US 10YR FUTURE TECHS: (Z5) Bull Mode
- RES 4: 114-10 High Apr 7 (cont.)
- RES 3: 114-10 1.0% 10-dma envelope / High Apr 7 (cont.)
- RES 2: 114-00 Round number resistance
- RES 1: 113-29 High Sep 5
- PRICE: 113-19 @ 11:06 BST Sep 17
- SUP 1: 112-28 20-day EMA
- SUP 2: 112-05+ 50-day EMA
- SUP 3: 111-13+ Low Aug 18 and a key support
- SUP 4: 110-25 Low Aug 1
A bull-mode condition in Treasury futures remains intact. Note that the recent impulsive rally signalled an acceleration of the uptrend. Also, moving average studies are in a bull-mode position, highlighting a dominant uptrend. This suggests scope for an extension through 114-00 next and a test of 114-10, the Apr 7 high (cont). Initial firm support to watch is 112-28, the 20-day EMA.
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OPTIONS: Larger FX Option Pipeline
- EUR/USD: Aug19 $1.1620-25(E2.3bln), $1.1700(E1.3bln); Aug20 $1.1660-75(E1.2bln); Aug21 $1.1600(E1.3bln), $1.1700(E1.4bln), $1.1750(E1.9bln), $1.1800(E2.9bln)
- USD/JPY: Aug20 Y148.00-10($1.2bln); Aug21 Y145.95-00($1.2bln), Y146.70-80($1.7bln)
- AUD/USD: Aug21 $0.659-00(A$1.8bln)
FOREX: USDCAD Monitoring Moving Average Supports, Canada CPI Due Tomorrow
- Ahead of Jackson Hole, Canadian CPI is scheduled Tuesday, which is expected to show steady core inflationary pressures on a Y/Y basis (trim/median average 3.05%, unch from June). This is the first of two CPI reports before the BOC's next decision release on Sep 17 (for which a rate cut is around 25% priced).
- A pullback in employment in July has helped keep further BOC easing on the table since July's hold, and has helped USDCAD broadly consolidate around the 1.38 mark.
- However, the CPI data will be very closely eyed given stronger-than-expected core price momentum in Q2 and an upside surprise would place the technical focus on both the 20- and 50-day exponential moving average supports, located around 1.3760. A clear break would resume the correction off the early August high at 1.3879, signalling scope for a move back to 1.3576, the Jul 23 low.
GILTS: BMO Assess Stock & Flow Impact On 10s30s
BMO note “versus the stock of longs, due to the UK’s large overhang of long bonds, UK 10s30s still looks relatively too flat: but versus the flow of longs - thanks to the DMO’s cuts to planned long supply - UK 10s30s looks somewhere between about right to perhaps even slightly too steep. To put it another way, the DMO’s decision to cut back long supply has done a lot to prevent UK 10s30s steepening even further.”
- Still, they note that “UK 10s30s remains more than 20bps flatter than implied by a model based on the long bond overhangs and issuance plans of international peers. We believe this is due to some specific factors, which may unwind over time”.
- BMO highlight three levers authorities could pull to keep the UK 10s30s curve flatter:
- “The DMO could again reduce the number of Long gilts it sells”.
- “The BoE could alter its QT programme to end or reduce its sales of Long gilts”.
- “The government could alter the regulatory environment for insurance companies providing pension annuities, which presently incentivises them to replace their gilts with other assets”.
- They conclude by noting that if “both the BoE and the Treasury acted, our international model would lead us to expect UK 10s30s to flatten towards 70bp: still steeper than the US; but flatter than Italy, Spain and France. This would help the UK to reduce its ongoing cost of debt service; and ease its future funding pressures, by maintaining a longer weighted average maturity. Otherwise we would be concerned that UK 10s30s would continue to steepen towards the level currently implied by our international model".
