EURUSD TECHS: Trend Needle Points North
- RES 4: 1.1185 High Mar 31 2022
- RES 3: 1.1076 High Apr 1 2022
- RES 2: 1.1033 High Feb 2 and key resistance
- RES 1: 1.0938/0973 High Apr 6 / 4
- PRICE: 1.0928 @ 05:49 BST Apr 12
- SUP 1: 1.0834 20-day EMA
- SUP 2: 1.0788 Low Apr 3
- SUP 3: 1.0755 50-day EMA
- SUP 4: 1.0631 Low Mar 20
EURUSD maintains a bullish tone and the recent pullback appears to be a correction. Resistance at 1.0930, the Mar 23 high, has been breached. This level marked a key short-term hurdle for bulls and the clear break reinstates the recent bull theme and signals scope for 1.1033, the Feb 2 high. Support at the 20-day EMA, at 1.0834, remains intact and the 50-day EMA intersects at 1.0755. A clear break of these two averages would be bearish.
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JGBS: Bid & Flattening Extends, 10-Year Yields Move To Lowest Since BoJ YCC Tweak
The previously touted second-order bid from the latest round of richening in U.S. Tsys became apparent from the get go in Tokyo afternoon trading, although the dynamic has slowed, as the momentum in the bid in Tsys has stalled out. That leaves JGB futures +61, while cash JGBS sit little changed to 10bp richer as the curve flattening develops further and receiver side swap flows aid the bid in JGBs (swap spreads flat to tighter). 10-Year JGB yields now sit at the lowest level observed since the BoJ’s surprise YCC tweak back in December (0.325%).
STIR: SFR/ED Spreads Back From Cycle Extremes But Nowhere Near Retracing SVB-Inspired Move
{US} STIR: SFR/ED Spreads Back From Cycle Extremes On Policymaker Action But Nowhere Near Retracing SVB-Inspired Move
SOFR/ED spreads pull back from cycle extremes after a fresh round of widening kicked in early today.
- The initial bout of widening came on the lack of immediate resolution re: the SVB saga, despite positive indications on that front.
- Since then, the pull back from fresh cycle wides in SOFR/ED spreads was facilitated by the introduction of the Fed’s BTFP, along with the FDIC deploying the ‘systemic risk exception’ to protect uninsured depositors in two bank resolution situations (failures of SVB last week and Signature Bank over the weekend, with talk of the latter perhaps feeding the initial widening in SOFR/ED spreads today). These measures were deployed to mitigate worries re: bank runs.
- The SOFR/Eurodollar M3 spread sits just off session tights, after tapping the widest level of the current cycle this morning.
- Policymaker action has taken the edge off of the situation, but we are nowhere near pre-SVB levels, with jitters still remaining evident (a Tsy official has noted that policymakers will consider additional actions to further strengthen the financial sector).
- Fed-dated OIS now prices 23bp of tightening for next week’s meeting, after pricing ~43.5bp of tightening at one point last week. This is the first time since 7 Feb that pricing for the meeting has showed below 25bp. Terminal rate pricing hovers around 5.05%, trimming over 20bp on the day, while ~40bp of cuts is now priced into the FOMC-dated OIS strip by year end (from the terminal rate).
Fig. 1: SFR/EDM3 Spread
Source: MNI - Market News/Bloomberg
BONDS: NZGBS: Tracking SVB Developments But Underperforming U.S. Tsys
In line with developments in global FI in Asia-Pac trade, NZGBs open stronger, reverse on policy announcements from U.S. authorities regarding Silicon Valley Bank (SVB) and then richen again to close 9-11bp stronger. The re-strengthening was linked to U.S. Tsy yields pushing below Friday session lows following news that Goldman Sachs no longer expected a hike from the Fed later this month.
- The 2/10 benchmark curve steepened by 2bp with the NZ/US 10-year differential +7bp.
- Swaps close 8-10bp richer, implying a wider 3-year swap spread.
- RBNZ dated OIS softened 7-19bp across meetings led by February-24. April meeting pricing softened to 36bp of tightening with terminal rate expectations falling below the RBNZ’s projected OCR peak of 5.50% to 5.44%.
- On the local data front, BusinessNZ PSI showed an upbeat 55.8 for February (54.5 in January) while February Food prices rose 1.5% M/M reflecting the impact of Cyclone Gabrielle.
- Tomorrow’s local calendar sees February REINZ house prices and Net Migration slated ahead of Q4 Current Account on Wednesday and Q4 GDP on Thursday.
- The market is however likely to remain almost entirely focused on developments in the SVB saga ahead of the release of US CPI for February on Tuesday.
