MNI US MARKETS ANALYSIS - USD Index on Cusp of Forming Golden Cross

US TSYS: Holding A Modest Rally With Fedspeak To Lead A Thin Docket

• Cash Tsys hold the rally seen in Asian trade, with little clear drivers aside from weakness in China-related assets. It stalled in the European session as spillover from dovish BoE speak was offset by a stronger German Ifo survey.
• Yields are 2-3bps lower, led by 5s and 7s. 2s10s are unchanged on the day at -36.7bps, consolidating yesterday’s partial retracement of the post-FOMC sharp steepening to a high of -31.5bps.
• TYM4 at 110-18 (+ 05+) remains below yesterday’s 110-26+ and with a key short-term resistance to watch at 111-00+ (50-day EMA). Volumes are below average at 240k.
• A particularly quiet session today with no data or issuance sees first post-FOMC Fedspeak firmly in focus.
• Fedspeak: Powell opening remarks before Jefferson and Bowman moderate discussions (0900ET), Barr in Q&A (1215ET), Bostic in Q&A (1600ET) – see STIR bullet.

STIR: Fed Rates Edge Lower, Powell Unlikely To Move But To Be Aware Of

• Fed Funds implied rates have cooled a little overnight but remain off post-FOMC lows, aided by yesterday’s data.
• The data included firmer PMI price components, particularly strong Philly Fed forward-looking manufacturing sentiment and then a surge jump in existing home sales.
• Cumulative cuts from 5.33% effective: 4bp May, 20.5bp Jun, 32bp Jul, 52bp Sep and 82bp Dec.

• Fedspeak: Fed Chair Powell starts post-FOMC blackout proceedings, with opening remarks at 0900ET before VC Jefferson and Gov. Bowman moderate discussions with industry leaders at a Fed Listens event.
• That’s unlikely to be market moving, with Powell presumably sticking to remarks from the press conference statement if touching on policy at all, but is still worth being aware of.
• VC Supervision Barr (voter) follows in a discussion on international monetary design at 1215ET (no text), before Bostic (’24 voter) in a discussion about household finance at 1600ET (no text). Bostic revealed his above-median dot after the Dec SEP - looking for two cuts in 2024 - and will be watched for a similar indication today.

OI Points To Mix Of Limited Positioning Swings On Thursday

Thursday’s twist flattening of the Tsy futures curve and preliminary OI data points to a mix of net short setting (TU & FV), net long cover (TY & UXY) and net long setting (US & WN).

• Note that all net positioning swings were relatively limited in DV01 equivalent terms.
• The inflation components of the latest flash S&P Global PMIs & Philly Fed surveys, along with the weekly jobless claims data, helped counter the rally that came on the back of the SNB & BoE decisions.

OI Suggests Net Short Setting Dominated In SOFR Futures On Thursday

Yesterday's move lower in SOFR futures and preliminary OI data points to net short setting in all packs through the blues.

• Pockets of long cover were also seen.
• The inflation components of the latest flash S&P Global PMIs & Philly Fed surveys, along with the weekly jobless claims data, helped counter the rally that came on the back of the SNB & BoE decisions.
• That left FOMC-dated OIS off dovish session extremes, pricing a little over 80bp of '24 cuts.

RATINGS: Friday's Potential Sovereign Updates

Potential sovereign rating reviews scheduled for after hours on Friday include:

• Fitch on Portugal (current rating: A-; Outlook Stable) & the United Kingdom (current rating: AA-; Outlook Negative)
• Moody’s on Poland (current rating: A2; Outlook Stable)
• S&P on Germany (current rating: AAA; Outlook Stable)
• DBRS Morningstar on Cyprus (current rating: BBB (high), Stable Trend), Finland (current rating: AA (high), Stable Trend), France (current rating: AA (high), Stable Trend), Ireland (current rating: AA (low), Stable Trend) & Norway (current rating: AAA, Stable Trend)
• Scope Ratings on Japan (current rating: A; Outlook Negative), Norway (current rating: AAA, Stable Trend) & Spain (current rating: A-; Outlook Stable)

