BUNDS: OI Points To Net Short Setting Across Curve After DFA Funding Plan

Goldman Sachs note that “the upside surprise in Canada’s April inflation print saw market cut pricing sharply reset, with the market pricing in only about 5bp for the June meeting”.

• Their economists expect “the BoC to look through the one-off price level increase due to tariffs - which they think played a role in the upside surprise - and continue to expect a cut at the June meeting (plus one more in July to a 2.25% terminal rate), though they acknowledge the risks of a hold have gone up”.
• Given market pricing implies only about 60% of a full cut by the July meeting, Goldman Sachs think “there is value to receiving the very front-end of the CAD curve with the softer activity picture continuing to point towards cuts” and recommend receiving July BoC meeting OIS.

Crude oil futures are little changed on the day, with the crude-supportive developments in the EU-U.S. trade talks, in addition to geopolitical risks in the form of the potential for a further intensification in the Israel-Hamas conflict and the latest Russian missile launches on Ukraine, neutralised by some ongoing fundamental headwinds.

• That leaves WTI & Brent futures little changed, with medium-term bearish technical themes intact despite the recent bounce.
• Bulls need to break the 50-day EMA’s in the contracts ($62.75 & $66.24, respectively), to turn the tide more in their favour.
• Meanwhile, the respective April 9 lows present key support and the technical bear triggers.
• Our commodity team notes that fundamental pressure remains evident amid general economic headwinds, coupled with expectations for a more meaningful OPEC+ production increase from July.
• BBG have warned that OPEC+’s seemingly hardline approach to punishing its overproducing members risks plunging crude into a full-blow price war.
• Elsewhere, some downward pressure seemingly came from U.S. President Trump noting that he was “optimistic” following the last round of talks with Iran on limiting their nuclear programme in exchange for sanctions relief.
• Also, note that the Trump administration is preparing to use a narrowly tailored license for Chevron to allow it to perform minimal maintenance of essential operations in Venezuela.

• A key medium-term support has been defined at the 140.00, in USDJPY.
• A clear break of this level is required to highlight a stronger reversal.
• Moving average studies on the daily and weekly frequencies are - for now - in a bear-mode position.
• The monthly set-up however, is bullish.
• This does suggest that weakness since last year’s July high, is a correction.
• A clear break of the 140.00 pivot support, if seen, would undermine this argument and signal scope for a deeper retracement  
• Initial key resistance to watch is the 148.65, the May 12 high.