FED: Reverse Repo Operation
Sep-23 17:31
RRP usage climbs to $380.372B this afternoon from $339.316B Friday. Compares to $239.386B last Monday -- the lowest level since early May 2021. Number of counterparties at 71 from 65 prior.
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FOREX: Greenback Remains Under Pressure, USD Index Prints New 13-Month Low
Aug-23 19:19
- With the Fed taking decisive steps this week toward initiating rate cuts in September, and the associated buoyancy of major stock markets, the greenback has been under pressure. Indeed, the USD index printed at the lowest levels since July 2023, just ahead of the week’s close.
- The lower US yields are providing comfort to the Japanese yen, with USDJPY extending losses to just shy of 1.5% on the session and breaching the week’s lows in the process. As noted, the trend structure is bearish, and MA studies remain in a bear-mode set-up. A stronger reversal lower would refocus attention on key support at 141.70, the Aug 5 low.
- The elevated levels for major equity benchmarks and supportive backdrop for risk continue to provide support for the likes of AUD and NZD, also rising around 1.5%. For the majors, EURUSD (+0.75%) is hovering just under 1.12 and GBPUSD (+0.93%) is looking to post its highest close since March 2022, back above the 132.00 handle.
- Bullish conditions remain intact for cable and today’s price action has reinforced the current trend set-up. The pair has traded through two important resistance points; 1.3141/42, the top of a bull channel drawn from the Oct 4 ‘23 low and the Jul 14 ’23 high. This reinforces bullish conditions and paves the way for a climb towards 1.3261, a Fibonacci projection.
- German IFO and US durable goods data are scheduled on Monday, where UK markets will be closed for a public holiday. July PCE data for the US and Eurozone inflation data will headline the calendar next week.
US TSYS: Curve Bull Steepens As Powell Deepens Easing Expectations
Aug-23 19:14
The Treasury curve bull steepened Friday, with the short-end enjoying a strong rally after Fed Chair Powell sent a dovish message at Jackson Hole.
- Yields fell sharply across the curve after Powell declared "the time has come" for monetary easing, pointing to mounting labor market coolness and boosting 50bp cut speculation due to his omission of key phrases relating to the upcoming easing cycle (eg "cautious"/ "gradual"/ "methodical"/ "prudent").
- Stronger-than-expected July new home sales data was shrugged off by comparison.
- Rate futures now imply around 40% of a 50bp cut on September 18, vs around 25-30% pre-Powell. medium-term expectations also shifted sharply, with around 230bp of cuts now seen in the easing cycle to end-2025, vs closer to 210bp prior.
- This led to short-end Treasury outperformance, with 2Y yields down 10bp at one point, and the 2s10s spread disinverting by 4bp.
- While Jackson Hole continues through Saturday, with potential for more FOMC media appearances, attention turns to next week's largely 2nd tier data, starting with durable goods Monday, with July PCE later in the week (more in MNI's US Weekly Macro Wrap).
- We also get 2Y/5Y/7Y Treasury auctions to round out the month's supply.
- Latest cash Treasury levels: The 2-Yr yield is down 9bps at 3.9132%, 5-Yr is down 7bps at 3.6468%, 10-Yr is down 5.1bps at 3.8009%, and 30-Yr is down 2.9bps at 4.097%.
JGB TECHS: (U4) Bull Cycle Still In Play
Aug-23 18:50
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 146.67 - High Mar 6
- PRICE: 144.71 @ 16:16 BST Aug 23
- SUP 1: 143.57 - Jul 17 high
- SUP 2: 142.20/23 - Low May 30 / Low Jul 02
- SUP 3: 140.21 - 1.236 proj of Mar 22 - Nov 1 ‘23 - Jan 15 price swing
The sharp rally in JGB futures early August confirmed a bullish reversal and in the process cleared a number of important resistance points. A continuation higher would pave the way for a climb towards 147.74, the Jan 15 high and a bull trigger. Any exhaustion of this bullish move would see momentum shift lower, initially targeting 143.57, the Jul 17 high. A move lower would likely be a correction.
