MNI US MARKETS ANALYSIS - USD Net Position Drifts to Lowest in Two Years

US TSYS: Marginally Richer With Flow Likely In The Driving Seat Ahead

• Cash Tsys trade marginally richer as the longer end sees a light bid. It more generally consolidates Friday’s post-US PPI sell-off, with that price action along with preliminary OI data indicating short setting outweighing long covering ahead of the weekend.
• Today sees a particularly light summer session with no data, Fedspeak or note issuance, with flow/headlines likely the main culprits for price action ahead. Greater attention is on tomorrow’s retail sales and Wednesday’s FOMC minutes.
• 2YY -0.4bp at 4.891%, 5YY -0.5bp at 4.296%, 10YY -0.2bp at 4.150% and 30YY -1.1bp 4.250%.
• TYU3 trades 2 ticks higher at 110-08 having lifted off a low of 109-30+ on the Asia open, which now forms initial support above a bear trigger at 109-24 (Aug 4 low). Volumes are on the low side at 240k.
• Bill issuance: US Tsy $69B 13W, $62B 26W Bill auctions – 1130ET

STIR FUTURES: Fed Implied Rates Consolidate Friday’s Climb

• Fed Funds implied rates sit almost unchanged since Friday’s close, consolidating a post US PPI lift and with terminal pricing back near levels seen just before sliding on the payrolls report two weeks ago.
• Cumulative increases from 5.33% effective: +2.5bp Sep (unch), +9.5bp Nov to 5.43% (+0.5bp)
• Cuts from Nov terminal: -2bp to Dec’23, 54bp to Jun’24 and 124bp to Dec’24.
• A particularly light start to the week sees more focus on tomorrow’s retail sales print for July and Kashkari (’23 voter) speaking in a panel after only limited when speaking on CBS on Jul 30 in his only remarks since the Jul 26 FOMC decision.

Source: Bloomberg

Short Setting Dominated SOFR Positioning Swings On Friday

The combination of Friday’s cheapening and preliminary open interest data points to a mix of short setting and long trimming when it came to SOFR net positioning swings through the blues into the weekend.

• It seems that only the reds saw a net reduction of longs on a pack basis, while the whites, greens and blues seemingly saw fresh shorts added on net.

Markets Trim USD Positioning Further - Closest to Flat Since 2021

• CFTC CoT data shows markets trimmed the USD Index net long further last week, putting the net position at the closest to flat since mid-2021.
• Markets built AUD and CHF positions at the fastest pace into the week ending August 8th - trimming the net short in both respective currencies.
• The NZD and CAD net positions were trimmed by 5.3% and 4.6% of open interest respectively, putting positioning across both back to neutral after maintaining a minor net long.
• Markets continue to be the most net long MXN, GBP and EUR, with JPY positioning the most notable net short. Nonetheless, positioning across most currencies in G10 remains off 52w extremes.

FOREX: Muted Activity Elsewhere Fails to Prevent New High in USD/JPY

• Markets are muted early Monday, with most G10 currencies respecting their recent ranges and holding well within sight of the Sunday opening levels.
• SEK is the minor standout, with EUR/SEK higher and printing at 11.8882, the highest level since July 10th. Equity volatility remains a key driver, however weakness across Chinese equity markets failed to prevent another cycle high print in USD/JPY, which showed above Y145.07 for the first time since November and further into the territory at which the Japanese authorities last intervened in currency markets.
• GBP is very modestly outperforming, largely driven by GBP/USD recovering off the overnight low of 1.2667 to re-take 1.27 ahead of NY hours. Domestic newsflow remains light, with markets focusing on UK jobs and inflation data later in the week.
• CFTC CoT data shows markets trimmed the USD Index net long further last week, putting the net position at the closest to flat since mid-2021, while markets continue to be the most net long MXN, GBP and EUR, with JPY positioning the most notable net short.
• Datapoints and speakers are few and far between Monday, keeping focus on the datapoints later in the week including the Norges Bank and RBNZ rate decisions, as well as Canadian and Japanese CPI releases.

FX OPTIONS: Expiries for Aug14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0970-80(E516mln), $1.1000(E1.2bln), $1.1065(E553mln)
• USD/JPY: Y142.00($1.7bln)
• AUD/USD: $0.6505(A$840mln)
• USD/CAD: C$1.3350($550mln)
• USD/CNY: Cny7.2000($803mln), Cny7.2300($807mln)

EQUITIES: Bearish Conditions Remain Present in E-Mini S&P Despite Recent Spike

• A bearish threat in Eurostoxx 50 futures remains present following the reversal from 4513.00, the Jul 31 high. Last week’s gains appear to have been a correction. Price is once again trading below both the 20- and 50-day EMAs and attention is on support at 4276.00, the Aug 8 low. A break of this level would strengthen a bearish threat and expose 4220.00, the Jul 7 low. Initial firm resistance is 4424.00, Aug 2 high.
• Bearish conditions in the E-mini S&P contract remain intact and price is trading closer to its recent lows. Friday’s move lower resulted in a test of the 50-day EMA at 4462.48. A clear break of this average would expose 4450.90, the base of a bull channel drawn from the Mar 13 low. Clearance of this support would strengthen a bearish threat. Resistance to watch is 4560.75, Aug 4 high.

COMMODITIES: Recent Pullback in WTI Futures Appears Technically Corrective

• The uptrend in WTI futures remains intact and the latest pullback appears to be a correction. Last week’s gains confirmed a resumption of the bull cycle. Price breached resistance at $83.59, the Nov 7 2022 high. The break strengthened a bullish condition and has paved the way for a climb towards $87.43, a Fibonacci projection. Moving average studies are in bull-mode condition highlighting an uptrend. Initial firm support lies at $78.69, Aug 3 low.
• Gold remains bearish and the yellow metal has traded lower again today, maintaining the bear cycle that started Jul 20. The focus is on a move towards key support at $1893.1, the Jun 29 low. A break of this level would strengthen bearish conditions. On the upside, initial firm resistance to watch is $1944.6, the 50-day EMA. A break of this level would highlight a possible short-term reversal.