MNI US MARKETS ANALYSIS - EUR, AUD Hit Cycle Lows vs. USD

US TSYS SUMMARY: Minor Bear Steepening After Substantial Flattening

• Cash Tsys have seen a small bear steepening after substantial flattening since the FOMC, nudging the 2s10s up to 62.5bps but still 12bps flatter from before the Fed.
• 2Y yields are +2.4bps at 1.212%, 5Y +2.7bps at 1.685%, 10Y +4.1bps at 1.841% and 30Y +3.7bps at 2.130%.
• TYH2 is down 7+ ticks at 127-13+ on modestly below average volumes. It is near support at 127-06+ (Jan 26 low) which is then closely followed by the bear trigger of 127-02 (Jan 19 low).
• Two key data releases at 0830ET, with the core PCE deflator for Dec (consensus for another +0.5% M/M) and the Q4 ECI of particular note after Powell specifically attributed the jump to 1.3% Q/Q in Q3 as a key reason to accelerating taper (cons for marginal moderation to 1.2% Q/Q). Finalised U.Mich consumer sentiment and inflation expectations follow at 1000ET.
• No Fed buy-operation, no Tsy Supply and no Fed speakers schedule as yet (out of blackout).

EGB/GILT SUMMARY: Further Losses Cap Volatile Week

European sovereign bonds have traded weaker this morning alongside fresh losses for equities and broad USD gains.

• Gilts have underperformed EGBs with yields 4-5bp higher on the day and the curve a touch steeper.
• Bund yields are 2-4bp higher with the curve similarly bear steepening.
• The OAT curve has steepened with the 2s30s spread widneing 3bp.
• BTP yields are now up 4-7bp with the belly of the curve underperforming.
• Preliminary data show German GDP contracting further than expected during the fourth quarter (-0.7% Q/Q vs -0.3% expected and 1.4% Y/Y vs 1.8% expected). French GDP, however, surprised higher (0.7% Q/Q vs 0.5% and 5.4% Y/Y vs 4.9%).
• Supply this morning came from the UK (UKTBs, GBP2bn) and Italy (BTP/CCTeu, EUR8bn).

EUROPE ISSUANCE UPDATE:

Italy sells:
E3bln 0% Aug-26 BTP, Avg yield 0.500% (Prev. -0.09%), Bid-to-cover 1.53x (Prev. 1.52x)
E3.5bln 0.95% Jun-32 BTP, Avg yield 1.390% (Prev. -0.02%), Bid-to-cover 1.38x (Prev. 1.47x)
E1.5bln 0.65% Apr-29 CCTeu, Avg yield 0.08% (Prev. 0.10%), Bid-to-cover 1.63x

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXH2 169/168/167p fly sold at 13 in 1.5k
DUH2 112/111.90p strip, bought for 10.5 in 2.5k

FOREX: EUR/USD At New Cycle Lows

• The greenback trades solidly early Friday, extending the week's outperformance to put EUR/USD at fresh multi-year lows of 1.1121. The rally is somewhat more contained relative to the price action earlier in the week, so the short-term trajectory will likely depend on the NY crossover and the digestion of personal income/spending and PCE deflator figures.
• The strong-dollar theme is also playing out against the AUD, pressing the pair closer to major support at the early December 2021 lows at 0.6993. The price action works against a market that's continuing to price in an extended tightening cycle this year, with over 4 rate hikes priced in before end-2022.
• Scandi currencies have also been a focus, with a raft of mixed data working against both the NOK and SEK in early trade. There has been a glut of data across the region, particularly in Sweden this morning. GDP data and unemployment data were stronger than expected while retail sales that was released simultaneously was weak. The deterioration in the economic tendency survey helped SEK start to weaken. In Norway, retail sales also disappointed with the unemployment rate a bit better than expected.
• There are no major central bank speakers due Friday, with markets still awaiting the first post-press conference communications from the Fed - although the next scheduled appearance is Daly on Jan31.

