FOREX: USD Slips, FX Strategy in Focus in Light Data Day

Bloomberg reports that Economy Minister Carlos Cuerpo is set to hold a meeting with US Treasury Secretary Scott Bessent on 15 April amid an somewhat frosty diplomatic atmosphere between Madrid and Washington, D.C. Cuerpo has said that the meeting is taking place as part of usual relations between the two countries, with tariff policy conducted at the EU level by Commissioner Maros Sefcovic. 

• However, of all the major EU economies, Spain has been seen as the one most inclined to push for closer EU-China relations in recent years. Indeed, PM Pedro Sanchez was in Beijing last week for talks with President Xi Jinping amid the flurry of tariff announcements from the White House.
• Meanwhile, speaking at a conference of the American Bankers' Association last week, Bessent said, "I’m not sure if the Prime Minister or Spain’s Economy Minister made some comments this morning [suggesting] that everyone, well, we should align more with China. That would be cutting their own throats because I can tell you that the U.S. tariff wall will keep things out,"
• Agriculture Minister Luis Planas attempted to downplay Bessent's comments, saying they were made at an event rather than a formal policy speech. Planas: “We have excellent trade relations with China, which we clearly intend not only to continue but to expand. This is not contradictory on Spain’s part or the EU’s. Expanding trade relations with a partner as important as China does not come at anyone’s expense, but everyone must draw their own conclusions on this matter,”

Wrightson ICAP provide a few observations around last week’s UST selloff: 

• Basis trades: ICAP note that the latest CFTC report “did not provide any superficial evidence of large-scale basis trade liquidations as of Tuesday, April 8”. However, they note that “in a turbulent market, the aggregate data in the chart below can mask massive shifts in individual portfolios” and that “importantly, they also don’t tell us anything about deleveraging in other popular trades such as swaps-spread positions”.
• Congestion In the UST Market: “Trading volume in Treasury securities exploded in response to Wednesday’s tariff U-turn, with volume in on-the-run coupons surging to $1.8 trillion in the April 9 TRACE data – nearly three times the daily average volume in the first quarter”…”While this surge once again focused attention on concerns that the market’s intermediation capacity has not kept pace with the growth in the overall Treasury market, Fed officials noted that the market’s infrastructure was ”strained but functioning”".
• Signals from Buyback Results: “The results of last week’s Treasury buyback operations did not appear to indicate an urgent need for an official-sector buyer of last resort at this point”….” We’ll be especially interested to see the results of the Treasury liquidity support operation in the 5- to 7-year nominal sector that is scheduled for this Tuesday”.
• Morning SRF Operations:  “It probably would have been useful if that [morning SRF operations] option had been available to dealers last week – especially during the funding tightness on the morning of April 9. That said, we think the Fed was wise not to rush them back into place on an ad hoc basis last week”.  

A short-term reversal in S&P E-Minis last week highlights the start of what appears to be a corrective cycle. The trend condition has been oversold following recent weakness and the move higher is allowing this set-up to unwind. Eurostoxx 50 futures traded in an extremely volatile manner last week and rallied sharply higher from recent lows. The climb highlights the start of a corrective cycle.

• Japan's NIKKEI closed higher by 396.78 pts or +1.18% at 33982.36 and the TOPIX ended 21.6 pts higher or +0.88% at 2488.51.
• Elsewhere, in China the SHANGHAI closed higher by 24.581 pts or +0.76% at 3262.808 and the HANG SENG ended 502.71 pts higher or +2.4% at 21417.4.
• Across Europe, Germany's DAX trades higher by 496.08 pts or +2.43% at 20871.52, FTSE 100 higher by 151.38 pts or +1.9% at 8116.64, CAC 40 up 146.37 pts or +2.06% at 7252.36 and Euro Stoxx 50 up 105.65 pts or +2.21% at 4894.76.
• Dow Jones mini up 397 pts or +0.98% at 40785, S&P 500 mini up 79 pts or +1.47% at 5471, NASDAQ mini up 333.25 pts or +1.77% at 19144.5.