MNI US MARKETS ANALYSIS - EUR/GBP Clears to New YTD Lows

TSYS: Modestly Cheaper, 2Y Supply To Kick Off Week’s Coupon Tsy Issuance

• Cash Tsys trade 1.5-2.5bp cheaper, with the sell-off coming in European hours to more than reverse an initial modest bid seen on the BoJ decision. 2s10s increases only slightly on the day to -27.5bps.
• TYH4 sits just half a tick off lows of 111-07+ (- 08) but has remained within yesterday’s range amidst low volumes of just 220k. The bear cycle is seen remaining in play, with support at 110-26 (Jan 19 low).
• Pre-market corporate earnings are in the headlines currently, after which headlines/flow are likely to set the tone before focus later in the session on 2Y supply.
• Data: Philly Fed non-mfg, Jan (0830ET), Richmond Fed mfg, Jan (1000ET)
• Note/bond issuance: US Tsy $60B 2Y Note auction (91282CJV4) – 1300ET
• Bills issuance: US Tsy $46B 52W Bill, $75B 42D CMB auctions – 1130ET

Fed March Cut Pricing Back At Pre Dec FOMC Levels

• Fed Funds implied rates are unchanged for near-term meetings and marginally higher for later into the year after little spillover from the BoJ overnight.
• Whilst unchanged on the day, March pricing holds yesterday’s sizeable shift to 11bp of cumulative cuts, having now fully reversed the impact from the perceived dovish pivot at the Dec FOMC.
• Cumulative cuts of note: 11bp for March, 30.5bp for May, 54bp for June and 132bp for Dec.

Fed Funds implied rate for March 2024 FOMC decisionSource: Bloomberg

OI Points To Mix Of SOFR Positioning Swings On Monday

The combination of yesterday's twist flattening on the SOFR strip and preliminary OI data points to the following:

• Whites: A mix of apparent short setting (SFRH4) and short cover (SFRU4). It is hard to be certain when it comes to SFRZ3 & M4 positioning, with prices unchanged come settlement. OI ticked higher in net pack terms.
• Reds: A mix of short cover (SFRZ4 & H5) and long setting (SFRM5 & U5). Short cover seemed to dominate in net pack terms.
• Greens: An apparent mix of long setting (SFRZ5 & H6) and short cover (SFRM6 & U6), with the latter slightly more prominent when it comes to net pack OI.
• Blues: Short cover through most of the pack, with the only exception coming via apparent long setting in SFRM7. Short cover seemed to dominate in net pack OI terms.

EUROPE ISSUANCE UPDATE:

Dutch auction results:

• E1.72bln of the 0% Jan-38 DSL. Avg yield 2.759%.

• E1bln (E954mln allotted) of the 1.30% Oct-27 Green Bobl. Avg yield 2.21% (bid-to-cover 2.14x)
• E1bln (E957mln allotted) of the 1.80% Aug-53 Green Bund. Avg yield 2.47% (bid-to-cover 1.93x)

• E3bln WNG 3.125% Dec-30 EU-bond tap: Books in excess of E70bln (inc E4.15bln JLM interest). Spread set at MS+11bp (guidance was MS + 14bps area).
• E5bln WNG 3.00% Mar-53 EU-bond tap: Books in excess of E90bln (inc E4.8bln JLM interest) . Spread set at MS+85bp (guidance was MS+87bps area)

• GBP6.0bln of the new 4.375% Jul-54 Gilt (MNI expected GBP4-6bln). Orderbook closed in excess of GBP77bln pre-rec (inc JLM interest of GBP4.75bln). Spread set at 3.75% Oct-53 gilt + 1.75bp.

Price Signal Summary - Bear Flag In EURUSD

• In FX, EURUSD is consolidating but remains in bear-mode condition. Last week’s move lower resulted in the break of a trendline drawn from the Nov 1 low, signalling scope for a continuation of the corrective cycle. Price action since Jan 17 appears to be a flag formation - a bearish continuation signal. A resumption of weakness would open 1.0793, 50.0% of the Oct - Dec bull leg. Firm resistance is at 1.0998, Jan 5 high. A breach would signal a reversal.
• GBPUSD remains above 1.2597, the Jan 17 low. The pair has recently pierced a key short-term support at 1.2611, the Jan 2 low and traded below the 50-day EMA, at 1.2628. The latest recovery is a bullish development, however, a clear breach of 1.2628/11 support would highlight a S/T top and signal scope for a deeper retracement, opening 1.2500, the Dec 13 low. Key resistance is 1.2827, the Dec 28 high. A break would resume the uptrend.
• USDJPY bulls have paused for breath. A bullish theme remains intact and last week’s gains reinforce current conditions. Resistance at 146.41, the Jan 11 high, has recently been cleared, resuming the bull cycle. The move higher opens 149.16 next, 76.4% of the Nov 13 - Dec 28 bull leg. Key short-term support has been defined at 144.36, the Jan 12 low. Clearance of this level is required to signal a top.