FX OPTIONS: Expiries for Jan28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1100(E734mln), $1.1130-50(E1.3bln), $1.1200-15(E1.4bln), $1.1300-20(E1.5bln)
• USD/JPY: Y114.00($672mln), Y114.50($645mln), Y115.00($1.3bln), Y115.50($1.5bln), Y115.90-00($1.7bln)
• EUR/JPY: Y126.25(E1.2bln), Y130.00(E1.2bln)
• USD/CAD: C$1.2695-00($709mln)

Price Signal Summary - Gold Breaches A Key Bull Channel Support

• In the equity space, S&P E-minis remain volatile and price continues to trade above the Jan 24 low of 4212.75. This week’s price action is allowing the recent oversold reading to unwind. Initial resistance to watch is Wednesday’s high of 4446.25, Jan 26 high. The trigger for a resumption of bearish activity is 4212.75 low. The short-term trend direction remains down. EUROSTOXX 50 futures activity remains volatile. Price continues to trade above Monday’s low of 3990.50 which is the trigger for a resumption of the recent bearish threat. Resistance to watch is at 4215.50, Jan 24 high.
• In FX, EURUSD traded sharply lower Thursday and cleared key support at 1.1186/85, the Nov 24 and Jul 1 2020 lows. This confirms a resumption of the broader downtrend that started Jan 6, 2021 and paves the way for weakness towards 1.1070 next, the May 29, 2020 GBPUSD remains vulnerable following the sell-off from the Jan 13 high. The pair has cleared a number of support points and the focus is on 1.3301, 76.4% retracement of the Dec 8 - Jan 13 bull phase. Recent USDJPY price action has defined a key short-term support this week at Monday’s low of 113.47. The pair has cleared resistance at 115.06, the Jan 18 high. The break reinstates a bullish theme and opens 116.35, the Jan 4 high and key resistance.
• On the commodity front, Gold remains under pressure. This week’s sharp sell-off has resulted in a break of the bull channel base at $1794.9 today - the channel is drawn off the Aug 9 low. A clear breach of the channel base would strengthen the developing bearish threat and signal scope for weakness towards $1782.8, Jan 7 low and $1753.7, the Dec 15, 2021 low. WTI futures resumed their uptrend Wednesday and the outlook remains bullish. The contract has cleared $87.10, the Jan 20 high. This opens the psychological $90.00 handle.



• In the FI space, Bund futures found resistance this week at 171.07 on Jan 24. A clear break of the 171.00/07 zone is required to signal scope for a stronger recovery. The trend remains down and the bear trigger is unchanged at 168.95, Jan 19 low. Gilts remain in a downtrend and below resistance at 123.79, Jan 13 high. The bear trigger is unchanged at 121.93, Jan 19 low.

EQUITIES: Late Thursday Gains Continue To Fade

• Asian markets closed mixed: Japan's NIKKEI closed up 547.04 pts or +2.09% at 26717.34 and the TOPIX ended 34.45 pts higher or +1.87% at 1876.89. China's SHANGHAI closed down 32.807 pts or -0.97% at 3361.44 and the HANG SENG ended 256.92 pts lower or -1.08% at 23550.08
• European stocks are lower, with the German Dax down 256.16 pts or -1.65% at 15388.65, FTSE 100 down 73.2 pts or -0.97% at 7554.31, CAC 40 down 83.88 pts or -1.19% at 7023.8 and Euro Stoxx 50 down 69.96 pts or -1.67% at 4162.72.
• U.S. futures are mixed, with tech outperforming: Dow Jones mini down 86 pts or -0.25% at 33957, S&P 500 mini down 5 pts or -0.12% at 4312.75, NASDAQ mini up 51.25 pts or +0.37% at 14038.

COMMODITIES: Metals Continue To Weaken On Higher Global Interest Rates

• WTI Crude up $0.28 or +0.32% at $86.9
• Natural Gas up $0.17 or +3.95% at $4.452
• Gold spot down $6.74 or -0.38% at $1794.78
• Copper down $6.3 or -1.42% at $436.05
• Silver down $0.24 or -1.05% at $22.5294
• Platinum down $20.82 or -2.03% at $1005.69