GOLD: Steadies Near Key EMA; Outlook Hinges on Geopolitics in ST

• As China brings a CNY90bn 10-Yr auction to market today, yields are steady at 1.73% whilst the 10-Yr bond future is down -.085 to 108.935.
• The move lower sees the 10-Yr future break below the 20-day EMA for the first time since the beginning of May.  
• Looking ahead to the auction schedule for June, there is a ramp up from here expected and could see further downward pressure on the future, upward pressure on yields.  
• The 10-yr yields bottomed out last week at 1.7% and has edged higher since.  
• Look for a controlled, steady ascent for the 10-Yr throughout June
• Data out earlier showed that whilst CPI was steady at +1.2%, PPI is accelerating.  Over the last year the relationship between PPI and CPI has broken down.  The risks are - given oil's impact across every part of the economy - that the rise in PPI is a warning for potential pick up in CPI.  

The USD/JPY range today has been 160.24-160.43 in the Asia-Pac session, it is currently trading around 160.35.  The pair remains well supported on dips and is now attempting to get a foothold above the MOF/BOJ “line in the sand”, almost taunting them to come back in. The MOF/BOJ have shown they are willing to back up their previous selling and have seemingly drawn a line in the sand above 160 but the market is pushing them into a corner. A move back above 160-161 would be problematic for them as it could see the pair begin to accelerate higher if they are not around to stop it. Where would USD/JPY be if they had not already spent $50-$70 billion, 165-170 ? Will they hold the line or wait for higher levels to come back in ? On the day, the first support is toward 159.50-159.00 and then the 158.00 area. The pullbacks have been few and far between and CFTC positioning shows the market is again sitting very short Yen as they continue to press the Japanese officials resolve. The underlying story regarding Yen weakness remains the same though and core positions are reflecting that. 

• MNI - PPI Stronger Than Forecast, Import Prices Surge To +25%y/y: Japan's May PPI rose 0.9%m/m, versus a 0.8% consensus forecast, while the Apr gain was revised up to a 2.8% gain (originally reported as 2.3%). In y/y terms the PPI rose 6.3%, against a 5.6% forecast (5.3% was the Apr outcome, also revised up). PPI momentum is back to 2023 levels and is pointing to a rebound in CPI y/y as we progress through 2026. This should support the case for continued BoJ policy normalization, although it remains to be seen if the market can price in more than around 2 hikes this year.
• Bloomberg - “Soft 30-Year JGB Sale Underscores Nerves Before US CPI. That’s a weak result for the Japanese 30-year bond auction with the bid-to-cover ratio under 3 for the first time in a year and a noticeably wider tail. JGB futures are extending declines as Asian investors continue to look hesitant ahead of the risks surrounding US inflation data due later today.”
• Options : Close significant option expiries for NY cut, based on DTCC data: 160.00($915m), 160.25($619m), 160.50($1.09b). Upcoming Close Strikes : 160.00($901m June 11), 160.25($936m June 11), 162.00($937m June 15) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 43 Points

Fig 1 : USD/JPY Spot Daily Chart

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

The AUD/USD has had a range today of 0.7016-0.7032 in the Asia- Pac session, it is currently trading around 0.7025, -0.05%. The AUD has held up pretty well considering the escalation in the Middle-East, though it continues to underperform and trades with a heavy tone. The Middle-East backdrop remains as confusing as ever, the US has carried out what it calls a proportional response this morning and the Iranians' then responded with their own. Sounds like a comedy sketch of military tag. There were initially reports overnight a draft agreement had been sent to the US, yet how anybody can expect it to last when we see this morning's reaction is anybody's guess. On the day, I suspect this break below 0.7080-0.7100 should now see rallies faded in the short-term at least. The first resistance is back toward the 0.7060-0.7090 area. The US Dollar has broken its downtrend therefore while below 0.7100-0.7150 I would now be looking for the pair to drift back toward the 0.6850-0.6950 support where I think we could see some demand return. 

• MNI INTERVIEW: Ex-RBA Economist Sees Cash Rate Above 5%. Australian real interest rates remain too low to return inflation to target in a reasonable timeframe and the Reserve Bank of Australia is likely to need to raise the cash rate above 5% from its current 4.35%, though policymakers are still set to leave rates unchanged at next week's meeting, former senior RBA economist Mariano Kulish told MNI.
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes :  0.7250(AUD655m June 11) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 52 Points

Fig 1: AUD/USD spot Daily Chart

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