FOREX: Europe Happy to Buy USD Off Lower Levels
Jul-02 09:21
- The greenback is on for a steadier start to the session, climbing off overnight lows as European markets are happy to buy the USD at lower levels. As a result, the USD Index is testing yesterday's highs to recoup ~0.5% off the pullback low. We continue to monitor the pierce of key long-term support at 96.55 - the trendline drawn from the May 2011 low - however, we note the oversold position does raise the possibility that either; a correction unfolds soon, or that the pace of the trend slows down, resulting in more volatile price action going forward.
- In contrast with Tuesday trade, JPY is the poorest performer in G10 as spot gravitates back toward the 50-dma. Nonetheless, the bear threat in USDJPY remains intact and Tuesday's sell-off reinforces this theme. The Jun 23 shooting star candle formation highlighted a reversal of the recent recovery and this signal remains in play.
- Meanwhile, GBP is softer off the new cycle high from Tuesday. GBP/USD has shown back below 1.37, with some selling pressure emanating from the failure of UK PM Starmer to press ahead with Welfare Reform in the House of Commons late yesterday. The UK Government continues to lose support among the voting public, and remains under pressure from their party MPs - extending a near-term phase of political uncertainty. EUR/GBP prints 0.8599 ahead of the NY crossover, the highest spot price since late April.
- ADP Employment Change data will be carefully watched later today. Market consensus looks for job gains of +98k over the month - and comes in the context of Powell's insistence that the FOMC are monitoring data very closely ahead of the July meeting, at which he refused to rule out policy action. The Whisper number for this Thursday's (brought forward by one day due to US market holidays on Friday) NFP headline has been trending lower, and now sits below consensus of 110k, meaning any positive surprise in ADP today could shift market perceptions.
- The ECB's Sintra policy conference continues. De Guindos, Cipollone and Lane are all set to speak, as well as BoE's Taylor - all before Lagarde makes the formal closing remarks of the conference at 1515BST/1015ET. The President has no public engagements set for Wednesday, but markets will be on watch for any further unscheduled comments on the incoming tariff regime. The President reaffirmed a 9th July deadline for a higher tariff set after April's delay - and said he is not considering any further rescheduling - placing more pressure on negotiating teams to reach a near-term settlement.
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EGBS: Bunds Weaken, Curves Steepen On Medium-term Inflation Risks
Jun-02 09:17
- Bund futures have weakened through the course of this morning, currently 39 ticks below Friday’s settlement at 130.82. Initial support is 130.39, the May 29 low. Despite the intraday selloff, a bullish theme remains intact from a technical perspective.
- Markets may be pricing in risks of structurally higher medium-term inflation, seemingly a combination of Trump’s latest tariff threats and higher oil prices following the weekend OPEC+ decision.
- Eurex rolls have been active, with today’s data calendar relatively quiet ahead of risk events later this week.
- The EU will sell up to E6bln of EU-bonds this morning, which may be adding further pressure to core EGB futures in the lead-up to the 1030BST bidding deadline.
- The German curve has bear steepened, with yields 2.5 to 6bps higher. 10-year EGB spreads to Bunds are up to 1bp wider, while EU-bond spreads are 1bp tighter despite the impending supply.
- The Eurozone May manufacturing PMI confirmed flash estimates at 49.4 (vs 49.0 prior), with an upward revision in France offset by a downward revision in Germany. The stronger-than-expected Spanish data was also countered by a slightly softer-than-expected Italian reading.
- This afternoon’s macro focus turns to the US ISM manufacturing reading at 1500BST. A reminder that Eurozone-wide May flash inflation is due tomorrow. There may be downside risks to the 2.0% headline consensus. Thursday's ECB decision (25bp cut to 2.00% expected) headlines this week's regional calendar.
SLOVAKIA AUCTION RESULTS: New 2.50% Jun-29 SlovGB
Jun-02 09:16
| 2.50% Jun-29 SlovGB* | Previous | |
| ISIN | SK4000027397 | SK4000024683 |
| Amount | E817mln | E136mln |
| Avg yield | 2.5000% | 2.2945% |
| Bid-to-cover | 1.56x | 2.20x |
| Avg Price | 100.0000 | 101.8317 |
| Low Price | 100.0000 | 101.8100 |
| Pre-auction mid | 101.936 | |
| Previous date | 19-May-25 |
FOREX: USD Index Bear Trigger Within Range; Next Drivers?
Jun-02 09:14
- Broad dollar weakness Monday has shifted market focus back to the post-election cycle lows for the USD Index at 97.921. A close at today's lows would mark a resumption of the S/T downcycle, narrowing the gap with the bear trigger to just 0.75%. The formation of a bearish engulfing daily candle on Thursday last week adds to the S/T downside focus.
- Today's moves may not only be being driven by the repricing of structurally higher inflation (as covered earlier this morning), but the street consensus for USD is also shifting. This weekend's Morgan Stanley note is garnering plenty of attention - seeing a 9% decline in the USD Index to 91.00 in the next 12 months. This is considerably more bearish than consensus (street looks for ~96.00 at end-Q2'26), but the growing USD net short position suggests these expectations are coming under pressure.
- Derivatives markets often move with a higher beta to spot - so it's a surprise to see a synthetic USD Index risk reversal proving more resilient to the recent sell-off relative to today's price (see below). Should the sell-the-US narrative return in earnest (likely via US equities breaking through the mid-May lows), options positioning could extend lower and provide the needed impetus for the next leg lower in the greenback, compensating for the already-stretched CFTC net position.
