MNI US MARKETS ANALYSIS: Dollar Rout Continues Pre-Payrolls

US TSYS: Inversion Retracement Ahead Of Payrolls

Short-end Treasuries continue to gain ahead of the November employment report at 0830ET, with the rest of the curve mixed.

• After some weakness in the Asia-Pac session due in part to speculation on a BoJ policy review, Treasury futures bounced in European trade.
• Front TYs sit near session highs at 114-24, just below Thursday's multi-month 114-24+ high - 10Y cash yields are steady.
• The short end has outperformed, with 2Y yields down 3.2bp, touching the lowest since early Oct at 4.1809%.
• Thus, curve inversion has retraced sharply in the European morning as well, with 2s10s up 3.7bp to 69bp, just below the just below the 67.3bp level seen just after Powell's speech Wednesday - which was the least inverted 2s10s level since Nov 18.
• Outside of payrolls, we get FOMC members Barkin (0915ET) and Evans (2x, at 1015ET and 1400ET) as the final scheduled Fed speakers before the pre-meeting blackout period starts.
• The 2-Yr yield is down 3.2bps at 4.1953%, 5-Yr is down 0.7bps at 3.6571%, 10-Yr is up 0.7bps at 3.5116%, and 30-Yr is up 1.9bps at 3.6169%.

US STIR FUTURES: Dec 50bp Hike Locked In, But On The Fence For Feb FOMC

Checking on Fed OIS-implied hike pricing pre-Nov payrolls (0830ET), a December 50bp FOMC hike is all but locked in (94% probability).

• Peak pricing has settled about 20bp below where it was before Powell's appearance Wednesday, with the ISM and PCE numbers yesterday helping corroborate the dovish narrative.
• The terminal 4.84% for May 2023 is down 2bp overnight and the lowest since the mid-Nov, post-CPI data lows.
• That's about 100bp of implied further hikes in this cycle, or 50bp beyond Dec.
• Today's payrolls data will be relatively more impactful on Feb pricing as opposed to Dec: it's leaning a little higher than 50% probability of a 50bp as opposed to further step-down to a 25bp hike.

MNI US Payrolls Preview: Watching Implications For Feb FOMC

Consensus is very similar to what it pencilled in for last month’s report, before payrolls came in stronger but the u/e rate increased more than expected as participation fell.

• Click for full preview.

US: Primary Dealer NFP Estimates

FIXED INCOME: Treasuries remain near recent highs ahead of payrolls

• Bunds and gilts are higher this morning, while Treasury futures are only a little below the highs seen yesterday. Markets are looking ahead to this afternoon's US labour market release.
• Bund futures are dragging EGBs and Treasuries higher, with the German 10yr Yield testing the October low at 1.77%, printed 1.773% low, and still holding for now.
• TYH3 is just short of yesterday's high at 114.24+, which was also the highest print since mid September
• Payrolls data likely to have more impact on pricing for the 1st February FOMC meeting than the December meeting (which is looking likely to see a 50bp hike). There is around 86bp priced cumulatively by February. Chair Powell alluded to a 100k pace of payrolls growth as being sustainable, but consensus is looking for twice that number today (200k). For the full MNI preview see here.
• Post-payrolls we will hear from the Fed's Barkin and Evans (and potentially more on as-yet-unannounced media interviews).
• We will also have another BOE operation to sell its holdings of its financial stability portfolio of long-dated gilts and linkers.

FOREX: USD tumbles in a busy morning session 

• All the action was in FX during the morning European session. The USD tumbled and extended losses across the board, while the Yen continued its ascent across G10s.
• It is another a 197 pips range for the USDJPY, broke below 134.00, to print a 133.63 low, but is now back at 134.20.
• USDCHF continues to trade at its lowest level since April.
• Small support will be seen at 0.9324, followed by 0.9287.
• Traded as low as 0.9337 so far today.
• Cable tested just short of the 1.2300 handle, 1.2298 is the high for the session.
• Other mover has been the Kiwi, extending gains against the Aussie.
• The pair now eye the March low at 1.0615, only managed a 1.0643 and off its low at 1.0657 at the time of typing.
• Looking ahead, ALL EYES are on NFP and AHE.
• Speakers, sees ECB Guindos, Nagel and Fed Barkin, Evans to end the week.

FX OPTION EXPIRY (updated)

FX OPTION EXPIRY (updated closest ones).

Of note:

EURGBP 1.6bn at 0.8500 (mon).

USDCNY 1.14bn at 7.00 and 2.39bn at 6.95 (mon).

• EURUSD: 1.0475 (709mln), 1.0500 (306mln), 1.0525 (302mln), 1.0600 (579mln).
• USDJPY: 135.00 (478mln).
• USDCAD: 1.3400 (493mln), 1.3415 (380bn).
• AUDUSD; 0.6825 (459mln).
• AUDNZD: 1.0650 (500mln).

Price Signal Summary - Bund Futures Continue To Climb

• In the FI space, Bund futures remain in a short-term uptrend. Price has cleared the 50-day EMA, highlighting a stronger short-term reversal. Resistance at 142.87, the Oct 4 high has been pierced and this opens 143.87, the Sep 14 high. The 20-day EMA marks initial firm support - it intersects at 140.20.
• Trend conditions in Gilt futures remain bullish. Fresh cycle highs last week maintain the bullish price sequence of higher highs and higher lows and moving averages appear to be highlighting a bull mode set-up. If confirmed this would reinforce the uptrend. The bull trigger for a continuation of gains is 107.06, the Nov 24 high. Initial firm support lies at 104.78, the Nov 23 low.

Price Signal Summary - USDJPY Path Of Least Resistance Remains Down

• In FX, EURUSD traded higher Thursday and in the process cleared Monday’s high of 1.0497. The break cancels Monday’s bearish signal - a shooting star candle pattern - and instead confirms a resumption of the current uptrend. The focus is on 1.0559, a Fibonacci projection. Key short-term support has been defined at Wednesday’s 1.0291 low.
• GBPUSD trend conditions remain bullish and Thursday’s gains reinforce this condition - the break higher has confirmed a resumption of the uptrend and price has cleared the 200-dma. The focus is on 1.2339,1.236 projection of the Sep 26 - Oct 5 - Oct 12 price swing. Key short-term support has been defined at 1.1901, Wednesday’s low.
• The USDJPY trend condition remains bearish and Thursday’s move lower confirmed a resumption of the downtrend. Today’s follow through reinforces the bear theme and maintains the bearish price sequence of lower lows and lower highs. Sights are on 132.56, Aug 15 low. Key short-term resistance to watch is 139.89, Wednesday’s high. Initial resistance is at today's intraday high of 135.60.

Price Signal Summary - EUROSTOXX50 Bull Cycle Still In Play

• In the equity space, S&P E-Minis remain in an uptrend and Wednesday’s gains reinforce a bullish theme. The rally resulted in a break of initial resistance at 4050.75, the Nov 15 high. This confirms a resumption of the uptrend and 4100.00 has been breached. The focus is on 4146.63, 76.4% of the Aug 16 - Oct 13 downleg On the downside, key short-term support has been defined at 3912.50, the Nov 17 low.
• EUROSTOXX 50 futures trend conditions remain bullish and the contract traded to a fresh cycle high Thursday. This maintains the uptrend that started in early October and confirms an extension of the price sequence of higher highs and higher lows. The 4000.00 handle has been pierced, this opens 4049.50 next, the Feb 23 high (cont). Initial firm support is at 3840, the Nov 17 low.