FOREX: Firmer JPY Fades into NY After Uneventful BoJ

• The BoJ decision came and went with no change to headline monetary policy - as expected. The JPY firmed on the back of Ueda's press conference, at which he noted that the Bank will examine whether to continue its sizeable monetary easing, including negative interest rates, when the Bank's inflation target is in sight. Nonetheless, JPY strength has faded into NY hours, with little meaningful follow through on BoJ policy.
• USD/JPY remains at the bottom-end of the daily range, but is off the 146.99 post-Ueda low. As flagged by implied vols ahead of the event, the BoJ reaction amounted to ~100 pips. Nonetheless, a bullish USDJPY theme remains intact and last week’s gains reinforce current conditions. Resistance at 146.41, the Jan 11 high, has recently been cleared, resuming the bull cycle.
• USD is softer, but well off session lows headed into NY hours as markets catch up with the ~3bps rise in the US 10y yield over the European open. This helped drag EUR/USD, AUD/USD and others further off session highs. Price action is relatively gradual at this stage, but unlike yesterday, volumes are faring better, with EUR, GBP and (unsurprisingly) JPY futures seeing decent activity.
• Focus for the remainder of the Tuesday session rests on the prelim Eurozone consumer confidence release on top of the January Richmond Fed Manufacturing Index. Central bankers at both the ECB and the Fed are inside their pre-decision media quiet periods, which should keep headline risk relatively low.

EURGBP: Fresh YTD Lows, Bear Trigger in Focus

• EUR/USD's pullback puts the pair at new daily lows, but the EUR weakness is perhaps more notable in EUR/GBP, which has broken to a fresh YTD low at 0.8548 and shown below the mid-Dec lows in the process, touching the lowest level since early September. 0.8493 marks the bear trigger in the cross, below which markets are at levels not seen since mid-2022.
• While ECB / BoE rate pricing is little changed today (and rate differentials intact), some attention has been paid to the ECB's Q4 '23 Bank Lending Survey which reported another net tightening in credit standards, with more expected in Q1 '24, while loan demand continued to drop "substantially".
• This turns focus to this Thursday's ECB rate decision, and any commentary that could suggest tighter credit standards feed into earlier policy easing (the April meeting remains ~70% priced for a 25bps rate cut.

FX OPTIONS: Expiries for Jan23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0915-25(E557mln)
• USD/JPY: Y145.00($1.3bln), Y146.94-03($672mln)
• USD/CAD: C$1.3200($970mln)
• USD/CNY: Cny7.2050($1.1bln)

EQUITIES: Uptrend in E-Mini S&P Remains Intact

• Eurostoxx 50 futures have recovered from last week’s low of 4402.00 (the Jan 17 low). This level represents a key short-term support. A break of it would resume recent bearish pressure and open 4370.00, the Nov 28 low. On the upside, initial resistance to watch is 4536.00, the Jan 11 high. Clearance of this level would highlight a potential reversal and a resumption of the primary uptrend.
• The uptrend in S&P E-Minis remains intact and last week’s gains confirmed a resumption of the trend. Resistance at 4841.50, the Dec 28 high has been cleared, marking an extension of the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode condition, reinforcing the current bullish condition. Sights are on 4900.00 next. Key support lies at 4706.46, the 50-day EMA.

COMMODITIES: Recovery in WTI Futures Deemed Technically Corrective, For Now

• Trend signals in WTI futures remain bearish and the latest recovery appears to be a correction - for now. The contract has pierced the 50-day EMA at $74.25. A clear break of it would strengthen a bullish theme and expose $76.31, the Dec 26 high and a near-term bull trigger. Moving average studies remain in a bear-mode position and continue to highlight a downtrend. The trigger for a resumption of the downtrend is $68.28, Dec 13 low.
• Gold is trading above the Jan 17 low of $2001.9. Last week’s print below the 50-day EMA and the break of support at $2013.4, the Jan 11 low, has strengthened a bearish threat and a resumption of weakness would open a key level at $1973.2, the Dec 13 low. For bulls, clearance of 2062.3, the Jan 12 high, is required to signal a reversal. This would expose $2088.5, the Dec 28 high.