GBPUSD TECHS: Trend Needle Still Points South

Aussie bonds are at cheapest levels of the day as we move towards the Sydney close, with the move in futures extending through overnight lows in recent dealing. Cash ACGBs run 4.5-6.5bp cheaper across the curve, bear flattening, while YM and XM are -5.0, respectively. Bills run 1 to 9 ticks cheaper through the reds, bear steepening.

• There has been a lack of relevant macro headlines and the tight trade in U.S. Tsys (noting the proximity to U.S. CPI due later today), providing little in the way of lasting direction for the space through Sydney dealing.
• The latest round of ACGB Nov-31 supply went well on the pricing side, with the weighted average yield printing 0.97bp through prevailing mids (per Yieldbroker estimates), although the cover ratio slipped further to 2.28x (from 2.67x previously), well below the six-auction average at 3.55x. Uncertainty surrounding the RBA may have kept overseas investors sidelined, limiting demand at the auction. Meanwhile, the relative value of the line against 3s was noted to have been limited due to the flatness of the curve, while the 10-Year zone of the curve was seen to have been operating towards the richer end of the YtD range on the 5-/10-/15-Year butterfly, with both observations being negatives for demand for the line.
• Elsewhere, little by way of a meaningful market reaction was observed in ACGBs on the release of lower-than-expected Chinese inflation data, with CPI noted to have come in at two-year highs.
• Thursday will see consumer inflation expectations for August headline the domestic data docket, with little else on offer.

• RES 4: 121.88 High Apr 5 (cont)
• RES 3: 121.07 High May 12 (cont)
• RES 2: 120.00 Round number resistance
• RES 1: 118.88/119.84 High Aug 4 / 2 and the bull trigger
• PRICE: 117.58 @ Close Aug 8
• SUP 1: 116.61/41 Trendline drawn from the Jun 16 low / 50-day EMA
• SUP 2: 114.86 50.0% retracement of the Jun 16 - Aug 2 upleg
• SUP 3: 114.08 Low Jul 8 and a key support
• SUP 4: 113.69 61.8% retracement of the Jun 16 - Aug 2 upleg

Gilt futures remain above last week’s 116.44 low. The short-term outlook is bullish. Moving average studies are in a bull mode set-up and gains since Jun 16 have established a bullish price sequence of higher highs and higher lows. Key trend support is at 114.08, the Jul 8 low. The next firm support zone to watch is 116.41, the 50-day EMA and 116.61, trendline support drawn from the Jun 16 low. A resumption of gains would open 119.84, the bull trigger.

• RES 4: 3902.00 High Mar 29 and a key resistance
• RES 3: 3855.00 High Apr 21
• RES 2: 3840.00 High Jun 6 and key resistance
• RES 1: 3811.00 High Jun 8
• PRICE: 3709.00 @ 05:47 BST Aug 10
• SUP 1: 3658.00 Low Aug 2
• SUP 2: 3607.80/3553.00 50-day EMA / Low Jul 26
• SUP 3: 3467.00 Low Jul 18 / 19
• SUP 4: 3343.00 Low Jul 5 and the bear trigger

EUROSTOXX 50 futures trend conditions remain bullish and yesterday’s pullback is considered corrective. Price has recently cleared the 76.4% retracement of the Jun 6 - Jul 5 downleg, at 3722.40. The breach opens 3811.00 next, the Jun 8 high, ahead of 3840.00, the Jun 6 high. Key support and the bear trigger is unchanged at 3343.00, the Jul 5 low. Initial firm support to watch is 3607.80, the 50-day EMA.