BONDS: Unchanged After Slight Q1 GDP Beat

Oil prices were moderately higher on Monday as markets watch progress on trade, Iran and Ukraine talks closely. Trade deals are important for the energy demand outlook, while agreements on Iran and Ukraine could increase oil supply if sanctions are eased. The weaker US dollar also provided some support (BBDXY USD index -0.6%).

• WTI (July 25) rose 0.3% to $62.15/bbl to be 7.9% higher this month and close to the May 13 peak of $63.44. It rose yesterday to a high of $62.70 before easing back. It is currently around $62.17. Recent gains are still seen as corrective. It approached initial resistance at $62.93, 50-day EMA, yesterday. The bear trigger is at $54.33.
• Brent rose 0.2% to $65.54/bbl after a high of $66.01 earlier and is now up 7.2%. The benchmark is 10.6% lower this year and prices at these levels appear to be attracting some buying interest. For instance, Egypt has switched to cheaper oil from gas for power. Brent continues to trade between resistance at $66.45 and the bear trigger at $58.00.
• US President Trump has had a two hour conversation with Russian President Putin about the war in the Ukraine. Trump said that he believes that Putin wants peace. While he said that peace talks would begin “immediately”, it remains unclear what the next steps will be.
• Iran-US talks are scheduled to continue but Iranian President Pezeshkian said it won’t give up its non-military nuclear programme.

The overnight range was 144.67 - 145.22, Asia is currently trading around 144.90. US Stocks had an impressive bounce and seemed to have looked through the US downgrade. USD/JPY though remains anchored to its lows as the USD could not bounce and has traded heavily across the board.

• Reuters reported - “Nippon Steel plans to invest $14 billion in US Steel if the Trump administration approves the merger of the companies.”
• Bloomberg - “The Bank of Japan is holding meetings with market participants to gauge their views on quantitative tightening and the pace of its pullback from the bond market.”
• “The discussions will inform the bank's decision on debt purchases at its next policy board meeting on June 16-17, amid a recent surge in super long bond yields and increased volatility.”
• “The BOJ's campaign to unwind its massive monetary easing program aims to restore the health of the debt market's functionality, with Governor Kazuo Ueda seeking to improve market functionality and reduce the bank's footprint.”
• USD/JPY continues to test its support and trade heavy towards its lows, the price action is interesting considering the bounce in stocks.
• The support around 144/145 looks important now and a break would once again bring the focus back to the pivotal 140.00 area. The price action does not look great and the market is still more comfortable selling rallies.

• Options : Closest significant option expiries for NY cut, based on DTCC data: 145.50($1.03b May 20), 145.00($789.7m May 20) , Upcoming Strikes : 145.00($2b May 23),144.00($1.37b May 23), 140.00(1.67b May 23)

  Fig 1 : USD/JPY Spot Daily Chart

  

  Source: MNI - Market News/Bloomberg

• RES 3: 147.74 - High Jan 15 and bull trigger (cont)
• RES 2: 146.53 - High Aug 6 
• RES 1: 141.48/142.95 - High May 2 / High Apr 7
• PRICE: 139.32 @ 16:33 GMT May 19
• SUP 1: 138.77 - 1.0% 10-dma envelope
• SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg   
• SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg

JGBs are trading just above their recent lows and for now, a bearish theme remains intact following the reversal that started Apr 7. A continuation lower would signal scope for an extension towards 136.57, a Fibonacci projection. On the upside, a reversal higher would instead refocus attention on 142.95, the Apr 7 high. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal.