US TSYS: Light Bear Flattening On FOMC Eve
Treasury cash yields were little changed Tuesday, with anticipation building ahead of Wednesday's likely Fed cut and possible decision to end QT.
- Yields rose to session highs in early trade alongside a strong equity cash open (the S&P 500 rose to a fresh all-time high above 6,900 on tech strength), but soon faded to trade relatively flat on the session.
- A poor 7Y Note sale (0.8bp tail) ended the month's auction schedule on a sour note, but there was little broader market reaction.
- In data, Conference Board consumer confidence was mixed, with the headline index deteriorating less acutely than expected and the "labor differential" stabilizing after a multi-year low posted in the prior month - suggesting little additional urgency for the Fed to cut rates to buoy employment.
- On that front we also got a surprise announcement from ADP that they would henceforth produce a weekly private payrolls update, the first of which showed a solid-by-recent-standards 57k gain in the 4 weeks to Oct 11, potentially underpinning cautious sentiment in rates.
- The short-end underperformed overall in a slight bear flattening move, with Fed funds implied holding about 1.5bp higher on the session covering FOMC meetings through next June. This came as effective Fed funds ticked up another 1bp Monday, mitigating the signal derived from futures for actual rate moves.
- Cash levels in late afternoon NY trade: the 2-Yr yield is up 0.6bps at 3.488%, 5-Yr is up 0.2bps at 3.606%, 10-Yr is down 0.2bps at 3.9776%, and 30-Yr is down 0.5bps at 4.5474%. In futures, Dec 10-Yr (TY) up 1.5/32 at 113-15 (L: 113-9.5 / H: 113-18.5) amid solid though unremarkable volumes.
- The FOMC decision at 1400ET with Chair Powell press conference a half hour later is Wednesday's main event, though earlier in the session we will get weekly MBA mortgage applications and pending home sales data as well as the Bank of Canada decision (25bp cut expected).
- As noted in our preview, MNI's base case is for an immediate end to QT to be announced Wednesday alongside the well-priced 25bp rate cut. PDF here
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USDJPY TECHS: Bull Cycle Still In Play
- RES 4: 151.62 61.8% retracement of the Jan 10 - Apr 22 bear leg
- RES 3: 151.21 High Mar 28
- RES 2: 150.92 High Aug 1 and a key resistance
- RES 1: 149.96 High Sep 26
- PRICE: 149.52 @ 18:56 BST Sep 26
- SUP 1: 148.38/147.47 High Sep 22 / 50-day EMA
- SUP 2: 146.77 Low Sep 18
- SUP 3: 145.49 Low Sep 17 and a pivot support
- SUP 4: 144.23 Low Jul 7
USDJPY traded higher last week as the pair extended the recovery that started Sep 17. A bullish candle pattern on Sep 17 - a hammer - provided an early reversal signal and remains valid. Also, moving average studies remain in a bull-mode condition, highlighting a dominant uptrend. 149.14, the Sep 3 high, has been cleared. Sights are on 150.92, the Aug 1 high and key resistance. Pivot support is 145.49, Sep 17 low.
EURGBP TECHS: Sights Are On The Bull Trigger
- RES 4: 0.8835 High May 3 2023
- RES 3: 0.8800 Round number resistance
- RES 2: 0.8769 High Jul 28 and the bull trigger
- RES 1: 0.8751 High Sep 25
- PRICE: 0.8728 @ 18:49 BST Sep 26
- SUP 1: 0.8659/8597 50-day EMA / Low Aug 14 and the bear trigger
- SUP 2: 0.8562 50.0% retracement May 29 - Jul 28 upleg
- SUP 3: 0.8540 Low Jun 30
- SUP 4: 0.8514 61.8% retracement May 29 - Jul 28 upleg
EURGBP is trading closer to its recent highs and a bullish theme remains intact. The latest recovery paves the way for an extension towards the bull trigger at 0.8769, the Jul 28 high. Clearance of this level would strengthen the bull theme. Support to watch lies at 0.8597, the Aug 14 low. A breach of this level would instead reinstate a recent bearish threat. First support is 0.8659, the 50-day EMA.
GBPUSD TECHS: Trades Through Support
- RES 4: 1.3789 High Jul 1 and key resistance
- RES 3: .3661/3726 High Sep 18 / 17
- RES 2: 1.3537 High Sep 23 1
- RES 1: 1.3427 Low Sep 24
- PRICE: 1.3407 @ 18:45 BST Sep 26
- SUP 1: 1.3324 Low Sep 25
- SUP 2: 1.3282 Low Aug 6
- SUP 3: 1.3254 Low Aug 4
- SUP 4: 1.3144 38.2% retracement of the Jan 13 - Jul 1 bull cycle
GBPUSD traded lower last Thursday, marking an extension of the current bear cycle that started Sep 17. The move down has resulted in a break of 1.3491, a trendline support drawn from the Aug 1 low. This undermines a recent bullish theme. Note too that 1.3333, the Sep 3 low and a key support, has been pierced, opening 1.3282 next, the Aug 6 low. Initial resistance to watch is 1.3537, the Sep 23 high. A break of it would signal a reversal.
