GOLD: Inflation Woes Weigh on Gold

Yields finished lower in the US session Monday as markets assessed the latest in the Iran War.  Both sides appear to have offered some flexibility in their original hardline proposals, with a report that hints at a workable compromise if negotiators can meet for a second round of talks. Ahead of further talks, US officials maintained that Iran should comply with Washington's demands for zero enrichment. Iranian officials defended their right to enrich uranium domestically.  This as 34 Ships went through the Strait of Hormuz yesterday, which is by far the highest number since this foolish closure began according to a Trump social media post.   

Yields were down around 2-3bps with the front end outperforming.  

• The 2-Yr was down -2.3bps at 3.778%
• The 5-Yr was down -3.1bps at 3.913%
• The 10-yr was down -2.6bps at 4.295%
• The 30-Yr was down -1.1bps at 4.901%

Yields appear more sensitive to the latest news on the Iran war and for now ignoring the longer term inflation impact that will inevitably show up in economic data.  

The 10-yr back below 4.30% was key overnight as it was risking a breakout with 4.40% in sight.  

For now, it probably pays to be cautious as moves higher are capped.  There will likely be a push higher for yields as the inflationary pressures grow, but for the next few days it seems yield moves could be capped.  

The US bond futures are opening up modestly up with the 10-Yr up +01 at 111-08+

• RES 3: 133.15 - High Feb 24 ‘26
• RES 2: 131.85 - 50-dma (cont)
• RES 1: 131.80 - 38.2% retracement of the Feb - Mar Bear Leg
• PRICE: 130.33 @ 16:09 BST Apr 13
• SUP 1: 129.82 - Low Mar 27
• SUP 2: 129.57 - 1.0% 10-dma envelope
• SUP 3: 129.06 - 1.500 proj of the Aug 6 ‘24 - Mar 26 - Apr 7 ‘25

JGBs have rallied well alongside global bond markets, opening a sizeable gap with the pullback lows posted on Friday, and the show below the 130.00 handle. Price remains well through the 50-dma, however, to reinforce a negative outlook. Clearance back above this level is needed to highlight a stronger short-term reversal and signal scope for any recovery. Interim supports rest at 129.57 and below at 129.06.

The USD/JPY range overnight  was 159.29-159.86, Asia is currently trading around 159.40. The pair stalled toward 160 again and drifted lower as the USD came back under pressure on renewed hopes of a compromise. Though the move lower in the pair continues to lag as the market remains bearish on the Yen. On the day, the first support is toward 158.50-159.00 and the market will be eyeing a test above 160 again. The longer it stalls up here though without being able to clear the 160 area the risk of a pullback does increase, especially if the USD breaks lower.

• “The yen is failing to join a broad rally in high-beta currencies, remaining pinned near 160 against the dollar despite recent greenback weakness. Without a meaningful decline in oil prices to ease pressure on global long bonds, the Japanese currency is set to be disconnected from the broader G-10 recovery.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 158.40($1.22b April 16), 158.85($1.24b April 15), 160.00($1.17b April 15) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 69 Points
• Data/Event : Industrial Production, Japan to sell 20-year bonds

Fig 1 : USD/JPY Spot Daily Chart

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