AUSSIE BONDS: Slightly Richer After Today's Domestic Data

US stocks closed poorly off some All-time highs overnight. This morning has seen US futures open slightly higher, ESU5 +0.08%, NQU5 +0.07%. The JPY followed through with its bounce, one could surmise the election outcome had already been priced in and there were more negative scenarios that did not come to pass. If risk continues to trade well then this dip in the JPY crosses should eventually find some demand from which to try higher again, though with upward momentum having stalled patience is required.

• EUR/JPY - Overnight range 171.92 - 172.55, Asia is trading around 172.40. This pair has had a decent move higher and has led the charge against the JPY longs. Short-term it is starting to look a little stretched but the direction is clear and should expect demand on dips. First support 170.50 area then the more important 168.50 area.
• GBP/JPY - Overnight 198.53 - 199.23, Asia trades around 198.90. The pair continues to find good demand towards its support around 198.00 though momentum higher has stalled for now. 
• NZD/JPY - Overnight range 87.92 - 88.35, Asia is currently dealing 87.95. The pair has also seen upward momentum stall. The Support towards 87.00 needs to hold for the focus to remain on the 90.00/91.00 area.
• CNH/JPY - Overnight range 20.5118 - 20.6532 Asia is currently trading around 20.5700. This pair has pulled back from its highs but the pair still looks like it could continue to press higher. Look for demand now back towards the 2.4000 area.

Fig 1 : CNH/JPY 120min Chart

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

The BBDXY range overnight was 1198.80 - 1205.12, Asia is currently trading around 1201. The USD again fell very easily overnight, aided by the move lower in US yields. The market is much more comfortable selling USD’s, while below 1220 rallies will continue to find supply. Only above there would the Bears have to start questioning potentially paring back.

• China Daily -  “Reports that it is a 'strategic necessity' for the scaling back of holdings in US Treasuries, given the declining confidence in the dollar as the reserve global currency.”
• Robin Brooks on X: “Markets price 125 bps in cuts from the Fed through the end of next year. That's way more easing than markets price for any other G10 central bank. Kind of bonkers when you consider that tariffs are inflationary for the US and deflationary for everyone else. Dollar bullish...”
• (Bloomberg) - On Monday, the three-month cross-currency basis for euros versus dollars rose to 1.625 bps — the most since at least the market gyrations of early 2020 and the onset of the Covid-19 pandemic, according to aggregated Bloomberg data. This shows the dollar trading at the biggest discount to the euro in more than five years, signaling softer appetite for the greenback — at least for the moment.”
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
• Data/Events : Philly Fed Non-Man., Richmond Fed Manu. Index & Business Conditions

Fig 1: BBDXY Daily Chart

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

• The PBOC issued CNY214.8bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY342.5bn
• Net liquidity withdrawal CNY127.7bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.41%, from prior close of 1.49%.
• The China overnight interbank repo rate is at 1.30%, from the prior close of 1.25%.
• The China 7-day interbank repo rate is at 1.45%, from the prior close of 1.50%.