FOREX: USD Weakness Pervades, China Currency Leading Gains
May-23 09:20
- Greenback slippage has resumed ahead of the NY crossover, with the USD lower against all others in G10 and adding additional pressure to the USD Index. The greenback is testing early May lows, with the USD/CNH chart a particular standout. A close at current or lower levels for the pair would be the lowest since November and the lowest of Trump's Presidential term so far, with prices cementing the recent close below the 200-dma in the price.
- JPY crosses remain a point of interest given the extended volatility in Japanese government bond markets. National CPI data came in ahead of expectations, supporting the recent run higher in the longer-end of the JGB curve and firming the downside argument for USD/JPY. Markets have tested, but failed to break meaningfully below, Y143.24 - the 61.8% retracement of the upleg posted off April's pullback low. The JGB yield curve has steepened further, putting the 2y10y spread to 80bps this week.
- Scandi currencies are outperforming early Friday, with NOK and SEK firming against all others alongside a generally better picture for European equity markets. Core indices are higher by 0.1 - 0.5%, with outperformance in German firms as final GDP data came in ahead of expectations.
- US data is few and far between Friday, with Canadian retail sales the highlight. CAD is underperforming headed into the release, undermined by weaker oil prices this week as markets anticipate a further production output hike from OPEC+ in the coming months.
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US TSY FUTURES: FV/US Flattener Blocked
Apr-23 09:18
Latest block trades lodged at 09:56:12 London/04:56:12 NY:
- FVM5 8.4K lots blocked at 108-07.75, looks like a seller.
- USM5 2.9K lots blocked at 114-20, looks like a buyer.
- Prevailing market levels at the time of the block and subsequent price action on the 5s20s curve indicates a flattener.
- 5s20s now ~6bp flatter the day at 85.4bp vs. cycle closing highs of 96.6bp, registered on Monday.
- DV01 ~$370K.
SWAPS: Nordea Recommend Receiving 1y1y/2y1y €STR
Apr-23 09:12
Nordea recommend receiving 1y1y/2y1y €STR.
- They note that current pricing shows “Dec ’25 ECB implied rates at low levels that require a good deal of negative news to materialise, while the 2y1y is at quite high levels, showing modest lasting economic damage”.
- Nordea believe that “both views make sense. On the one hand, it is not hard to see scenarios where a lot of rate cuts will be needed. On the other hand, we can also subscribe to the view that damage to the Euro-area economy is likely to be modest even with the tariff increases (owing to fiscal support)”.
- However, they flag that the “curve is now stretched to the point where the roll-down will compensate for quite a lot of the curve risk. Some additional rate cuts for this year will steepen the curve and be negative for the trade. However, the curve could flatten with fewer rate cuts than currently priced and could flatten in the really bad scenarios with many rate cuts where the ECB also ends QT and outright receivers emerge further out on the curve”.
CROSS ASSET: The Dollar and US Yields are drifting lower
Apr-23 09:10
- A lower leg for the Dollar, selling interest are emerging against the EUR, CAD, CZK, SEK, Cable is also back towards the intraday high.
- Risk On tone, but also the US Tnotes now testing session high could be helping here, so worth keeping an eye on the USDJPY and the previous printed intraday low of 141.49.
- The US 10yr Yield is looking to break below this Week's printed low of 4.3287%, but next resistance in TYM5 is seen much further out, up to 111.17+.
