US TSYS: TYH6 Support Exposed Ahead Of NFPs & Potential IEEPA Ruling
Treasuries have extended yesterday’s net losses, with most benchmark tenors more than reversing a sharp rally ahead of the close (when Trump called for $200bn of mortgage bond purchases). The nonfarm payrolls report for December dominates initial proceedings in what should be a cleaner report after last month’s release. Attention then likely turns to a potential Supreme Court ruling on the legality of the White House's IEEPA tariffs - the justices sit at 1000ET but it's not certain given that they do not announce in advance what opinions that they are providing.
- Cash yields are 1.6-2.3bps higher on the day, led by the belly.
- 5s30s has flattened further to 110bp, last lower on Dec 26 having recently peaked at 116bp on Jan 6.
- TYH6 sits 1 tick above a session low of 112-05 (-03) seen earlier in London trade, currently with reasonable cumulative volumes of 320k ahead of NFPs.
- Support remains exposed with 112-01+ (Dec 23 low) before the bear trigger at 111-29 (Dec 10 low), whilst resistance is seen at 112-22 (Jan 7 high) before 112-25+ (Dec 30/31 high).
- Data: Payrolls Dec (0830ET), Housing starts/building permits Sep-Oct (0830ET), U.Mich consumer survey Jan prelim (1000ET), Household net worth Q3 (1200ET)
- Fedspeak: Kashkari opening remarks (1000ET), Bostic interviewed on WLRN public media (1200ET), Barkin repeats his speech on the economic outlook but will also give Q&A (1335ET)
- Politics: Trump in meeting with oil & gas execs
- Tariffs, potentially: Supreme Court Opinion Day (1000ET)
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OUTLOOK: Price Signal Summary - USDJPY Trend Needle Points North
- In FX, EURUSD is in consolidation mode but continues to trade closer to its recent highs and a bull cycle remains intact. The breach of key short-term resistance at 1.1656, the Nov 13 high and a bull trigger, highlights a potential reversal and opens 1.1694 next, the 50.0% retracement of the Sep 17 - Nov 5 bear leg. A breach of this retracement point would strengthen the developing bull theme. Initial support to watch is 1.1607, the 20-day EMA. A breach of the EMA would be bearish.
- The latest pause in GBPUSD appears to be a flag formation - a bullish continuation signal. This reinforces the current uptrend. The breach of the 50-day EMA undermined a recent bearish theme and highlights a stronger reversal. Scope is seen for a climb towards 1.3452, a 50.0% retracement of the Sep 17 - Nov 4 bear leg. Initial firm support is seen at 1.3241, the 20-day EMA. A move below this average would be a bearish development.
- Recent weakness in USDJPY appears to have been a correction and the recovery from last Friday’s low signals the end of the corrective phase. Moving average studies are in a bull-mode position highlighting a dominant medium-term uptrend. Sights are on the 158.00 handle. Key short-term support to watch lies at the 50-day EMA at 153.71. A clear breach of the average would signal scope for a deeper retracement.
UK FISCAL: Reeves: Extra drug costs from US-UK deal low first couple of years
Reeves on UK-US deal on drug pricing which is reported to cost an extra GBP3bln/year: "That was part of the agreement in the Spending Review that... would be absorbed. The costs are actually quite low in the first couple of years... But obviously at future spending obviously, everything in the next spending review will be set out in the next spending review.
FOREX: FX Exchange traded Roll pace (updated).
This has been running faster as Market Participants favoured to start rolling early ahead of Today's FOMC. Expiry is Monday 15th.
- EUR: 50% (above pace).
- GBP: 50% (above pace).
- JPY: 51% (above pace).
- CHF: 60% (above pace).
- CAD: 34% (below pace).
- AUD: 45% (above pace).
- NZD: 40% (above pace).
- SEK: 69% (above pace).
- NOK: 54% (above pace).
