MNI US MARKETS ANALYSIS - USD Index on Track to Crack 200-dma

US TSYS: Modestly Bear Steeper With 20Y Supply And A Lone Barkin Ahead

• Cash Tsys trade towards the lower end of the day’s range, 2-3.5bp cheaper across the curve attributed to an uptick in oil futures, some hope with developments in the Israeli-Hamas hostage situation and a bid in the Hang Seng seemingly combined to result in a modest downtick for Tsys early this week.
• TYZ3 at 108-17+ nears an earlier low of 108-16 after which lies support at 108-03 (50-day EMA). The bull cycle remains in play though, with resistance at 109-08+ (Nov 17 high) and greater focus on 109-20 (Sep 19 high). Volumes stand at a solid 300k.
• Fedspeak: Barkin on Fox Business (1200ET)
• Data: Leading index Oct (1000ET)
• Note/bond issuance: US Tsy $16B 20Y Bond auction (912810TW8) (1300ET)
• Bill issuance: US Tsy $75B 13W, $68B 26W bill auctions (1130ET)

STIR FUTURES: Fed 2024 Cuts At Lower End Of Post-CPI Range

• Fed Funds implied rates modestly extend Friday’s climb to leave the 92bp of cuts priced over 2024 at the lower end of the 90-100bp range seen since last week’s softer than expected US CPI.
• There is a cumulative 18.5bp of cuts priced for May having come close to being fully priced last week, whilst the second cumulative cut is seen landing in September although remains close to July (46bp cumulative).
• Barkin (’24 voter) is the sole scheduled Fed speaker today at 1200ET in an interview with Fox Business. He has spoken numerous times recently, noting that the Fed has time to monitor the economy with rates restrictive but continued strong growth could warrant higher rates.

SOFR Whites Saw Net Long Cover On Friday, Reds Saw Fresh Shorts Set

The mix of preliminary open interest data and Friday’s twist steepening through the SOFR blues points to the following positioning swings ahead of the weekend.

• Whites: SFRU3 seemed to see some light fresh longs added on net. However, it seemed to be long cover that dominated activity in the pack, given the modest tick lower in SFRZ3-M4 prices and downticks in OI in those contracts.
• Reds: Apparent net short setting dominated on the pack front, with only SFRU4 seemingly seeing net long cover.
• Greens & Blues: Little net movement in pack OI with pockets of apparent net short setting generally offset by pockets of apparent long cover.

BONDS: Oil Bid, As Well As Supply & Fiscal Matters, Limit Recovery

{A continued recovery from last week’s lows for crude oil futures, aided by questions over the security of transit routes after the Yemeni Houthis seized an Israeli flagged cargo ship in the Red Sea (along with deeming such ships “legitimate targets”) and ongoing questions re: elongated OPEC+ output cuts, limits any recovery from session cheaps in core global FI markets.

• Elsewhere, the previously covered musings from UK PM Sunak have provided some light pressure, although the touted focus on the supply side of the economy limits feedthrough to gilts.
• Note that ongoing €IG supply and the impending round of U.S. 20-Year Tsy issuance will also be factoring into price action.
• Curve-wise, U.S. Tsys bear steepen, while gilts and bunds bear flatten.

RATINGS: Friday’s Highlights Saw Italian Outlook Move to Neutral at Moody’s, Portugal Upgraded

Sovereign rating reviews of note from after hours on Friday include:

• Fitch affirmed Lithuania at A; Outlook Stable
• Fitch affirmed Spain at A-; Outlook Stable
• Moody's affirmed Italy at Baa3, outlook changed to stable from negative
• Moody's upgraded Portugal to A3, outlook changed to stable
• S&P affirmed South Africa at BB-; Outlook Stable
• S&P affirmed Slovakia at A+; Outlook Stable
• DBRS Morningstar confirmed Lithuania at A (high), Stable Trend
• DBRS Morningstar confirmed the United Kingdom at AA, Stable Trend

FOREX: USD Weaker for Second Session, Prompting Break of Major Levels

• The USD is weaker for a second session, prompting the USD Index to step lower and through the 200-dma for the first time since December last year. The moves are helping prop up currency activity across the board, with JPY a particular focal point - futures volumes are not far off double their usual level for this time of day.
• JPY is comfortably the best performer, helping EUR/JPY ease through Friday's lows and extend the pullback off last week's highs to over 220 pips. AUD, NZD are also outperforming, with AUD/USD strength resulting in a clear break of resistance at 0.6522, the Aug 30 and Sep 1 high. The breach is an important short-term bullish development and signals scope for a continuation higher towards 0.6582.
• Equity markets are trading well headed through to the Monday open, with the e-mini S&P within range of Friday's highs and helping underpin the bid in high beta currencies. As such, NOK is slightly firmer and helping aide EUR/NOK toward first support of 11.6892.
• The data calendar is muted Monday, keeping focus on the risk events later in the week as the Thanksgiving break later in the week brings forward a number of risk events: Tuesday sees Canadian CPI & Fed minutes, while Wednesday sees UMich sentiment and weekly jobless claims.
• As such, focus will be on the speaker slate Monday, as ECB's de Cos & Villeroy, Fed's Barkin and BoE's Bailey are all set to speak.

FX OPTIONS: Sizeable EUR Strikes Could Limit Spot Gains

• EUR/USD: $1.0850-55(E984mln), $1.0900-10(E542mln), $1.0930(E593mln)
• USD/JPY: Y149.25-24($1.1bln), Y150.00($1.0bln)
• AUD/USD: $0.6500(A$810mln)
• AUD/NZD: N$1.0900(A$550mln)
• NZD/USD: $0.6050(N$564mln)
• USD/CNY: Cny7.2500($1.2bln)

EQUITIES: E-Mini S&P Contract Remains Firm and Holds Onto Last Week's Gains

• A short-term bull cycle in Eurostoxx 50 futures remains intact and the contract is holding on to last week’s gains. Price has recently cleared resistance at both the 20- and 50-day EMAs - a bullish development. Note that last Tuesday’s gains resulted in a breach of resistance at 4256.00, the Oct 12 high, reinforcing the bullish theme The focus is on 4359.00, the Sep 15 high. Initial firm support to watch is at 4215.70, the 20-day EMA.
• S&P e-minis are unchanged and maintain a firmer tone. The contract traded sharply higher last Tuesday and is holding on to its recent gains. Resistance at 4411.88, a trendline drawn from the Jul 27 high, has been cleared. This reinforces bullish conditions and signals scope for a climb towards 4552.38, a Fibonacci retracement. On the downside, initial firm support is seen at 4400.39, the 20-day EMA.

COMMODITIES: Last Week's Gains Reinforce Bullish Conditions in Gold

• A bearish theme in WTI futures remains in play and short-term gains are considered corrective. The break lower last week marks an extension of the downtrend that started late September and maintains the price sequence of lower lows and lower highs. Moving average studies are in a bear-mode position, highlighting bearish market sentiment. The focus is on $70.96, a Fibonacci retracement. Key resistance is at $79.65, the Nov 14 high.
• The trend condition in Gold remains bullish and recent gains reinforce this condition. Furthermore, MA studies are in a bull-mode set-up, highlighting a rising trend cycle. A stronger resumption of gains would open $2022.20, May 15 high. The bull trigger is at $2009.4, the Oct 27 high. Note that support at the 50-day EMA, at $1943.4, has been pierced. A clear break of this average would undermine the bullish theme and expose $1908.3, Oct 16 low.