AUSSIE 3-YEAR TECHS: (U6) Corrective Cycle Intact For Now

Treasuries posted modest gains Tuesday on the eve of the Fed decision, with the cash curve bull flattening.

• Overnight gains came alongside an upturn in global core bonds, with further constructive newsflow over the nascent US-Iran ceasefire deal. This included reports of Qatari plans to restore LNG flow and potential for U.S.-Iran negotiations to start as soon as Friday. WTI fell decisively below the $80/bbl mark.
• By noon ET, front TYs had touched Monday's intraday high of 110-00, following a WSJ report (later corroborated by Bloomberg reporting) that Iran would be able to immediately sell oil under the terms of the deal.
• Highs would be tested again in the hour following a strong 20Y Bond reopening auction which saw biggest trade-through since January (1.0bp) and the highest indirect takeup since July 2024 (71.6%).
• Data was largely 2nd tier, though was noteworthy for a surprisingly strong set of import price data, as well as the worst month for housing starts since May 2020 which led the Atlanta Fed's estimate of Q2 GDP growth to be revised down to 2.8% annualized from 3.3%.
• Latest levels: The 2-Yr yield is down 2.1bps at 4.0453%, 5-Yr is down 4.2bps at 4.1475%, 10-Yr is down 5.1bps at 4.4217%, and 30-Yr is down 5.4bps at 4.9244%. Sep 10-Yr futures (TY) up 9.5/32  at 109-30.5 (L: 109-19 / H: 110-00)
• The front-end underperformed slightly with Fed hike pricing moderately higher (Dec 2026 +1bp, implying 19bp of tightening) ahead of Wednesday's main event, the FOMC decision and Chair Warsh's first press conference - MNI's preview is here. We also get the advance retail sales report for May; see MNI's preview out earlier.

• RES 4: 187.95 High Apr 17 and the bull trigger   
• RES 3: 187.56 High Apr 30
• RES 2: 186.56 76.4% retracement of the Apr 17 - May 6 bear leg  
• RES 1: 186.22 High Jun 16
• PRICE: 185.56 @ 16:34 BST Jun 16
• SUP 1: 184.01 Low Jun 8  
• SUP 2: 183.50 Low May 07
• SUP 3: 182.05 Low May 06 and a bear trigger
• SUP 4: 181.87 Low Mar 16 

EURJPY has opened an increasingly sizeable gap with support into the Jun 8 low. The trend condition is bullish and recent weakness appears to have been corrective. Note too that MA studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 186.56, the 76.4% retracement for the Apr 17 - May 6 bear leg. Clearance of this level would confirm a resumption of the short-term bull cycle. Key short-term support 184.01, the Jun 8 low.   

For a sense check, alternate sources such as ADP employment haven’t quite kept pace with this improvement in the BLS payrolls figures although they still point to a clear uptrend in private sector jobs hiring. 

• ADP employment increased 122k in May for a three-month average of 96k whilst subsequent weekly tracking points to this early May pace having been sustained later in the month [before slightly softer read around the ~100k level into late May].
• Weekly jobless claims meanwhile offer somewhat of a warning sign on the sustainability of this broader labor market improvement, with initial claims ticking up to a seasonally adjusted 229k last week.
• Alternatively, the four-week average stands at 219k, still low by historical standards – for instance near identical to the 2019 average through 2019 at a previous period of labor market tightness – although it’s lifted from the 203k in the first half of May. 

For more detail, see our latest Employment Insight - “Payrolls Surge, Hike Seen This Year” (link).