and trade data as well as appearances by BOE's Pill, while the global focus will be on the US CPI release.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.6bps at 2.06%, 5-Yr is down 1.3bps at 2.365%, 10-Yr is down 1.3bps at 2.779%, and 30-Yr is down 0.7bps at 3.449%.
- UK: The 2-Yr yield is down 2.1bps at 3.603%, 5-Yr is down 2bps at 3.855%, 10-Yr is down 2.4bps at 4.452%, and 30-Yr is down 2.7bps at 5.258%.
- Italian BTP spread unchanged at 60.5bps / French OAT spread down 1bps at 58bps
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FOREX: USD Shrugs of Soft US Inflation, DXY Approaches Post-NFP Highs
Jan-13 18:44
- Despite a softer-than-expected US inflation report for December, the initial weakness for the US dollar was short-lived and the resultant price action saw the greenback steadily grind higher throughout the session. As such, the USD index is hovering close to session highs as we approach the APAC crossover, in close proximity of last Friday’s post NFP highs at 99.26.
- Dollar strength has been most notable against the yen on Tuesday, with an impressive pre-data rally overnight consolidating post release as the domestic political backdrop in Japan continues to weigh on yen sentiment.
- For USDJPY, this has translated to a move above 159.00, the highest level since July 2024. Technical developments have exacerbated the latest leg higher for USDJPY, with last week’s breach of 157.89 confirming a resumption of the medium-term uptrend. Furthermore, today’s breach of a key resistance at 158.87 (2025 high) could spur additional topside momentum, with immediate targets for the move including 159.60 and 160.00, both Fibonacci projection points.
- The greenback recovery combined with a moderately softer equity backdrop, which has subsequently weighed on the likes of AUD and NZD, with both currencies roughly 0.5% in the red. For AUDUSD, we have highlighted the focus remains on a key support zone between the 20- and 50-day exponential moving averages, with the latter intersecting today at 0.6630.
- US PPI figures will take the spotlight on Wednesday, however, it is worth noting that China trade data will cross overnight.
SOFR OPTIONS: Larger SOFR Upside Plays
Jan-13 18:44
Upside Call volume rising as underlying futures hold modest gains. Projected rate cut pricing vs. late Monday levels (*): Jan'26 at -0.7bp (-1.2bp), Mar'26 at -6.9bp (-6.6bp), Apr'26 at -11.2bp (-11.2bp), Jun'26 at -24.6bp (-23.6bp).
- +23,000 SFRU6 96.75/96.70/97.25/97.50 call condors 6.0 ref 96.76
- +7,500 SFRM6 96.43 puts 0.0 over 0QM6 96.37 puts
GBPUSD TECHS: Short-Term Trend Structure Remains Bullish
Jan-13 18:30
- RES 4: 1.3726 High Sep 17 and a key resistance
- RES 3: 1.3661 High Sep 18
- RES 2: 1.3607 2.764 proj of the Nov 4 - 13 - 20 price swing
- RES 1: 1.3568 High Jan 6 and the bull trigger
- PRICE: 1.3440 @ 16:02 GMT Jan 13
- SUP 1: 1.3383 50-day EMA
- SUP 2: 1.3312 Low Dec 17
- SUP 3: 1.3288 Low Dec 9
- SUP 4: 1.3180 Low Dec 2
The trend theme in GBPUSD remains bullish and the latest pullback appears to have been a correction. Support at the 50-day EMA, at 1.3383, remains intact. A clear break of this EMA would signal scope for a deeper retracement and open 1.3312, the Dec 17 low. For bulls, a reversal higher would refocus attention on key resistance and the bull trigger at 1.3568, the Jan 6 high. Clearance of this level would resume the uptrend that started on Nov 4.
