JPY: Hawkish Fedspeak Helps Push USD/JPY Past Y145
The yen was broadly firmer on Thursday, as participants flew to safety, but still underperformed the greenback. Hawkish Fedspeak pushed USD/JPY higher, with the pair showing above Y145.00.
- U.S. weekly jobless claims rose more than expected, according to data released on the eve of the key monthly jobs report, which helped spoil market sentiment. Fed members continued to push back against the idea of an imminent pivot, with Governor Waller reinforcing the Fed’s commitment to fighting inflation during the NY-Asia crossover
- Benchmark equity indices faltered across Europe and the U.S., with Asia-Pac futures moving into the red. The VIX index rebounded from its worst levels in nearly two weeks, adding ~7.1% come the end of play.
- U.S./Japan yield spreads widened as Fed members kept beating the hawkish drum. 2-year differential expanded 11.2bp, while 10-year gap grew 6.9bp. Note that the yield on 10-Year JGBs was within touching distance from the BoJ's 0.25% cap at Thursday's close.
- Spot USD/JPY trades at Y145.01, down 13 pips on the day. The move through Y145.00 puts the market on alert for renewed verbal interventions by Japanese officials. Topside technical focus is on Sep 22/2.764 proj of the Aug 2 - 8 - 11 price swing at Y145.90/146.03. Bears look for losses towards Sep 22 low of Y140.36.
- Monthly earnings/spending data headline the local economic docket today.
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US TSYS: Bear Steepening On Tuesday; Fedspeak Eyed
TYZ2 is -0-01 at 115-18 after the re-open for Tsy futures, operating 0-03+ above Tuesday’s base at writing, holding on to the bulk of the cheapening observed at that session.
- To recap, Tsys cheapened soon after the NY open on Tuesday as the U.S. returned from the long weekend, with a beat in the Aug ISM services survey (56.9 vs. BBG median 55.3) accelerating the move lower.
- Cash Tsys ran 11.5-16.0bp cheaper across the curve heading into the close, bear steepening.
- From a technical perspective, Tuesday’s move lower in TYZ2 has seen it trade through the bear trigger at 115-23 (Sep 1 low), exposing further support at 114-26 (Jun-26 low).
- Looking ahead, the economic data docket across the Asia-Pac session is relatively light, with Australian Q2 GDP and the BoJ’s Rinban operations (covering 1- to 10-Year JGBs) due.
- Further afield, U.S. trade balance data, weekly mortgage applications, and the Fed’s Beige Book will cross later in the NY session, with Fedspeak from the Fed’s Barkin (‘24 voter), Mester (voter), and Brainard (voter) in focus.
AUSSIE 10-YEAR TECHS: (U2) Outlook Deteriorating
- RES 3: 97.455 - High Mar 18
- RES 2: 97.185/275 - High Apr 5 / 200-dma
- RES 1: 97.040 - High Aug 03
- PRICE: 96.285 @ 16:12 BST Sep 6
- SUP 1: 96.245 - Low Sep 1
- SUP 2: 96.208 - 3.0% Lower Bollinger Band
- SUP 3: 95.663 - Low Jun 16
Aussie 10yr futures slipped further late last week and have dipped below key support at 96.355, Jul 22 low. This weakens the bull cycle posted since mid-June, opening the gap with the 200-dma on the continuation contract, at 97.275. The bull trigger is 97.040, the Aug 3 high. On the downside, recent weakness suggests scope for a deeper retracement towards the mid-Jun low of 95.663.
AUD: Bears Remain In Control, Q2 GDP On Tap Today
AUD/USD is eyeing a test sub 0.6700 (currently 0.6735/40). We got to fresh lows back to mid July overnight. Note 0.6719 is the July 15 low, while 0.6682 is the low from the 14th and a bear trigger. The bearish theme for the AUD remains intact amidst continued USD strength.
- Support for the A$ following the RBA's 50bps hike yesterday quickly gave way late yesterday. The DXY touched a fresh cyclical high above 110.50, before settling back to 110.20/25 into the close.
- USD outperformance was buoyed by yields (2yr to 3.50%), as the services ISM print exceeded expectations, while US equities fell and the VIX nudged up towards 27%.
- AUD/JPY touched 96.50 though (last 96.15/20), as USD/JPY pressed to fresh cyclical highs.
- The A$ has only outperformed JPY and NZD in the G10 space over the past 24 hours.
- Commodities were mostly on the backfoot, with oil lower partly due to demand concerns emanating from China. Base metals rose though (+1.35%, versus -1.37% for the aggregate index). Iron ore remained range bound between $96-$98/tonne.
- Coming up today is Q2 GDP for Australia (0.9% q/q expected, along with 3.4% y/y). The partials paint a positive backdrop (see this link for more details).
- The RBA's Ellis Connolly, Head of the Payments Department, is on panel session today, but monetary policy is unlikely to feature.
