MNI US MARKETS ANALYSIS - Next Leg Higher in USD/JPY Could Be Harder to Come By

US TSYS: Consolidation Of Yesterday’s Bull Flattening, Jobless Claims In Focus

• Cash Tsy yields sit 1-1.5bp lower, mostly consolidating yesterday’s bull flattening as they take yields a little further away from Tuesday’s latest YTD highs which included the 2Y breaching 5%.
• TYM4 trades at 108-07+ (+ 02+) off an earlier high of 108-10+ on further solid overnight volumes of 430k. Resistance is seen at 108-25+ (Apr 12 high) whilst short-term gains are considered corrective with the trend needle pointing south and support at 107-13+ (Apr 16 low).
• Today sees a likely data focus, primarily jobless claims which includes the payrolls reference period for initial claims, but also existing home sales and the Philly Fed manufacturing index.
• Data: Weekly jobless claims (0830ET), Philly Fed mfg Apr (0830ET), Existing home sales Mar (1000ET), Leading index Mar (1000ET)
• Fedspeak: Bowman (0905ET), Williams (0915ET), Bowman (0915ET), Bostic (1100ET), Bostic (1745ET) – see STIR bullet.
• Note/bond issuance: US Tsy $23 5Y TIPS auction (1300ET)
• Bill issuance: US Tsy $70B 4W, $75B 8W Bill auctions (1130ET)

STIR: Fed Rates Maintain Yesterday’s Dip, Fedspeak Unlikely To Surprise?

• Fed Funds implied rates are little changed having cooled yesterday, with some dovish pricing excerpts in the Fed’s Beige Book helping consolidate the move.
• Cumulative cuts from 5.33% effective: 1bp May, 5bp Jun, 13bp Jul, 25bp Sep and 44bp Dec.

Today sees a heavy, Q&A-focused schedule for Fedspeak, but all have spoken since last week’s strong CPI release and Bowman should mostly to regulatory matters.

• 0905ET – Bowman (voter) opening remarks at banking conference (with text)
• 0915ET – Williams (voter) moderated discussion at economy summit
• 0915ET – Bowman (voter) fireside chat on Basel III roundtable
• 1100ET – Bostic (’24) fireside chat on economy
• 1745ET – Bostic (’24) fireside chat on economy and mon pol
• Potential local media comments from Collins (non-voter)
• Bowman yesterday reiterated that progress on inflation may have stalled, adding that time will tell if policy is sufficiently restrictive.
• Williams said earlier this week that the latest CPI is important info affecting forecasts but he doesn’t see the recent inflation data as a turning point. Monetary policy is in a good place.
• Bostic on Apr 12 still saw one rate cut toward the end of the year, as he likely marked down in the March SEP. “I am not in a hurry” to cut rates.

ISRAEL/IRAN: Netanyahu To Postpone Iran Strike Until After Passover

Multiple reports suggesting that PM Benjamin Netanyahu is likely to postpone any retaliatory strike against Iran until after the Jewish holiday of Passover, which begins on 22 April and ends after sunset on 29 April (a number of outlets reporting 30 April, but in Israel for most sects Passover lasts seven days, rather than eight for many outside of Israel). With ABC reporting that according to three Israeli sources the gov't nearly launched strikes on two nights this week, only for them then to be aborted, a delay of nearly two weeks to any retaliatory strike could give further time for Israel's allies to urge caution and de-escalate the situation.

• There remains the strong likelihood that the Israeli gov't will launch some form of retaliatory strike following Iran's mass drone/missile attack over the past weekend. Indeed, hardliners in the Netanyahu gov't are demanding a significant response. Finance Minister Bezalal Smotrich from the ultranationalist Religious Zionist Party said that the strikes should "rock Tehran so everyone there will realise they shouldn't mess with us."
• Indeed, Netanyahu stated that Israel "would make its own decisions" with regards to its response rather than following the direction of its allies. This came after talks with UK Foreign Secretary Lord Cameron, where the former British PM called for a 'smart' response that was limited in nature.
• ABC: "A range of responses have been presented to the Israeli war cabinet. The potential responses include options ranging from attacking Iranian proxies in the region but not on Iranian soil to a potential cyber attack, sources told ABC News."