FOREX: JPY on Front Foot in Corrective Bounce, But USD/JPY Bias Remains Higher

• The JPY trades on the front foot early Friday, in a corrective bounce for the currency that's weakened since the first BoJ rate hike for decades earlier this week. Markets remain in close proximity to levels at which the Japanese authorities intervened in recent years, but recent evidence of an underlying long USD/JPY bias continues to argue for a further grind higher in the pair. Today's USD strength evident in EUR/USD, GBP/USD weakness adds to this argument.
• The real test for USD/JPY remains higher: longer-term resistance is next up - A multi-year bull channel, drawn from the September 2012 low, clearly shows the importance of resistance at the 152.50 area. Channel top was tested in Oct‘22 and in October last year.
• The USD Index is firmer, clearing the 104.00 handle early Friday and narrowing in on the February highs. Prices are on the cusp of forming a golden cross formation (50-dma moving above 200-dma) for the first time since September last year - signaling near-term momentum is pointed higher.
• Focus ahead rests on the central bank speaker slate - ECB's Centeno and Lane are set to make appearances. MNI held an event with Nagel earlier today, at which he stuck to the rhetoric of a higher probability of a June rate cut at the ECB. Fed's Barr and Bostic are also set to make appearances. Powell is set to deliver opening remarks at a Fed Listens event.

Weakness Pervades; USD Index on Cusp of Golden Cross

• GBP/USD's corrective pullback persists, with the pair showing below the 200-dma today and extending the pullback following the dovish interpretation of the BoE decision - over 80bps of rate cuts are now priced for this calendar year, up from ~60bps at the beginning of the week.
• Outside of GBP, USD strength is notable - the USD Index today has cleared to weekly highs and is narrowing the gap with the mid-February highs. Notably, the USD Index is close to forming a 'golden cross' formation in the DMA space (50-dma rises above the 200-dma - see chart below) signalling positive S/T momentum. A golden cross was last formed in Sept last year, presaging a further 2% rally to cycle highs in October.
• Next support for GBP/USD undercuts at 1.2536, the Feb14 Low and the bear trigger at 1.2519.

Expiries for Mar22 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800(E962mln), $1.0825-35(E2.3bln), $1.0850(E1.5bln), $1.0865-75(E1.8bln), $1.0890-05(E2.2bln), $1.0940-50(E1.1bln)
• USD/JPY: Y148.80-00($1.9bln), Y149.20-35($774mln), Y149.55($1.1bln), Y150.00($1.1bln), Y150.95-00($1.3bln), Y151.75($647mln)
• GBP/USD: $1.2675-90(Gbp798mln), $1.2750(Gbp547mln)
• AUD/USD: $0.6500(A$1.1bln), $0.6550(A$874mln), $0.6650(A$1.7bln), $0.6750(A$2.6bln), $0.6825(A$2.6bln)
• NZD/USD: $0.6050-60(N$1.8bln)
• USD/CAD: C$1.3350-70($1.7bln), C$1.3480-00($2.2bln), C$1.3510-20($765mln)
• USD/CNY: Cny7.1500($1.1bln), Cny7.2000($810mln), Cny7.2200($1.2bln)

EQUITIES: E-Mini S&P Targets Resistance at Top of Bull Channel at $5379.92

• A bullish trend condition in Eurostoxx 50 futures remains intact and yesterday’s gains reinforce current conditions. The move higher confirms once again a resumption of the uptrend and this has also resulted in a break of the 5000.00 handle. Moving average studies remain in a bull-mode position, highlighting positive market sentiment. Sights are on 5074.7, a Fibonacci projection. Initial firm support is at 4896.30, the 20-day EMA.
• The trend condition in S&P E-Minis remains bullish and this week’s extension reinforces this theme. The break of 5257.25, Mar 8 high, confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. MA studies are in a bull-mode position reflecting positive market sentiment. Sights are on 5379.92, the top of a bull channel drawn from the Jan 17 low. Initial firm support is at 5196.99, the 20-day EMA.

COMMODITIES: Bullish Conditions in Gold Reinforced Despite Moderate Pullback

• WTI futures traded higher Tuesday and a bull theme remains intact. The latest pullback is considered corrective. Recent gains resulted in a break of $79.87, Mar 1 high. The move higher confirms a resumption of the uptrend that has been in place since mid-December last year. Sights are on $83.87 next, the Oct 20 ‘23 high. A break of this level would open $84.87, the Sep 15 ‘23 high and a key resistance. Support to watch is $79.27, the 20-day EMA.
• The trend condition in Gold is bullish and this week’s move higher reinforces current conditions. The initial rally Thursday delivered another all-time high and confirmed a resumption of the primary uptrend. Moving average studies remain in a bull-mode condition, reflecting positive market sentiment. This signals scope for a climb towards $2230.1, a Fibonacci projection. Key short-term trend support has been defined at $2146.2, the Mar 18 low.