AUSSIE BONDS: Yields Lower Following US Lead, RBA Speak & HH Spend Today

Oil prices followed Friday’s 3% decline with another significant drop on Monday after OPEC decided to increase its output target for September by 547kbd. The market continues to monitor US threats against those buying Russian oil if there is no ceasefire by Friday as the situation has the potential to significantly impact global supplies. Currently expectations are low that any restrictions will be able to materially affect Russian oil exports.

• WTI fell 1.6% to $66.24/bbl. It reached $67.74 early in European trading and then declined to $65.46 before recovering somewhat. It is currently around $66.26. The benchmark is holding above initial support at $65.37, 50-day EMA. The 5.4% decline since last Wednesday signals that the corrective cycle may now be over. Initial resistance is at $70.96.
• Brent was down 1.1% to $67.30/bbl after a high of $68.34 followed by a low of $66.73. It has breached support at $67.95, 50-day EMA, opening up $65.06, 30 June low and bear trigger.
• The threat of higher tariffs against Russia and those who buy its oil remains if a truce is not agreed by August 8. US President Trump warned India that he would increase the tariff “substantially” on its exports to the US if it continued to purchase Russian crude. Indian PM Modi said India would continue to do so.
• US special envoy Witkoff is expected to visit Russia on Wednesday, according to Tass and reported by Bloomberg.

• RES 3: 147.74 - High Jan 15 and bull trigger (cont)
• RES 2: 146.53 - High Aug 6 
• RES 1: 141.48/142.95 - High May 2 / High Apr 7
• PRICE: 138.73 @ 17:08 GMT Aug 4
• SUP 1: 137.32 - Low Jul 25
• SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg   
• SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg

JGBs rallied sharply alongside global bond markets Friday, piercing mid-week resistance in the process. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal. A return lower would signal scope for an extension towards 136.57, a Fibonacci projection. 

The overnight range was 146.87 - 148.09, Asia is currently trading around 146.90. USD/JPY was capped by decent supply around 148.00 and traded heavy for most of the overnight session ignoring the big bounce in US Equities. Price has moved very quickly away from the pivotal 151/152 area much to the relief of Institutional JPY longs and the BOJ. CFTC Data shows leveraged accounts had started to aggressively build Yen shorts last week so this quick move lower would be a bitter pill to swallow. Price is testing the first support area around 146.50/147.00, a move sub 145.00 is needed to turn momentum lower once more, until then the 145.00-151-00 range should dominate.

• Bloomberg - “MUFG CEO Hironori Kamezawa called on the BOJ to raise its policy rate as early as the next meeting to combat strong inflation.”
• “Japan is finally out of the grip of deflation that defined its lost decades — but now faces classic signs of stagflation. Inflation is climbing, buoyed by wage gains and rising price expectations. Fiscal policy is set to turn more expansionary after the government’s upper house loss, adding inflationary pressure from the demand side. But the Bank of Japan is still taking a cautious approach to its next rate hike, even after a trade agreement with the US helped ease tariff uncertainty, viewing the recent price surge as transitory.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 144.00($1.13b).Upcoming Close Strikes : 147.00($1.31b Aug 6), 148.50($1.24b Aug 7) - BBG.
• CFTC data shows asset managers surprisingly added slightly to their JPY longs +75119( Last +72326), while leveraged funds aggressively added to their newly built short JPY position -31280(Last -11571).
• Data/Event : S&P Global PMI’s

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P