USDJPY TECHS: MA Studies Highlight A Dominant Uptrend

Lagarde's prepared remarks at Jackson Hole had no real near-term implications for monetary policy (see summary below or full speech here).

• "First, a delayed wage response to inflation that supported higher employment; second, a reduction in hours worked, driven by labour hoarding and changing preferences; and third, an expansion in labour supply that kept pace with rising demand."
• "ECB analysis confirms that this delayed real wage response acted as a shock absorber. By widening the gap between productivity and labour costs, it eased unit labour cost pressures and supported firms’ profitability, while also making labour relatively more attractive than capital. Both dynamics encouraged firms to expand hiring... A key factor was firms’ ability to pass on higher input costs, which boosted profit margins and led to a steeper fall in sectoral real wages."
• Lagarde notes that for the reduction in hours worked "while part of this shift is cyclical, it also has a structural component." She cites labour hoarding (particularly during the pandemic) and partly due to a shift in workers preferences with overtime reducing.
• Demographics (more women and older workers in the workforce) and more foreign labour largely explain the expansion in labour supply. However, with an aging population "Europe’s capacity to expand its labour supply is already constrained."
• Lagarde notes that demographic changes are likely to see the working age population continue to shrink even if migration is on the higher side of estimates, that "labour hoarding could persist as a feature of the employment landscape" and that "these same forces could weigh on labour productivity".
• "If lower job turnover continues to slow labour reallocation, it is likely to reduce the efficiency of job matching... In such a scenario, Europe might escape the unemployment hysteresis that plagued past cycles, but at the cost of a decline in productivity... However, this is of course not the only possible path. This view focuses solely on labour market dynamics and overlooks the potential for automation and artificial intelligence to boost productivity and investment, which may well also be spurred by a shrinking population."

• RES 4: 122.35 2.500 proj of the May 14 - 20 - 21 price swing
• RES 3: 122.00 Round number resistance 
• RES 2: 121.73 High Jun 13 and the bull trigger 
• RES 1: 121.13 High Aug 15
• PRICE: 120.67 @ Close Aug 22
• SUP 1: 119.59 Low Jul 25 and key short-term support         
• SUP 2: 119.48 Low May 26 
• SUP 3: 118.87 Low May 21  
• SUP 4: 118.51 Low May 14 and key support 

The primary trend condition in BTP futures remains bullish. However, for now, the contract continues to trade inside a range and the Aug 15 sell-off signals scope for a move towards the lower end of the range. Key support to watch lies at 119.59, the Jul 25 low. A clear break of this level would highlight a range breakout and a bearish threat. Key resistance is unchanged at 121.73, the Jun 13 high.

• Italy will come to the market tomorrow to sell E2.5-3.0bln of the on-the-run 2.10% Aug-27 BTP Short Term (ISIN: IT0005657330) via auction. Note that the MEF announced that the BTPei line would not be on offer in August (in line with the precedent seen in recent years).
• Germany will come to the market on Wednesday, opening its new Nov-32 Bund in a revival of the 7-year segment by DFA. This is being done as a function of higher issuance requirements on the fiscal easing in the country. The coupon for the new line is to be confirmed tomorrow.
• Italy will return to the market on Thursday with a 5/10-year BTP / CCTeu auction. Details are to be confirmed today.
• Finally, Finland will hold an ORI operation on Thursday, with up to E0.4bln on offer. Details of the RFGBs on offer will be released the preceding day. 

NOMINAL FLOWS: This week sees no redemptions, as was the case last week. Coupon payments for the week total E0.6bln, of which E0.5bln are Italian. This leaves estimated net flows for the week at a positive E26.2bln, up from E22.5bln last week.