MNI US MARKETS ANALYSIS - USDCAD Vols on Front Foot Pre-BoC

US TSYS: 5Y Supply Plus Potential BoC Spillover In Focus

• Cash Tsys on balance hold modestly richer across most of the curve. There was spillover from EU FI earlier, first a bid from lower UK PPI inflation before levelling off with a mixed German Ifo survey. 5Y supply headlines after yesterday’s strong 2Y auction, but before then could see spillover from a potential final hike from the BoC and outside chance of a pause in an otherwise light docket.
• TYH3 trades 6+ ticks higher at 115-06+ close to an earlier high of 115-07+ that nudged above highs for the week. Resistance is seen at the bull trigger of 116-08 (Jan 19 high) whilst to the downside sits support at 114-16 (Jan 18 low).
• 2YY +0.6bps (off the newly trading 31 Jan 2025), 5YY -1.9bps at 3.556%, 10YY -2.0bps at 3.432% and 30YY -2.0bps at 3.585%
• Data: Weekly MBA mortgage applications/rates
• Bond issuance: US Tsy $24B 2Y FRN note (91282CGF2) – 1130ET, US Tsy $43B 5Y note (91282CGH8) – 1300ET
• Bill issuance: $36B 17W bill auction – 1130ET

STIR FUTURES: Potential Spillover As BoC Nears Peak

• Fed Funds implied hikes almost unchanged from yesterday: 26bp for Feb 1, cumulative 46bp for Mar, 58bp to terminal 4.91% in Jun (-0.5bp) before 46bp of cuts to 4.45% Dec.
• A light docket sees potential BoC spillover. It’s broadly expected to hike 25bps (5 of 27 analysts see pause, OIS pricing nudging lower from 20bps to circa 18bps) with a question whether it signals a pause ahead or leaves options open.

EUROPE ISSUANCE UPDATE: 

AUCTION RESULTS: Germany allots:

• E1.192bln 1.00% May-38 Bund, Avg yield 2.19% (Prev. 2.26%), Bid-to-cover 1.98x (Prev. 2.55x)
• E0.831bln 2.50% Jul-44 Bund, Avg yield 2.10%, Bid-to-cover 1.80x

EGB SYNDICATION: Spain 10y: Final Terms

• Size E13bln (MNI had expected E10bln)
• Books above E87bln (including JLM interest)

FOREX: AUD on Top as CPI Shoots Higher

• Australia posted a stronger set of inflation data, which was uniformly above market expectations, and helped pushed market pricing to a 25bps hike for the February meeting. CPI at 8.4% was well above the 7.7% expectation, meaning Australia ended 2022 with inflation well ahead of target. The release prompted some sell-side analysts to consider the likelihood of a 50bps move at the RBA's February meeting, putting AUD ahead of all others in G10 ahead of the NY crossover.
• Conversely, NZ inflation came in below RBNZ expectations, which has worked against the NZD and yield momentum for the currency. NZD/USD fell to 0.6467, but dips have been supported, through the European morning.
• JPY is gaining against most others in G10, with some focus paid to BBG citing an ex-BoJ economist in expecting the new BoJ governor to shift away from the yield curve control programme. EUR/JPY has traded poorly across European hours, and sits below yesterday's 131.26 lows ahead of the NY crossover.
• The Bank of Canada rate decision takes focus Wednesday, with the bank seen raising rates by 25bps to 4.50% for the final hike of the cycle. Data releases and central bank speakers are few and far between Wednesday, with the Fed remaining inside their media blackout period.

FX OPTIONS: Expiries for Jan25 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600-05(E739mln), $1.0900(E549mln)
• USD/JPY: Y129.55($819mln), Y129.90-00($768mln), Y132.00-25($706mln)
• EUR/JPY: Y139.55(E781mln)
• USD/CAD: C$1.3350($520mln), C$1.3375($1.4bln)

EQUITIES: Equity Futures Consolidate Close to Recent Highs

• EUROSTOXX 50 futures remain above support at 4097.00, the Jan 19 low. The trend outlook is bullish, however, the cycle is overbought and this continues to warn of the potential for a short-term corrective pullback. A move lower would allow the overbought reading to unwind and open 4067.20, the 20-day EMA and a key near-term support. Key resistance and the bull trigger is at 4206.00, the Jan 18 high. A break would resume the uptrend.
• S&P E-Minis traded higher Monday and breached resistance at 4035.25, the Jan 17 high. The break cancels a recent bearish threat and resumes short-term bullish conditions. Note that moving average studies are in a bull mode condition and this reinforces current trend conditions. The focus is on 4090.75 - last seen in mid-December. Key short-term support lies at 3901.75, the Jan 19 low. A break would reinstate a bearish threat.

COMMODITIES: WTI Futures Contracts Continue Pullback From Monday High

• WTI futures traded higher Monday but the contract has pulled back from its recent highs. Key short-term resistance is located at $82.66, the Jan 18 high. Clearance of this hurdle would reinstate the recent bullish theme and expose $83.14, the Dec 1 high and $85.33, a Fibonacci retracement. On the downside, the support to watch lies at $78.45, the Jan 19 low. A break of this level would signal a potential reversal.
• Trend conditions in Gold remain bullish and the yellow metal has traded to a fresh cycle high yesterday. This confirms an extension of the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies remain in a bull mode position - reflecting the uptrend. The focus is on $1963.0 next, a Fibonacci retracement. Support to watch lies at $1884.1, the 20-day EMA. Short-term pullbacks are considered corrective.