GBPUSD TECHS: Unwinding An Overbought Condition

Regional equity markets have mostly tracked lower in Asia Pac today, in line with US and EU losses from Tuesday's session. The US debt impasse continues to hang over markets, with little fresh news late Tuesday evening in the US. US futures are a touch higher though, eminis last +0.15% near 4165, while Nasdaq futures were up by around the same amount.

• China stocks continue to weaken, the CSI 300 down a further 0.52% at this stage, albeit up from session lows. YTD gains for the index are just about wiped out, while we have seen a further 1.75bn yuan in stock outflows so far today (coming after yesterday's chunky ~8bn yuan in outflows). Tech headwinds amid clamps on investment in China from outside countries, coupled with economic woes continue to drive equity underperformance.
• The HSI is also weaker, down close to 1% at this stage. Similar drivers are at play, with the HS TECH index off by a little over 1%. The index is back close to 2023 lows. Alibaba is cutting staff following the recent earnings disappointment.
• Japan stocks are also giving back some of their recent gains, the Topix down a further 0.25% at this stage, following yesterday's 0.66% dip. Electronic related plays are the main drag on the index.
• The Kospi rally has stalled, although the index is only down a touch, while the Taiex is -0.60% at this stage.
• There are some better trends in SEA, but only at the margin. Thai's SET is +0.45%, recovering further from recent lows.

ACGBs are richer (YM +6.0 & XM +2.5) with the curve steeper as the local market enjoyed spillover from the bid in NZGBs following the RBNZ indicating that the current OCR level would be the peak.

• Cash ACGBs are 3-6bp richer with the 3/10 curve 3bp steeper and the AU/US 10-year yield differential +1bp at -6bp.
• The first round of ACGB Dec-34 supply, following its syndicated opening on April 19, showed solid demand with the average yield printing through prevailing mids and a cover ratio of 3.6250x. The outcome aligned with the recent trend of robust pricing observed at ACGB auctions.
• Swap rates are 3-6bp lower with EFPs little changed.
• The bill strip bull flattens with pricing +2 to +7.
• RBA dated OIS is 1-7bp softer across meetings with a 17% chance of a 25bp rate hike in June priced.
• The local calendar is light ahead of April Sales on Friday. While the official ABS retail estimates account for regular seasonal fluctuations, they can encounter challenges during the Easter period. This is primarily due to the variable timing of the holiday and its proximity to other holidays, which can disrupt the accuracy of the adjustments.

• RES 4: 1.2767 61.8% of the Jun 1 ‘21 - Sep 26 ‘22 downtrend
• RES 3: 1.2680 High May 10 and the bull trigger
• RES 2: 1.2547/2641 High May 16 / 11
• RES 1: 1.2487 20-day EMA
• PRICE: 1.2435 @ 05:45 BST May 24
• SUP 1: 1.2373 Low May 23
• SUP 2: 1.2353/45 Low Apr 17 / 10 and a key support
• SUP 3: 1.2275 Low Apr 3
• SUP 4: 1.2242 50.0% retracement of the Mar 8 - May 10 bull run

GBPUSD maintains a softer tone and traded lower Tuesday, before finding support. A bearish theme remains intact and price continues to test support at 1.2410, the 50-day EMA. A clear break of it would strengthen a bearish threat and expose 1.2345, the Apr 10 low. On the upside, initial resistance is 1.2480, the 20-day EMA. A break above 1.2547, the May 16 high, is required to signal a reversal.