COMMODITIES: Oil and Gold Bid Tone Continues

Aussie government bond futures are little changed in the first part of Wednesday dealings. 10yr futures (XM) were last at 95.665, while 3yr futures (YM) were at 96.59, down a touch. This leaves us within recent ranges for both benchmarks. 

• For ACGB yields, we are also little changed in the first part of Wednesday dealing. Front end yields are up a touch, but gains are less than 1bps at this stage. This comes despite softness in front end US yields in Tuesday trade, as the market reacted to Trump's attempt to remove Fed Governor Cook from her position.
• The 3yr ACGB yield was last near 3.40%, while the 10yr was close to 4.31%.
• On the data front today we have July CPI. Headline inflation is forecast to rise back to 2.3% y/y after falling to 1.9%. This would be the highest since April. The series continues to be impacted in both directions by state and federal electricity rebates. The trimmed mean moderated to 2.1% in June. The July data won’t include updates on most of the services components.
• Components that feed into Q2 GDP released on September 3 will also be released with construction work done out today. It is forecast to rise 1.0% q/q after a flat Q1. 

• RES 3: 147.74 - High Jan 15 and bull trigger (cont)
• RES 2: 146.53 - High Aug 6 
• RES 1: 141.48/142.95 - High May 2 / High Apr 7
• PRICE: 137.31 @ 16:14 BST Aug 26
• SUP 1: 137.22 - Low Aug 26
• SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg   
• SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg

JGBs faded again into the Tuesday close, undoing a large part of the CPI-triggered rally. The first important resistance to watch remains 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal. A return lower would signal scope for an extension towards 136.57, a Fibonacci projection. 

The overnight night range was 147.10-147.91, Asia is currently trading around 147.35. USD/JPY chopped around on a 147 handle most of yesterday without actually going anywhere. The demand  towards 146.00 has been pretty solid all of July and August, keeping us for the most part in a 146.00-149.00 range. CFTC data for last week shows leveraged accounts again added to JPY shorts so the initial reaction to Powell would have been unwelcome and they would be breathing a little easier as the support continues to hold. We are approaching the corporate month-end so watch for USD demand today and tomorrow.

• (Bloomberg) -- "Japan’s Ministry of Finance made an initial request of ¥32.4 trillion ($219 billion) for next fiscal year’s debt financing needs, reflecting the impact from rising Japanese bond yield The requested amount was up around 15% from the previous fiscal year’s initial budget, according to documents seen by Bloomberg Tuesday."
• "(Bloomberg) -- "Investors are getting so desperate to lighten their holdings of Japanese government bonds that some are willing to sell the securities at a discount to the central bank. The lowest accepted yield at the Bank of Japan's bond buying operations matched the accepted average, suggesting that the price is cheap, and this anomaly has not happened since 2013." - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 147.25($765m), 147.95($1.04bm), 148.00($997m).Upcoming Close Strikes : 145.00($1.17b Aug 29), 146.50($1.14b Aug 29), 147.50($806m Aug 29)  - BBG.
• CFTC data shows last week asset managers have begun to add to their JPY longs after a consistent period of reduction +71379( Last +60866), leveraged funds though again used the dip to add to their newly built short JPY position -50848(Last -41257).

Fig 1 : USD/JPY Spot Daily Chart

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