MNI US MARKETS ANALYSIS - USD Close to Week's Lows Pre-CPI

US TSYS: Cheaper Ahead Of CPI, FOMC Minutes, Fedspeak and 10Y Supply

• Cash Tsys see a modest bear flattening ahead of a heavy docket with focus on CPI (preview here) before the FOMC minutes plus also 10Y issuance and Fedspeak from ’24 voters landing in between. Despite the sell-off, yields have for the most part remained within yesterday's range.
• 2YY +3.2bp at 4.054%, 5YY +2.8bp at 3.556%, 10YY +2.1bp at 3.447% and 30YY +1.6bp at 3.635%.
• TYM3 trades 2+ ticks lower on the day at 115-09+, close to yesterday’s low of 115-06+ and support at 115-03 (20-day EMA) after which lies 114-18 (Apr 3 low). To the upside lies resistance at 115-31+ (Apr 10 high).
• Data: CPI for March dominates (0830ET) but we also see real average earnings at the same time plus weekly MBA mortgage data (0700ET) and the monthly budget statement for Mar (1400ET).
• Fed: FOMC minutes (1400ET) with Richmond Fed’s Barkin (0900ET) and SF Fed’s Daly (1200ET) landing after CPI earlier in the day.
• Note/bond issuance: US Tsy $32B 10Y Note auction reopen (91282CGM7) – 1300ET
• Bill issuance: US Tsy $36B 17W bill auctions – 1130ET

STIR FUTURES: Fed Rate Path Pushing Higher Pre-CPI

• Fed Funds implied rates are little changed for the May 3 FOMC (18bp hike) but have pushed higher further out.
• The peak spills over into June with 21bp of hikes to 5.04% (+2bp), with 22bp of cuts from current levels to 4.61% Nov (+5bp) and 40bp of cuts to 4.43% Dec (+5bp).
• ’24 voters Barkin and Daly speak today ahead of the FOMC minutes. ’23 voters from late yesterday: Harker repeats getting rates above 5% and holding whilst watching data to see if more action needed on inflation, banking strains seem to have calmed down; Kashkari hopeful signs calm is being restored in the bank sector and less optimistic than bond market on inflation outlook.

FOMC-dated Fed Funds implied ratesSource: Bloomberg

EUROPE ISSUANCE UPDATE

GERMAN AUCTION RESULTS: 30-year Bunds

• Allots E819mln 1.25% Aug-48 Bund, Avg yield 2.33% (Prev. 2.30%), Bid-to-cover 1.92x (Prev. 2.84x)
• Allots E1.228bln 0% Aug-52 Bund, Avg yield 2.31% (Prev. 2.26%), Bid-to-cover 1.09x (Prev. 1.13x)

The 1.25% Aug-48 Bund results were decent with the lowest accepted price above the pre-auction mid-price although the bid-to-offer and bid-to-cover were both lower than seen in February. The 0% Aug-52 Bund auction was technically uncovered again (as in February). The lowest accepted price was also lower than the prevailing mid-price (also as in February). The price of both Bunds on offer today has moved to the lows of the day post-auction and below the lowest accepted price in the auction.

GILT AUCTION RESULTS: 0.125% Mar-39 linker

• UK sells GBP900mln 0.125% Mar-39 linker, Avg yield 0.334% (Prev. 0.070%), Bid-to-cover 2.65x (Prev. 2.46x)

That was a relatively strong linker auction with a solid bid-to-cover of 2.65x and an average price above that seen on the secondary market for the 12 minutes prior to the auction closing time. The price of the 0.125% Mar-39 linker moved higher following the release of the results but has remained lower than the average price achieved at auction.

FOREX: JPY Backtracks Amid Positive Equity Picture

• The JPY is backtracking early Wednesday, taking the place as the weakest currency in G10. Equities are furtively higher, with strength in French stocks tipping the CAC-40 to a fresh alltime high. USD/JPY hit the week's best levels of Y134.05 in Asia-Pac trade and is holding in positive territory ahead of the NY crossover.
• Elsewhere, markets are more muted, with the EUR and USD putting in a mixed performance and largely treading water ahead of the key US inflation release.
• SEK trades firmer against most others in G10, absent any macro drivers, to keep NOK/SEK within range of key support at 0.9823 ahead of the YTD low and bear trigger of 0.9725.
• Focus rests on the US CPI release due at 1330BST/0730ET, with markets on watch for any confirmation that a May 25bps rate hike could be the last of the cycle. Consensus looks for Y/Y CPI to slow to 5.1% from 6.0%, although core is expected to tick higher to 5.6% from 5.5%.
• FOMC minutes are also on the docket, at which markets will look to gauge the impacts of recent banking instability on the potential Fed policy path.

FX OPTIONS: Expiries for Apr12 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0900-10(E2.7bln), $1.0940-50(E640mln)
• USD/JPY: Y132.00($732mln), Y132.15-25($863mln), Y134.10-15($1.1bln)
• GBP/USD: $1.2300(Gbp692mln)
• EUR/GBP: Gbp0.8755-70(E480mln), Gbp0.8795-10(E595mln)
• AUD/USD: $0.6700(A$545mln), $0.6750(A$1.2bln)
• USD/CAD: C$1.3800($582mln)

EQUITIES: Eurostoxx Futures Eye Gains Above 4300.00 Level After Trading to Fresh Trend High Tuesday

• Eurostoxx 50 futures maintained a firmer tone Tuesday and the contract traded to a fresh trend high of 4299.00. Price has recently breached resistance at 4268.00, the Mar 6 high and a key hurdle for bulls. The break of this level strengthens bullish conditions with sights on gains above 4300.00. Moving average studies are in a bull-mode set-up and this highlights a broader uptrend. Initial firm support lies at 4190.60, the 20-day EMA.
• S&P E-minis remain in an uptrend and the contract is trading closer to its early April highs. Price has recently breached resistance at 4119.50, Mar 6 high, reinforcing a bullish theme. The move higher has also resulted in a break of 4148.48, 76.4% of the Feb 2 - Mar 13 downleg. This signals scope for an extension to 4205.50, the Feb 16 high ahead of 4244.00, the Feb 2 high and a key M/T resistance. Firm support lies at 4053.89, the 50-day EMA.

COMMODITIES: WTI Futures Briefly Test Above April Highs

• WTI futures remain in a bull cycle and last week’s gain strengthened this current condition. The contract touched a high of $81.81 on Apr 4, above key resistance at $81.04, the Mar 7 high. A clear break of $81.04 would signal scope for a continuation higher and open $83.04, the Jan 23 high. Key support is seen at $75.72, the Mar 31 high and a gap low on the daily chart. A pullback, if seen, would be considered corrective.
• Trend conditions in Gold remain bullish and last week’s resumption of the uptrend reinforces current conditions - the yellow metal cleared former resistance at 2009.7, the Mar 20 high, to post fresh YTD highs and signal scope for a climb towards $2034.0 next, a Fibonacci projection. On the downside, key support has been defined at $1934.3, the Mar 22 low - a break would highlight a potential reversal.