GBPUSD TECHS: Strong Recovery

JGB futures are holding post-10-year auction gains, +28 compared to settlement levels.

• The 10-year JGB auction went well, with the low price beating wider expectations, the tail shortening and the cover ratio rising to 3.662x from 3.151x at May’s auction.
• Today's outcome sets a more optimistic tone ahead of next week’s BoJ monetary policy decision for a market that has faced mounting pressure since mid-December due to expectations of policy tightening from the BoJ.
• (Reuters) BoJ Governor Kazuo Ueda said on Tuesday the central bank's basic stance is to allow market forces to set long-term interest rates. But he said the central bank will conduct "nimble" market operations if long-term interest rates spike, signalling the BoJ's readiness to ramp up bond buying when necessary.
• (MarketWatch) BoJ Governor Kazuo Ueda also reiterated that the central bank could make further adjustments to its monetary policy if inflation grows in line with its projections. (See link)
• Cash JGBs are richer out to the 30-year, with the futures linked 7-year outperforming (4.0bps richer). The benchmark 10-year yield is 2.7bps lower at 1.042% versus the cycle high of 1.101% set last week.
• Swaps are slightly richer, with rates ~1bp lower. Swap spreads are mostly wider.
• Tomorrow, the local calendar will see Labor and Real Cash Earnings and Jibun Bank Composite & Services PMI data.

• RES 4: 117.880 High Apr 15
• RES 2: 117.620 High Apr 19
• RES 3: 116.965/117.440 High 50-day EMA / High May 16
• RES 1: 116.451 20-day EMA
• PRICE: 116.220 @ 05:55 BST Jun 4
• SUP 1: 115.600 Low May 31
• SUP 2: 115.410 2.00 proj of the Mar 8 - 18 - 27 price swing
• SUP 3: 115.250 Low Oct 23 2023 (cont)
• SUP 4: 115.130 Low Oct 19 2023 (cont)

A downtrend in Bobl futures remains intact and last week’s extension lower reinforces current conditions. The latest recovery is considered corrective. The move down confirms a resumption of the trend and maintains the price sequence of lower lows and lower highs. This opens 115.410, a Fibonacci projection. On the upside, initial firm resistance is seen at 116.470, 20-day EMA. Key resistance and the reversal trigger is at 117.440, the May 16 high.

• RES 4: 1.2908 1.382 proj of the Apr 22 - May 3 - 9 price swing
• RES 3: 1.2894 High Mar 8 and a key resistance
• RES 2: 1.2859 1.236 proj of the Apr 22 - May 3 - 9 price swing
• RES 1: 1.2817 Intraday high
• PRICE: 1.2810 @ 06:03 BST Jun 4
• SUP 1: 1.2685/1.2634 20- and 50-day EMA values
• SUP 2: 1.2510 Low May 14
• SUP 3: 1.2446 Low May 9 and a key near-term support
• SUP 4: 1.2423 Low Apr 24

The trend condition in GBPUSD remains bullish. Monday’s rally and print above 1.2801, the May 29 high, confirms a resumption of the uptrend and an extension of the rising price sequence of higher highs and higher lows. Moving average studies are in a bull-mode position, reinforcing current trend conditions. The focus is on a climb towards 1.2859, a Fibonacci projection. Initial support to watch is 1.2685, the 20-day EMA.