AUSSIE BONDS: Futures Steady, Focus Remains On 10yr Downside, Q2 GDP Later

Gold prices rose sharply on the disappointing July US payrolls data finishing up 2.2% to $3363.48/oz. The data drove a significantly higher chance priced in of a September Fed cut and lower yields, which are a positive for non-interest bearing gold. It is slightly lower today at $3356.2. The USD index fell 0.9%.

• US July payrolls not only printed below expectations but downward revisions to the previous two months were a significant 258k resulting in May/June outcomes of 14k and 19k respectively. The unemployment rate ticked up only 0.1pp to 4.2%, around where it has been for the last year.
• While most countries are facing a lower US tariff than announced at the start of April, the US’ effective tariff has risen sharply to around 16% from about 3%, which also supported bullion on Friday.
• Gold held below initial resistance at $3373.6, 25 July high, on Friday. Any short-term weakness continues to be seen as corrective for now. It has returned above $3319.9, 50-day EMA. The bull trigger is at $3500.1, while the bear trigger is at $3248.7.
• Silver rose 0.9% to $37.037 but was down 2.9% last week. It reached a high of $37.183 following the payroll data. Trend signals remains bullish with initial resistance at $39.655, while support is at $36.216. It is currently lower at $36.98.
• Equities sold off with the S&P down 1.6% and Euro stoxx -2.9%. The S&P e-mini has stabilised so far today. Oil prices were lower with WTI -2.9% to $67.26/bbl. Copper rose 2%.

The Friday night range was 147.30 - 150.65, Asia is currently trading around 147.25. USD/JPY reacted to the capitulation in US yields and had a kneejerk move lower. The JPY got the double whammy of the move in rates and as a safe haven as risk wobbled off its highs. Price moved very quickly away from the pivotal 151/152 area much to the relief of Institutional JPY longs and the BOJ. The Pair opens in Asia testing its first support around 147.00, the more important level will be around 145.00. CFTC Data shows leveraged accounts had started to aggressively build Yen shorts last week so this quick move lower would be a bitter pill to swallow. A move sub 145.00 would turn momentum lower once more, until then the 145.00-151-00 range should dominate.

• (Bloomberg) -- “Momentum is building behind a stronger yen as longstanding headwinds begin to abate. The recent US-Japan trade deal, a fresh political transition in Tokyo, and prospects for a rate hike from the Bank of Japan have helped reduce the policy and political drags that have undercut yen appreciation.”
• “A significant shift in signaling from the BOJ is driving this reappraisal. Deputy Governor Shinichi Uchida recently delivered some of the clearest forward guidance to date, explicitly linking reduced trade tensions with a higher probability that the central bank’s inflation and growth forecasts will be met. “Uncertainty has receded,” he said, opening the door for a rate increase later this year.”
• Options : Close significant option expiries for NY cut, based on DTCC data: 149.50($752m), 150.00($1.16b), 150.50($967m).Upcoming Close Strikes : 147.65($1.14b Aug 7) - BBG.
• CFTC data shows asset managers surprisingly added slightly to their JPY longs +75119( Last +72326), while leveraged funds aggressively added to their newly built short JPY position -31280(Last -11571).
• Data/Event : Monetary Base

Fig 1 : JPY CFTC Data

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

USD/CNH tracks near 7.1900 in early Monday dealings. CNH gains a touch over 0.20% for Friday's session, as US data misses led by the NFP print, weighed heavily on USD sentiment (the BBDXY index lost 0.88%, while the DXY fell 0.83%). Spot USD/CNY finished up at 7.1933, while the CNY CFETS basket tracker rose 0.19% to 96.94 (per BBG), fresh highs back to May for the index.

• For USD/CNH spot, we hold just above the 50-day EMA support point (7.1890). Further south is the 20-day EMA, close to 7.1825. Recent lows under 7.1500 will likely be targeted on renewed USD weakness in the aftermath of Friday night's data. Highs from Friday (7.2241) were marked around the 200-day EMA (7.2215). This region should remain a near term resistance point.
• The sharp slump in US Tsy yields and rising Fed easing expectations are likely to be USD headwinds, albeit with CNH displaying a lower beta with respect to such moves. CNH/JPY is back under 20.48 this morning, against recent highs of 20.93. ERU/CNH is back near 8.3300, after recent lows close to 8.2140.
• The US-CH 2yr government bond yield spread is back to +225bps, with lows this year for the spread marked just under +220bps.
• The local data calendar is empty today, but tomorrow we have the July S&P Global services PMI. The market expects a 50.4 outcome (June's print was 50.6).
• "USTR Jamieson Greer said the trade truce deadline for China is still under discussion." (per BBG).