MNI US MARKETS ANALYSIS - USD Index On Cusp of Resuming Uptrend

US TSYS: Minor Twist Steepening With JOLTS & ISM Mfg Ahead

• Cash Tsys trade within overnight narrow ranges for a marginal twist steepening. The front end has been paring gains but remains very slightly bid, seemingly on a softer China Caixin PMI before no notable impact on near-term meeting expectations from the RBA holding, and the long end weighed by EU FI.
• 2YY -0.4bp at 4.872%, 5YY +0.7bp at 4.184%, 10YY +1.0bp at 3.969% and 30YY +1.0bp at 4.020%.
• TYU3 trades 2+ ticks lower at 111-10+, near yesterday’s close after some late selling pressure from Treasury indicated larger Q3 issuance plans than some expected. Volumes are subdued though at just over 225k. Support at Friday’s 1110-25+ remains intact with a resumption of weakness potentially exposing a key 110-05 (Jul 6 low).
• Data: US mfg PMI Jul final (0945ET), JOLTS Jun (1000ET), ISM mfg Jul (1000ET), Construction spending Jun (1000ET), Dallas Fed services Jul (1030ET)
• Fedspeak: Goolsbee welcoming remarks (1000ET)
• Bill issuance: US Tsy $50B 42D CMB auction (1130ET)

STIR FUTURES: Fed Rate Path Undeterred By RBA Hold

• Fed Funds implied rates remain steadfast for 2023 meetings, with no impact from the RBA holding vs a hike on balance expected by analysts but only circa 35% priced, although soften slightly into 2024 weighed by a weaker China Caixin PMI.
• Cumulative hike from 5.33% effective: +4.5bp Sep (unch on the day), +9bp Nov to terminal 5.42% (unch)
• Cuts from Nov terminal: 4bp to Dec’23 (unch), 55bp to Jun’24 (from 53.5bp) and 126bp to Dec’24 (from 125bp).
• Goolsbee (’23 voter) gives welcoming remarks after yesterday’s dovish remarks (“fabulous news” to see inflation coming down, monthly readings coming in “quite good”, some progress in service inflation has been a “nice bonus”).

Source: Bloomberg

EUROPE ISSUANCE UPDATE:

Gilt auction results

• The price of the 3.50% Oct-25 gilt had been falling in the 13 minutes or so ahead of the auction cutoff so the wider tail on today's auction can partly be explained by the market move (although it could be argued that the market move was partly due to the auction itself).
• The bid-to-cover of 2.67x was only a little lower than the 2.77x seen at the previous strong auction (which had a 0.3bp tail).
• The average auction price of 96.325 was largely in line with the pre-auction mid-price of 96.321. Overall, we would describe it as an average to moderately weak auction.
• GBP4bln of the 3.50% Oct-25 Gilt. Avg yield 5.272% (bid-to-cover 2.67x, tail 0.9bp).

FOREX: Majors Pairs Circling Lows Could Unlock Next Leg Higher for USD Index

• The greenback is firmer against all others in G10, with global equity futures modestly weaker and US treasury yields modestly on the front foot. The pullback in major pairs, including EUR/USD and GBP/USD, marks a resumption of the weakness off last week's highs and confirms Monday's bounce as corrective.
• As such, EUR/USD eyes the weekly lows 1.0944 and GBP/USD bears look to support at 1.2763. Slippage below here will resume the downtrend in both pairs and could open the next leg higher for the USD Index. 100- and 50-dma resistance just above is the next upside level to note at 102.39 and 102.49 respectively.
• CNH slipped overnight on the poorer-than-expected Caixin PMI release, which unexpectedly signaled contraction of 49.2 against 50.1 forecast. New home sales data were also a soft spot, with the value of new home sales down over 33% on the year. USD/CNH is pressing to new daily highs, with spot now approaching horizontal congestion resistance at 7.1774-78. Today's move higher has also topped the 50-dma of 7.1714 and a close above this mark today would be a bullish development.
• ISM manufacturing for July takes focus after yesterday's MNI Chicago PMI came in slightly below expectations. Fed's Goolsbee is set to speak, however only welcoming remarks are scheduled, meaning policy commentary could be limited.

CNH Offered as US Markets Conspire Against the Currency

• With equities lower, US yields higher and the dollar on the front foot, USD/CNH is pressing to new daily highs, with spot now approaching horizontal congestion resistance at 7.1774-78. Today's move higher has also topped the 50-dma of 7.1714 and a close above this mark today would be a bullish development.
• CNH slipped overnight on the poorer-than-expected Caixin PMI release, which unexpectedly signalled contraction of 49.2 against 50.1 forecast. New home sales data were also a soft spot, with the value of new home sales down over 33% on the year.
• More signs of policy support emerged overnight, with the State Council urging city admins to introduce more property-oriented support as well as a new notice detailing efforts to juice credit availability for the private sector - but both reports failed to prop the currency. Local equities also finished lower, with consumer discretionary, real estate and healthcare names the poorest performers.
• The reactivity to today's Manufacturing release turns focus to Thursday's services and composite data.

FX OPTIONS: Expiries for Aug01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1000-10(E896mln), $1.1030-50(E3.4bln), $1.1100(E1.5bln), $1.1180(E615mln), $1.1200(E1.5bln)
• USD/JPY: Y142.00($1.3bln), Y142.50($590mln), Y143.90-00($590mln)
• GBP/USD: $1.2850-63(Gbp837mln)
• USD/CNY: Cny7.1500($1.5bln)

EQUITIES: E-Mini S&P Continues to Trade Below Last Week's Highs

• Eurostoxx 50 futures traded higher Monday and price has pierced the 4500.00 handle. This reinforces bullish conditions and confirms a resumption of the underlying uptrend. Last week’s break marked the end of a broad sideways move that started May 19 - a bullish development. Attention is on 4515.50 next, the Nov / Dec 2007 high. Key S/T support has been defined at 4331.00, the Jul 26 low. A break of this level would be bearish.
• The E-mini S&P contract remains below 4634.50, last Thursday’s high. The pullback from this level highlights a possible short-term bearish signal. Price has found resistance at the top of a bull channel drawn from the Mar 13 low - the channel top is at 4649.04 today. An extension lower would expose the 20-day EMA - at 4541.71 and a break of it would strengthen bearish conditions. Clearance of the channel top is required to resume the uptrend.

COMMODITIES: Gold Pares Monday's Gains

• The uptrend in WTI futures remains intact. The break above $77.15 last week, the Jul 13 high, confirmed a resumption of the current bull cycle and this has resulted in a break of key resistance at $81.44, the high on Apr 12 / 13. This development strengthens bullish conditions and signals scope for a climb towards $83.59, the Jul 11 2022 high. Initial key short-term support lies at $73.78, the Jul 17 low.
• Gold traded sharply lower last Thursday and a bearish threat remains present. The move down resulted in a break of the 50-day EMA - at $1952.0. A continuation lower would further threaten the recent bullish theme and expose support at $1924.5, the Jul 11 low. Clearance of this level would open key support at $1893.1, the Jun 29 low. Key resistance has been defined at $1987.5, Jul 20 high. A break of this hurdle would reinstate a bullish theme.