EURGBP TECHS: Trading Above Support
- RES 4: 0.8769 High Jul 28 and the bull trigger
- RES 3: 0.8744 High Aug 7
- RES 2: 0.8728 76.4% retracement of the Jul 28 - Aug 14 bear leg
- RES 1: 0.8713 High Sep 2
- PRICE: 0.8648 @ 16:11 BST Sep 12
- SUP 1: 0.8636/8597 50-day EMA / Low Aug 14 and the bear trigger
- SUP 2: 0.8562 50.0% retracement May 29 - Jul 28 upleg
- SUP 3: 0.8540 Low Jun 30
- SUP 4: 0.8514 61.8% retracement May 29 - Jul 28 upleg
The latest pullback in EURGBP appears corrective. Support to watch lies at 0.8597, the Aug 14 low. Clearance of this level would reinstate a recent bearish threat. For bulls, a resumption of gains would open 0.8744, the Aug 7 high. Key resistance and the bull trigger is at 0.8769, the Jul 28 high. Note that moving average studies remain in a bull-mode position. This highlights a dominant uptrend.
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BONDS: EGBs-GILTS CASH CLOSE: Bull Flattening Fades Prior Session's Weakness
European yields reversed some of Tuesday's sell-off in a bull flattening move Wednesday.
- In addition to fading the prior session's somewhat unusual sell-off that didn't seem driven by headline/macro developments, Wednesday saw yields pull back in tandem with a retreat in oil prices in anticipation of peace developments on the Russia-Ukraine front.
- Also helping buoy global instruments was US Treasury Secretary Bessent opining that the Federal Reserve should consider cutting rates by 50 basis points in September, and 150-175 overall.
- Data was limited in impact, with German and Spanish final July HICP confirming flash estimates.
- Gilts lagged the Bund rally, with the UK Guardian reporting on potential inheritance tax adjustments in the Autumn Budget.
- Periphery/semi-core EGBs had a constructive session led by BTPs, in a broader risk-on move (10Y BTP/Bund approaches the 2010 low of 75.4bp).
- Thursday's agenda includes UK monthly economic activity / Q2 GDP data, with Eurozone industrial production, GDP, and Employment data also featuring.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 3.3bps at 1.934%, 5-Yr is down 6.1bps at 2.257%, 10-Yr is down 6.4bps at 2.68%, and 30-Yr is down 7.1bps at 3.228%.
- UK: The 2-Yr yield is down 2.2bps at 3.863%, 5-Yr is down 3.1bps at 4.009%, 10-Yr is down 3.7bps at 4.589%, and 30-Yr is down 3.9bps at 5.428%.
- Italian BTP spread down 1.7bps at 77.1bps / French OAT down 1.2bps at 65.6bps
US TSYS/OVERNIGHT REPO: ON RRP Takeup Remains Well Below $100B
Overnight Reverse Repo facility takeup at the New York Fed was basically unchanged Wednesday vs the prior session, at $57.2B (vs $57.5B).
- This marked a fresh 4-month low (Apr 16's tax date saw $54.8B takeup) but it's now the 8th session in the past 9 below $100B, for the first time since February.
US: Small Business Optimism Rises In July
The NFIB Small Business Optimism Index, “rose 1.7 points in July to 100.3, slightly above the 52-year average of 98. Contributing most to the rise in the Optimism Index were respondents reporting better business conditions and reporting that it is a good time to expand.”
- The report notes: “In contrast to the Optimism Index, the Uncertainty Index increased by eight points from June to 97. Twenty-one percent of small business owners reported labor quality as their single most important problem, up five points from June and ranking as the top problem.”
- NFIB Chief Economist Bill Dunkelberg said: “Optimism rose slightly in July with owners reporting more positive expectations on business conditions and expansion opportunities. While uncertainty is still high, the next six months will hopefully offer business owners more clarity, especially as owners see the results of Congress making the 20% Small Business Deduction permanent and the final shape of trade policy. Meanwhile, labor quality has become the top issue on Main Street again.”
Figure 1: Small Business Optimism Index
Source: NFIB
