MNI US MARKETS ANALYSIS - USD Index Approaching Key Support

US TSYS SUMMARY: Mild Twist Steepening As Fed Commentary Digested

• Cash Tsys have seen a mild twist steepening this morning after a broader sell-off late yesterday on more hawkish Fed commentary from different members leaning towards a March hike and 3+ hikes for 2022.
• 2Y yields -0.4bps at 0.915%, 5Y +0.2bps at 1.521%, 10Y +0.7bps at 1.750% and 30Y +0.7bps at 2.093%.
• TYH2 has traded in a narrow range today, down 6.5 ticks at 128-12 near the low end of yesterday’s range. Support is seen at 127-30 (1.764 proj of Dec 20-29-31 price swing) whilst resistance is 129-00 (Jan 6 high).
• Further inflation data with US PPI for Dec (0830ET). Consensus has core at +0.4% M/M after 0.7% M/M.
• Fedspeak: Brainard hearing at 1000ET, Barkin (2024) at 1200ET, Evans (2023) at 1300ET and separately the Dallas Fed discussion on the search for its new president.
• Tsy issuance: $50B 4W and $40B 8W bill auctions (1130ET) before $22B 30Y Bond re-open (1300ET).

EGB/GILT SUMMARY - Paring Earlier Losses

European government bonds traded weaker earlier in the session, before partially recovering losses. Equity performance has been mixed, while G10 currencies have broadly gained against the dollar.

• Gilts have recovered from earlier losses with the short-end now trading close to flat on the day and longer end yields 1bp higher.
• Bund yields are 1bp across much of the curve, although the very long end of the curve has started to inch above yesterday's close.
• The very long end of the OAT curve has slightly flattened with the 2s30s spread 1bp narrower.
• The BTP curve has twist flattened with the 2s30s spread trading down 2bp.
• Political pressure continues to pile on UK PM Boris Johnson following a poor performance during prime minister questions yesterday amid the ongoing fallout over the Downing St party.
• Supply this morning came from Italy (BTPs, EUR7.0bn), while Ireland and Cyprus are both issuing 10-year bonds via syndication.
• European tier one data was relatively light this morning with the only release of note being Italian industrial production which surprised higher in November (6.3% Y/Y vs 3.7%).

EUROPE ISSUANCE UPDATE:

Italy sells 3/7-year BTPs
E3.5bln 0% Dec-24 BTP, Avg yield 0.14% (Prev. -0.10%), Bid-to-cover 1.38x (Prev. 1.21x)
E3.5bln 0.45% Feb-29 BTP, Avg yield 0.89% (Prev. 0.60%), Bid-to-cover 1.51x (Prev. 1.37x)

Cyprus Syndication: 10-year guidance
Revised guidance: MS+70bps area (Initial Guidance: MS+75bps area)
Books in excess of E7.5bln (inc E200mln of JPM).
Timing: Books remain open. Today's business

Ireland Syndication: 10-year update
Spread set at MS = 1bp (guidance was MS + 3 bps area)
Books in excess of E30bln (inc E3.6bln JLM)
Size: EUR benchmark (MNI expects E4-5bln)
Books to close 10:30GMT / 11:30CET

EUROPE OPTION FLOW SUMMARY

Eurozone:
2RJ2 100/99.75ps, sold at 14.5 in 10k (unwind)
ERM2 100.37/100.25ps, bought for 1.5 in 5k (June 2022 hike play)

RXH2 169/168/167p fly bought for 10.5 in 5.1k

FOREX: Dollar Weakness Extends, With DXY Approaching Key Support

• The greenback trades softer early Thursday, slipping against most others and helping extend the rise in both EUR/USD and GBP/USD to fresh yearly highs as both pairs narrow in on key levels of resistance.
• This morning's move in the USD is an extension of the post-CPI move, with markets initially being primed for a hotter-than-expected figure given recent strength in various price measures in economic surveys. This has translated to the USD Index falling to new multi-month lows through the 95.00 handle, exposing first key support at the 100-dma of 94.65. The Index last broke below this level in April last year, and presaged a further 1.6% decline.
• Equities trade relatively horizontally, but growth-tied and proxy currencies continue to benefit, pushing AUD and NZD to the top end of the G10 pile ahead of the NY crossover. AUD/USD cleared the 100-dma of 0.7287 at today's open, opening gains toward 0.7341 (the 61.8% retracement of the October-November downleg) and - more importantly - the 200-dma at 0.7427.
• Thursday brings US PPI data as well as weekly jobless claims as well as speeches from ECB's de Guindos & Elderson as well as Fed's Barkin and Evans.

