FOREX: Unusually Strong Volumes for a Friday, JPY Will Need More Rates Impetus
The rate-driven demand for USD/JPY has the pair comfortably through 147.52 resistance but further relief for the longer-end of the Japanese curve will likely be needed to tip prices through Y148 and anywhere closer to 149.19. The sensitivity to the long-end has firmed this week and raises the focus on 10y, 30y JGB auctions at the beginning of August (conveniently the week after the July Fed decision). Markets have shrugged off overnight reports that the BoJ are said to see potential rate hike environment in 2025 - which sits broadly inline with market pricing.
- GBP/USD trading back below broken uptrendline support drawn off the January low is a by-product of this USD demand - particularly as today's retail sales firms the focus on the August 7th BoE (at which a 25bps rate cut is effectively fully priced). The rate has oscillated either side of this trend (today at 1.3511). June retail sales came in notably below expectations, at 0.6% on the month vs. Exp. 1.2%.
- This makes for a decent start to the session for FX futures volumes: EUR, JPY and GBP futures are all seeing above-average activity - particularly for a Friday.
- Optionality today sees $600mln interest across Y147.75-85 strikes in USD/JPY, E1.7bln at $1.1740-50 in EUR/USD, while the rallies in both EUR/GBP and USD/CAD bring sizeable strikes at 0.8725-50 and 1.3700-20 into play (E892mln and $1.2bln respectively).
- Focus for the duration of Friday trade turns to the Kansas City Fed Services data and any post-decision commentary from members of the ECB governing council after yesterday's press conference leaned hawkish and suggested scant opportunity for further rate cuts this year. The Fed remain inside their pre-meeting media blackout period.
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EUROZONE DATA: Indeed Wage Tracker Eases In May; Consistent With ECB Tracker
The May Indeed wage tracker, released yesterday, eased to 2.5% Y/Y (vs 3.2% prior) for the lowest rate since late 2021. The 3mma Y/Y rate was steady at 3.0%. Overall, the message from Indeed remains broadly consistent with the ECB’s forward looking wage tracker.
- Wages for posted jobs in Germany eased to 3.3% Y/Y (vs 4.6% prior), with the 3mma rate steady at 3.8%.
- In France, which makes up a significant proportion of total observations in the Euro-area wide tracker, posted pay growth was unchanged at 2.0% Y/Y (3mma also unchanged at 1.9%).
- Spain and Italy have much smaller sample sizes, which limits the signal from the tracker. Italian job posting pay growth was supposedly 0.0% Y/Y (!) in May, with Spanish growth easing to 2.9% Y/Y (vs 3.3% prior).
ITALY AUCTION RESULTS: BTP Short Term / BTPei Results
| 2.10% Aug-27 BTP Short Term* | 1.10% Aug-31 BTPei* | |
| ISIN | IT0005657330 | IT0005657348 |
| Amount | E3bln | E3bln |
| Previous | E2.75bln | E1bln |
| Avg yield | 2.120% | 1.210% |
| Previous | 2.010% | 1.240% |
| Bid-to-cover | 1.49x | 1.46x |
| Previous | 1.61x | 1.57x |
| Avg Price | 99.990 | 99.380 |
| Prev avg price | 100.930 | 100.100 |
| Previous date | 27-May-25 | 27-May-25 |
| Previous ISIN | IT0005633794 | IT0005138828 |
| Previous bond | 2.55% Feb-27 BTP Short Term | 1.25% Sep-32 BTPei |
GILT AUCTION RESULTS: Futures hit on soft 15-year gilt auction
- Disappointing auction with the LAP (lowest accepted price) lower than the intraday low at the time of the auction. This is reflected in the wide 1.0bp tail seen at the auction.
- Price of the 4.375% Jan-40 gilt fell from around 95.11 (after the gilt had moved a bit higher post-bidding window close) to hit a low of 94.960.
- Gilt futures also hit on the auction and challenging the intraday lo of 93.34 seen around the time of the open at writing.