TSYS: OI Points To Light Net Long Setting In Most Contracts On Wednesday

The combination of Wednesday’s recovery in Tsy futures and preliminary OI points to mostly modest net long setting on the curve, with only a limited round of apparent net short cover in FV futures breaking that trend.

• The net OI swings were limited on the day, a theme that has been seen in most contracts this week, suggesting relatively low overall conviction after the recent hawkish adjustments re: the Fed policy outlook.

SOFR: OI Points To Mix Of Net Long Setting & Short Cover In SOFR Futures On Wednesday

The combination of yesterday’s uptick in most SOFR futures and preliminary OI data points to a mix of net long setting (in the white and green packs) and net short cover (in the red and blue packs), although there wasn’t much in the way of meaningful themes to pick out beyond that.

EUROPE ISSUANCE UPDATE: 

Spain Bono/Obli auction results:

• E1.5bln of the 2.50% May-27 Bono. Avg yield 2.986% (bid-to-cover 2.52x).
• E1.533bln of the 1.95% Jul-30 Obli. Avg yield 2.95% (bid-to-cover 2.04x).
• E2.075bln of the 3.25% Apr-34 Obli. Avg yield 3.251% (bid-to-cover 1.84x).
• E1.035bln of the 3.45% Jul-66 Obli. Avg yield 3.865% (bid-to-cover 1.76x).

France MT OAT auction results:

• E2.637bln of the 0% Feb-27 OAT. Avg yield 2.85% (bid-to-cover 2.57x).
• E3.238bln of the 2.50% Sep-27 OAT. Avg yield 2.83% (bid-to-cover 2.43x).
• E5.171bln of the 2.75% Feb-30 OAT. Avg yield 2.79% (bid-to-cover 2.08x).
• E1.371bln of the 0% May-32 OAT. Avg yield 2.83% (bid-to-cover 2.94x).

France I/L OAT auction results:

• E445mln of the 0.55% Mar-39 OATi. Avg yield 0.84% (bid-to-cover 2.27x).
• E573mln of the 0.10% Mar-29 OATei. Avg yield 0.44% (bid-to-cover 2.65x).
• E680mln of the 0.60% Jul-34 OATei. Avg yield 0.6% (bid-to-cover 2.37x).
• E287mln of the 0.10% Jul-53 OATei. Avg yield 0.73% (bid-to-cover 2.70x).

FOREX: USD Index Opens Gap With Cycle High, Aids Broader Rebound in G10

• The USD trades modestly softer, while antipodean currencies and commodity-tied FX extends a rebound off lows into the NY crossover. The USD Index is lower for a second session, opening a 0.6% gap with the cycle high posted earlier this week at 106.517.
• USD/JPY's consolidation just below the cycle highs in recent sessions has prompted a minor unwind of the severely overbought condition, as detailed by the 14-day RSI - which touched 80 at the last session high, putting prices at the most overbought in 18 months. While the technical trend condition in USD/JPY remains positive, the next phase of strength could be harder to come by without another major shift in Fed policy pricing, as positioning looks stretched and diplomatic blockers to potential intervention appear to peel away - evident in the G7 statement overnight.
• Australian jobs data overnight was mixed, as the unemployment rate rose at a slower pace than expected, however far fewer jobs were added over the period - sending mixed signals for RBA policy. AUD/NZD sits lower into the NY crossover, with yesterday's lows of 1.0861 acting as first support.
• The data focus rests on weekly jobless claims ahead of existing home sales numbers for March. Central bank speak picks up, with Fed's Bowman, Williams, Bostic and Collins all on the docket, alongside BoE's Greene and ECB's Centeno, Simkus and Vujcic.
• Policy divergence between the US and Europe/UK is likely to take the spotlight, as both the ECB and BoE look to prep markets for earlier local rate cuts relative to the Federal Reserve, which continues to push back on the timing of the first easing phase.

