US TSYS: Yields Extend Higher On CPI

TYU5 reopens at 110-20+, up 0-01 from closing levels in today’s Asia-Pac session.

• Friday night the US 10-year yield had a range of 4.3141% - 4.4442%, closing around 4.40%. 
• Treasury yields ended higher on the night, led by the long-end helping the yield curve steepen (2s10s +0.18 at 44.908, 5s30s +1.76 at 89.060).
• MNI US DATA: U.Mich Inflation Expectations Seem To Be Affected By Weight Change. The U.Mich consumer survey saw surprisingly low near-term inflation expectations in the preliminary June survey, at 5.1% (cons 6.4%) for 1Y out after 6.6% in May. The 5-10Y meanwhile was as expected at 4.1% after 4.2%.
• “Federal Reserve officials are signaling an extended hold on interest rates, and investors and economists will look to Chair Jerome Powell for clues on what might eventually prompt the central bank to make a move.”(BBG)
• The 10-year yield has bounced strongly off its 4.30/35% support, this area needs to hold if yields are to move higher. A sustained break back below 4.30% and you would think more shorts will be pared back potentially putting a short-term top in place. It seems traders for the moment are more concerned with the move in oil and the implications it has for inflation than buying treasuries as a safe haven.

• RES 3: 97.190 - High May 5 2023
• RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg 
• RES 1: 96.860 - High Apr 07
• PRICE: 96.640 @ 16:21 BST Jun 13
• SUP 1: 95.900 - Low Jan 14  
• SUP 2: 95.760 - Low 14 Nov ‘24
• SUP 3: 95.480 - Low Jan 11 2023 and a major support 

Aussie 3-yr futures rallied off lower levels on the RBA rate cut and guidance, however prices remain south of the 50-dma for now. The recent rally took out resistance at 96.730, the Sep 17 ‘24 high, however momentum faltered, leaving 96.860 resistance intact. This remains the key level to the upside.  Instead, a continuation lower would strengthen a bearish theme. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would refocus attention on 96.860, the Apr 7 high.

The global banks maintains its bearish USD outlook and updates its trade recommendations below. 

J.P. Morgan: "Range breaks in the offing for the dollar

Outlook: The threat of early summer doldrums in FX has been dispelled by a mix of market moving data, tariff threats, and geopolitical developments. More signs of US labor market cooling, signs of escalation rather than thaw in the US vs. RoW tariff conflict, and renewed TWD appreciation that is a reminder of appreciation pressures on surplus FX increase our conviction in a strategic bearish dollar view in the run-up to tariff holiday expiry in July. Middle East tensions are a risk to navigate rather than a game changer for the bearish USD view; a limited USD squeeze is possible but likely not much more than that given the incentives of Gulf countries to contain the conflict.

Macro Trade Recommendations: Stay short USD after encouraging data and levels breaks – short USD vs EUR, JPY, AUD & NZD. Reduce some net exposure following Middle East developments; take profit on CAD/NOK shorts. Tighten stop on EUR/Scandi shorts; hold GBP/Scandi shorts on softer local data.

Emerging Markets FX: OW EM FX, supported by slower US growth and diminishing US exceptionalism. Prefer EM Asia ‘creditor’ currencies, CEE euro-proxies, stay selective in commodity and frontier markets.

FX Derivatives: Gamma model shifted defensive. Hedge geopolitics with [safe haven/USD up && high beta/USD dn] duals. Buy EUR-CAD via USD corr swap that is realizing 20pts above implieds. Buy a net defensive long USD/SEK vs EUR/SEK vol RV.

Technicals: 1.1694/1.1881 the next upside levels for EUR/USD. Cable forms downside reversal pattern at longer-term channel resistance. USD/JPY coils above 140 support. AUD/USD rally up against 0.6535-0.655 Fibonacci resistance."