AUSSIE BONDS: Futures Tracking Lower, Led By The Front End, RBA Next Tuesday

• RES 3: 147.74 - High Jan 15 and bull trigger (cont)
• RES 2: 146.53 - High Aug 6 
• RES 1: 141.48/142.95 - High May 2 / High Apr 7
• PRICE: 137.31 @ 16:14 BST Aug 26
• SUP 1: 137.22 - Low Aug 26
• SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg   
• SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg

JGBs faded again into the Tuesday close, undoing a large part of the CPI-triggered rally. The first important resistance to watch remains 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal. A return lower would signal scope for an extension towards 136.57, a Fibonacci projection. 

The overnight night range was 147.10-147.91, Asia is currently trading around 147.35. USD/JPY chopped around on a 147 handle most of yesterday without actually going anywhere. The demand  towards 146.00 has been pretty solid all of July and August, keeping us for the most part in a 146.00-149.00 range. CFTC data for last week shows leveraged accounts again added to JPY shorts so the initial reaction to Powell would have been unwelcome and they would be breathing a little easier as the support continues to hold. We are approaching the corporate month-end so watch for USD demand today and tomorrow.

• (Bloomberg) -- "Japan’s Ministry of Finance made an initial request of ¥32.4 trillion ($219 billion) for next fiscal year’s debt financing needs, reflecting the impact from rising Japanese bond yield The requested amount was up around 15% from the previous fiscal year’s initial budget, according to documents seen by Bloomberg Tuesday."
• "(Bloomberg) -- "Investors are getting so desperate to lighten their holdings of Japanese government bonds that some are willing to sell the securities at a discount to the central bank. The lowest accepted yield at the Bank of Japan's bond buying operations matched the accepted average, suggesting that the price is cheap, and this anomaly has not happened since 2013." - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 147.25($765m), 147.95($1.04bm), 148.00($997m).Upcoming Close Strikes : 145.00($1.17b Aug 29), 146.50($1.14b Aug 29), 147.50($806m Aug 29)  - BBG.
• CFTC data shows last week asset managers have begun to add to their JPY longs after a consistent period of reduction +71379( Last +60866), leveraged funds though again used the dip to add to their newly built short JPY position -50848(Last -41257).

Fig 1 : USD/JPY Spot Daily Chart

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

Oil prices sank on Tuesday on wariness over the most recent attack on the Fed’s independence. Not only has President Trump constantly pressured Chair Powell to cut rates, but on Tuesday he removed Governor Cook. She has said he doesn’t have the authority to fire her. The USD index fell 0.2% in response.

• Oil prices are down on the week but levels are still above last Thursday’s low and Wednesday’s close. WTI fell 2.3% to $63.31/bbl to be down 7.2% in August. It reached a low of $63.13 late in the US session. It is currently trading around $63.37. Initial support is $61.29, with resistance at $66.56.
• Brent was down 2.3% to $67.23/bbl after a low of $67.11 and is now 6.2% lower this month. Tuesday’s move affirms the existing bear cycle. Initial support is at $65.01, while resistance is at $69.98.
• Bloomberg reported that US crude inventories fell 1mn barrels last week with a 500k drop at Cushing, according to people familiar with the API data. Products were also lower with gasoline down 2.1mn and distillate 1.5mn. The official EIA data is out on Wednesday.
• The US Department of Homeland Security issued a notice that India will face a 25% punitive tariff as of Wednesday because it continues to purchase Russian oil. There are concerns that global supplies will be materially impacted if it is extended to China and enforced. However, as many trade threats have been delayed or withdrawn, India continues to buy Russian crude.