FX OPTIONS: Expiries for Apr18 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0625(E560mln), $1.0635-50(E1.6bln), $1.0700(E700mln), $1.0735-40(E691mln), $1.0750-70(E1.5bln), $1.0800-05(E1.3bln)
• USD/JPY: Y151.85-00($3.2bln), Y153.00($4.9bln), Y153.25($1.0bln), Y153.80($980mln), Y154.00($755mln), Y154.50($898mln), Y155.00($1.0bln)
• GBP/USD: $1.2390-00(Gbp1.1bln), $1.2450(Gbp586mln)
• EUR/GBP: Gbp0.8525-35(E585mln), Gbp0.8590(E782mln)
• EUR/JPY: Y163.99-00(E540mln)
• AUD/USD: $0.6370(A$596mln), $0.6435(A$1.4bln)
• NZD/USD: $0.5900-08(N$1.1bln), $0.5995(N$780mln)
• USD/CAD: C$1.3750($703mln)

JPY: Next Phase of USD/JPY Could be Harder to Come By

• While the technical trend condition in USD/JPY remains positive, the next phase of strength could be harder to come by without another major shift in Fed policy pricing, as positioning looks stretched and diplomatic blockers to potential intervention appear to peel away.
• USD/JPY's consolidation just below the cycle highs in recent sessions has prompted a minor unwind of the severely overbought condition, as detailed by the 14-day RSI - which touched 80 at the last session high, putting prices at the most overbought in 18 months.
• Markets remain on intervention watch and may now be more wary of intraday corrections and positioning wash-outs (as per Tuesday’s 70 pip sell-off), as the CFTC survey puts the JPY net short at more than 50% of open interest for the first time in decades.
• Earlier this week, South Korean and Japanese finance ministers expressed “serious concerns” over the respective weakness of their currencies, a theme that re-appeared in a meeting with US Treasury Secretary Yellen, who acknowledged the plight of the KRW and JPY – a signal that many have read as a diplomatic greenlight for intervention, if circumstances deem it necessary. The accompanying G7 statement affirmed currency policy, which leaves room for action against “excessive” moves in FX.

EQUITIES: E-Mini S&P Recover from Wednesday's Lows

• Eurostoxx 50 futures are trading at their recent lows. A bearish corrective cycle remains in play and the move down this month has allowed an overbought trend condition to unwind. The contract is testing support at 4857.50, the 50-day EMA and a key pivot price point. A clear break of this average would signal scope for a deeper retracement and open 4826.00, the Mar 5 low. Initial resistance to watch is 4990.00, the Apr 15 high.
• The short-term trend condition in S&P E-Minis is unchanged and remains bearish with price trading closer to this week’s lows. The contract has traded through support at the 50-day EMA, signalling scope for a continuation lower near-term. Sights are on 5018.00, the Feb 21 low, ahead of the 5000.00 handle. Firm resistance is seen at 5195.21, the 20-day EMA. A clear break of the average would signal a possible reversal.

COMMODITIES: Move Lower in WTI Futures Signals Start of Bearish Corrective Cycle

• A bull theme in WTI futures remains intact, however, yesterday’s move lower signals the start of a short-term bearish corrective cycle. The contract has traded through the 20-day EMA and this signals scope for an extension towards the 50-day EMA, at $81.12. A clear break of the 50-day EMA would signal a stronger bearish theme. On the upside, key resistance and the bull trigger has been defined at $87.67, the Apr 12 high.
• The trend condition in Gold is unchanged and the outlook remains bullish with price trading closer to its recent highs. The latest rally maintains the price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode condition, reflecting positive market sentiment. The next objective is $2452.5, a Fibonacci projection. Initial firm support is at $2293.4, the 20-day EMA.