FX OPTIONS: Expiries for Jan13 NY cut 1000ET (Source DTCC)

• USD/JPY: Y115.00($612mln), Y115.50($1.07bln), Y116.00($960mln)
• USD/CAD: C$1.2650($531mln)

Price Signal Summary - USD Support Levels Give Way

• In the equity space, S&P E-minis continue to trade above the 50-day EMA and above Monday’s low 4572.75, the key short-term support. A continuation higher would reinforce the bullish significance of recent gains and would open 4808.25, Jan 4 high and the bull trigger. EUROSTOXX 50 futures are also trading above the 50-day EMA. Key short-term support is unchanged at 4216.50, Monday’s low. A stronger recovery would open 4381.5, the Jan 5 high.
• In FX, EURUSD has cleared the top of its range and resistance at 1.1383/86, the Nov 30 and Dec 31 high. The pair has also traded through resistance at 1.1432 - the top of a bear channel drawn from the Jun 1, 2021 high. This strengthens the current reversal and opens 1.1514 next, the Nov 5 low. GBPUSD remains firm and has cleared 1.3676, 76.4% of the Oct - Dec sell-off. The 200-dma at 1.3737 is being challenged, a clear break would open 1.3835, Oct 20 high. USDJPY remains in a short-term corrective cycle. The pair has branched the 20-day EMA and attention turns to support at the 50-day EMA - at 114.22 today. The moving average set-up suggests the trend remains bullish and recent weakness is considered corrective. A clear breach of the 50-day EMA is required to suggest scope for a deeper sell-off instead.



• On the commodity front, Gold traded higher again yesterday. The yellow metal has managed to remain inside its bull channel drawn from the Aug 9 low - last Friday's low of $1782.8 and the recovery from this level means the channel base provided support. The focus is on key near-term resistance at $1831.9, Jan 3 high. WTI futures remain in an uptrend and the contract traded higher yesterday. The rally has resulted in a break of the key resistance at $82.13, Oct 25 high to confirm a resumption of the broader uptrend. The focus is on $83.71, 1.618 projection of the Dec 2 - 9 - 20 price swing.
• In the FI space, the Bund futures trend direction is unchanged and remains bearish. The focus is on 169.34, Oct 29 low. Gilts remain in a downtrend too and short-term gains are considered corrective. The focus is on 122.66 next, 3.764 projection of the Dec 8 - 16 - 20 price swing.

EQUITIES: European Markets Mixed, While Wall Street Edges Higher

• Continental equity markets are mixed early Thursday, with peripheral markets inching higher (Italy and Spain outperform) against a core market that's broadly flat. Europe's tech names are outperforming in the Stoxx600, with utilities and communication services not far behind. Laggards today include mainly healthcare and energy names.
• Meanwhile, the e-mini S&P is off the overnight lows, but has so far made little attempt at the Wednesday highs of 4739.50, which become the first upside target. The index continues to trade above the 50-day EMA and above Monday's low 4572.75, the key short-term support.

COMMODITIES: Crude Holds Bulk of Week's Gains

• A number of tailwinds continue to support oil markets this week, with a softer greenback and a larger-than-expected draw in DoE reserves helping prices higher to Wednesday's $83.10/bbl - the highest print since early November. WTI futures remain in an uptrend and the contract traded higher yesterday. The rally has resulted in a break of the key resistance at $82.13,Oct 25 high to confirm a resumption of the broader uptrend. The focus is on $83.71, 1.618 projection of the Dec 2 - 9 - 20 price swing.
• Gold, on the other hand, traded higher again yesterday. The yellow metal has managed to remain inside its bull channel drawn from the Aug 9 low - last Friday's low of $1782.8 and the recovery from this level means the channel base provided support. The focus is on key near-term resistance at $1831.9,Jan 3 high.