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- GBP/USD touches new YTD low as Government mulls Plan B
- Markets push back against BoE pricing
- BoC decision due, expected to stress possibility of rate hikes in near future
- Cash Tsys have bull flattened as they become increasingly bid ahead of the US coming in, against a backdrop of modestly softer oil and equities flat (S&P E-Minis) to down (Europe).
- 2Y yields are -1.4bps at 0.675%, 5Y at -3.2bps at 1.222%, 10Y at -3.9bps at 1.434% and 30Y at -4.1bps at 1.761%.
- The 2Y has pulled back slightly from yesterday’s highest print since Mar’20 but remains elevated and still above the immediate pre-Omicron high.
- TYH2 futures have rallied 6 ticks over the past hour or so to 130-21+ after a slow start to the day, as they partially reverse the sell-off from the past two days. First support is seen at 130-09 (20-day EMA) and initial resistance at 131-16 (Dec 3 high).
- Today’s data are limited to weekly mortgage apps (0830ET) and then JOLTS for Oct (1000ET), with attention mainly on Friday’s CPI. The Fed is in media blackout ahead of the Dec 15 meeting.
- NY Fed buy-op: Tsy 2.25Y-4.5Y, appr $7.375B (1030ET).
- Further Tsy note issuance with $36B of 10Y (1300ET) before tomorrow’s 30Y. Yesterday’s 3Y auction went smoothly, with the yield stopping just below market expectations.
- Gilt futures are challenging the September 3 high (which comes in at 127.69) after the news that the government is due to announce Plan B Covid-19 restrictions later today. Above 127.69 lies the 128.00 level (the August 31 high). Markets are now seeing some steepening of the curve as near-term hikes appear increasingly unlikely, with 2s10s up 0.7bp on the day to 28.3bps.
- EGBs are exhibiting similar price action, with German 10y yields off just over 2bps, although the curve has flattened as 30y yields dip 3bps.
- Focus turns to a possible press conference from UK PM Johnson, who is slated to appear from 1730GMT/1230ET after a cabinet meeting due in the next few hours.
EUROPE ISSUANCE UPDATE
Germany sells E2.497bln 0% Aug-31 Bund, Avg yield -0.38% (Prev. -0.29%), Bid-to-cover 1.11x (Prev. 0.93x), Buba cover 1.33x (Prev. 1.14x)
FOREX: GBP down sharply, NZD Underperforms
- The greenback is consolidating, extending its pullback off the Tuesday highs and helping relieve some pressure off the major pairs - most notably EUR/USD and GBP/USD.
- Cable lost over 20 pips and testing 1.3200 on headlines that the UK will implement Plan B on Covid.
- News and macro catalysts have been few and far between overnight, with equities rolling off recent highs on the continent. US futures, however, remain solid, with the e-mini S&P pointing to another positive open on Wall Street today.
- NOK is continuing to benefit from the general risk-on tone as well as the recent run-up in oil prices. This puts USD/NOK back below the 9.00 handle to retrace a small part of the November run higher. Support at 8.9811 has been cleared, opening 8.8473 as the next downside level.
- NZD is the poorest performer so far in G10, helping buoy AUD/NZD to new December highs and narrow the gap with both the 200-dma at 1.0603 and the October highs of 1.0612 - both of which could provide stiff resistance.
- The Bank of Canada rate decision takes focus going forward, with the board seen keeping rates policy unchanged, but signalling strongly that rate hikes are highly likely in the near future.
- EUR/USD: $1.1290-05(E522mln), $1.1350-60(E572mln)
- USD/JPY: Y113.00-05($563mln), Y113.80($524mln), Y114.25($550mln)
- USD/CNY: Cny6.3300($910mln), Cny6.4000-10($1.2bln)
- In the equity space, bearish pressure in the S&P E-minis has eased significantly this week and the contract rallied sharply higher yesterday. Futures are once again above the 50-day EMA, at 4569.94 today. The focus is on 4717.00 next, the Nov 26 high ahead of the all-time high of 4740.50. EUROSTOXX 50 futures rallied sharply higher yesterday. The contract has breached resistance at 4186.00, the Dec 1 high and price is also through both the 20- and 50-day EMAs. Attention is on 4311.7 next, the 61.8% retracement of the recent downleg between Nov 18 - 30.
- In FX, EURUSD remains below last week’s high. 1.1383, the Nov 30 high is the key resistance to watch. A break is required to signal potential for a stronger short-term recovery. This would open 1.1514, Nov 5 low. The bear trigger is unchanged at 1.1186/85, Nov 24 and Jul 1, 2020 low. GBPUSD trend conditions remain bearish and support at 1.3195, Dec 1 low remains exposed. A break would confirm a resumption of the downtrend and open 1.3165, 38.2% retracement of the Mar ‘20 - Jun ‘21 upleg. 1.3366 is resistance, the 20-day EMA. USDJPY conditions have improved for bulls. Monday’s price action is to be a bullish engulfing reversal. If correct, it suggests the pair has found a base. The 20-day EMA at 113.70 has remained intact. A clear break though would reinforce the reversal pattern and open the November high of 115.52. Key support to watch is 112.53, the Nov 30 low.
- On the commodity front, Gold remains vulnerable despite holding above recent lows. Attention is on the base of the bull channel at $1763.8, drawn from the Aug 9 low. This level represents a key short-term support. Watch resistance at $1815.6, high Nov 26. WTI futures remain firm. On the 60-min chart, the move higher this week has confirmed an inverted head and shoulder reversal, reinforcing the current bull cycle. Attention is on $73.07 next, the 20-day EMA. The 50-day EMA intersects at $74.89. Initial support lies at $65.60, the Dec 3 low.
- In the FI space, Bund futures remain in an uptrend. The focus is on 175.02 1.382 projection of the Nov 11 - 22 - 24 price swing. Support is unchanged at 173.31, Dec 2 low. The Gilts trend needle points north. The 127.00 handle has been breached and this opens 128.00 next, the Aug 31 high. Initial firm support is at 125.44, Nov 26 low and a gap high on the daily chart.
- Equity markets started the Wednesday session well, with notable gains posted across continental cash indices and US futures. This price action soon faded as reports circulated suggesting the UK could install a work from home order as soon as this week to combat the spread of the new omicron variant.
- The FTSE-100 reversed gains of around 0.5% to turn lower ahead of the NY crossover, with the e-mini S&P erasing gains of a similar margin.
- Energy names are dragging European markets lower, with financials and consumer discretionary stocks adding further weight.
- WTI crude futures have faded back to the $71/bbl handle ahead of the Wednesday open, with markets shrugging off the USD's weakness posted since the Tuesday London close. Weakness is modest, however, with benchmark oil contracts still close to 10% above the Dec2 low.
- Last week's rebound in WTI has resulted in a stronger short-term recovery. On the 60-min chart, the move higher this week has confirmed an inverted head and shoulder reversal, reinforcing the current bull cycle and suggesting scope for stronger gains near-term.
- Gold remains above last week's lows. Short-term conditions are still bearish, having recently pulled back from $1877.2, the Nov 16 high. Price has breached both the 20- and the 50-day EMAs and attention is on the base of a bull channel at $1763.8 today.
- Focus turns to the weekly DoE crude oil inventories release, where markets expect a draw of just over 1mln bbls for the headline stockpile.
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