FOREX: USD Index Moderately Higher after Volatile Session
- USDJPY volatility led a whippy session in global currency markets, as market participants digested a deeply negative NFP annual revision but also await significant PPI and CPI releases, due later in the week.
- Initial USDJPY downside momentum was prompted by a set of hawkish comments from the BOJ, indicating there is a "chance of" a hike this year despite the political turmoil following PM Ishiba's resignation Sunday. "Some officials are even of the view that a hike might be appropriate as early as October", the Bloomberg article added. USDJPY reached as low as 146.31, trading within 10 pips of key short-term support.
- Intra-day positioning dynamics may have then fostered a bounce as the market awaited the BLS payrolls revision, with USDJPY trading closer to 147 ahead of the release. Despite a quick dip back down to 146.53, spot has subsequently been grinding higher and currently stands around 147.25 ahead of the APAC crossover.
- Dollar strength has been most notable against the Euro, with EURUSD slipping 0.35% to 1.1720. Lingering French political risks will likely be dampening topside momentum for the single currency. Short-term parameters for EURUSD appear well defined at 1.1829 (Jul 01 high and bull trigger) and 1.1625 (50-day EMA support).
- Price action for the likes of AUD and NZD has been much more contained, particularly allowing AUDUSD to consolidate close to the highest levels of the year, located at 0.6625. In similar vein, GBPUSD sits just 0.09% lower on the day as the pair’s strong technical recovery consolidates. Early strength saw GBPUSD trade within 5 pips of resistance at 1.3595, the Aug 14 high and a bull trigger. This remains the key short-term hurdle for a stronger bounce.
- Focus turns to US price data, as PPI and CPI releases are expected across Wednesday and Thursday respectively. China CPI and PPI figures will be released during APAC hours tomorrow.
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AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
