CRYPTO: Ethereum-Heavy Below $2000, But Is Nearing Levels Buyers Could Return

The BBDXY range overnight was 1207.54 - 1210.11, Asia is currently trading around {BBDXY Index}. The USD found some support around the 1208 area after the initial knee-jerk lower. This leaves the USD in the middle of its recent range without any clear direction. On the day, it looks like 1205-1215 should cover it for now, watch for any ruling from the Supreme court as well as a potential incursion into Iran to maybe shake it up a little. This lack of a trend is being reflected in the CFTC data which shows very little positioning in the USD Index to start the year.

• MNI INTERVIEW: Fed Could Cut Around 100BP This Year-Bell. The Federal Reserve has ample room to keep cutting interest rates despite a robust economic backdrop because inflation excluding factors like shelter is already near target and the job market is effectively stalled, former IMF economist Gerwin Bell told MNI.  {NSN T8R4IB6QRTHC <GO>}
• The BBDXY Average True Range for the last 10 Trading days: 339 Points

Fig 1: BBDXY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

The AU–NZ 10-year yield differential currently sits at +29bps, around 10bps below its recent peak of approximately +40bps, the widest since October 2020.

• The widening in the long-end spread has been mirrored by shifts in market expectations for the policy rate differential over the next year, as reflected in the AU–NZ 1-year forward 3-month swap (1Y3M) spread.
• Markets are presently pricing a 10-15bp narrowing of the AU–NZ 3-month rate spread over the next 12 months.
• Our Economics team’s central view is that both the RBA and the RBNZ are most likely to leave policy rates unchanged over the coming year.
• A simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past two years shows that the 10-year differential is around 2bps above fair value based on the regression model.

Figure 1: AU-NZ: 10-Year Yield Differential Vs. FV

Source: Bloomberg Finance LP / MNI 

US bond futures are all modestly higher in the Asia trading day today.  The 10-Yr is up +01+ to 112-06, having fallen modestly during the US trading day.  TYH6 remains near to the mid-point from its topside resistance in the 100-day EMA at 112-14+ and the downside resistance from the 200-day EMA at 112-00+.  Futures are have traded in relatively tight ranges in recent days as expectations for the January FED meeting diminish.  

Cash is relatively unchanged Tuesday with turnover muted.  

• The 2-Yr is at 3.537%
• The 5-Yr is at 3.7596% up +0.3bps
• The 10-Yr is at 4.179%
• The 30-yr is at 4.827% down -0.2bp. 

The upcoming CPI will be the last major data report ahead of the Fed's end-January meeting, but is very unlikely to sway the FOMC away from holding rates as is heavily priced (only about 1bp of cuts implied by futures), yet a strong reading will unlikely be taken as an early warning given data quality questions remain.

Overnight there was a US$86bn 13-week, US$77bn 26-week, a US$58bn 3-Yr  and a re-opening of 10-Yr notes auction.  With the exception of the 3-Year which was flat, the other auctions a saw modestly stronger bid to cover relative to the last auction of same maturity.  

Tonight there is a US$75bn 6-week auction and a US$22bn 30-Year reopening.