MNI US MARKETS ANALYSIS - USD Index Narrows Gap With Key Support

US TSYS SUMMARY: Light Session To Date As Data Eyed

• Cash Tsys have seen light overnight and European sessions as a gentle rally extends with the belly lagging.
• After sizeable rallies early in the week on sharply lower Fed hike expectations following a collection of weak US data, the moves since then have been relatively restrained, with front end yields continuing to edge lower whilst long-end yields have been relatively range bound for a steady bull steepening.
• 2YY -1.2 at 2.464%, 5YY -0.5bps at 2.704%, 10YY -0.9bps at 2.738% and 30YY -1.8bps at 2.964%.
• TYU2 replaces TYM2 as the most actively traded contract, up 3 ticks at 120-10. It’s well within yesterday’s range but sits just shy of the 50-day EMA of 120-15+.
• Data: A deluge with core PCE, personal incomes & spending, advance goods trade balance and wholesale inventories all at 0830ET before finalized UMich consumer sentiment at 1000ET.
• No Fedspeak or issuance today.

STIR FUTURES: Fed Hike Path Waiting On Data

• Little change in Fed hike expectations overnight, hanging onto yesterday’s reversal of a further softening.
• FOMC-dated Fed Funds price 52bp for Jun, 99bp for Jul, 133bp for Sep and 180bp to year-end, close to post-May FOMC lows for further out meetings.
• No Fedspeak scheduled today with an eye instead on a range of data, including the core PCE deflator expected at an unchanged +0.3% M/M in April as the wedge between CPI of +0.57% M/M grows due to shelter and airfares strength.

Source: Bloomberg

EGB/GILT SUMMARY: Broad Gains

European government bonds have broadly rallied this morning alongside gains for equities.

• Gilts have firmed through the morning with the curve bull flattening. Cash yields are 3-5bp lower on the day.
• The long end of the bund curve has similarly outperformed with the 2s30s spread narrowing 4bp.
• OATs trade in line with bunds. Yields are now 1-5bp lower.
• The BTP curve has twist flattened with the 2s30s spread trading down 4bp.
• The ECBs Pablo Hernandez de Cos earlier stated that increase rate hikes should be gradual and that inflation will gradually slow towards the 2% target.
• Supply this morning came from the UK (UKTBs, GBP2bn) and Italy (BOTs, EUR5bn)
• The data focus shifts to US PCE and the University of Michigan consumer confidence update for May.

FOREX: Greenback Eyes 50-dma Support - Last Crossed in February

• The greenback traded lower into the Asia close, helping give most major pairs a boost across early European hours. EUR/USD traded a new monthly high of 1.0764 while extends the recent recovery to hit 1.2667 - narrowing the gap with key resistance at the 50-dma of 1.2775. The equivalent level for the USD Index rests at 101.326.
• As a result, the USD's the poorest performing currency so far, although price action and volumes have thinned across the European morning. AUD and NZD sit at the other end of the table, firming against all others in G10 as global equity futures inch toward the best levels of the week.
• AUD/NZD is more rangebound, with the cross seeing some support earlier in the week from the 50-dma crossing at 1.0925.
• US personal income/spending data for April crosses later today, alongside PCE and the final UMich report for May. Central bank speakers are few and far between Friday, with no major speeches on the docket.

FX OPTIONS: Expiries for May27 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E2.9bln), $1.0525(E1.2bln), $1.0550(E1.5bln), $1.0570-75(E1.0bln), $1.0625-35(E2.4bln), $1.0650-60(E3.6bln), $1.0690-00(E1.5bln), $1.0750-65(E1.9bln)
• AUD/USD: $0.7165(A$804mln)
• USD/JPY: Y125.70-75($550mln), Y126.98-05($1.8bln), Y127.75($1.2bln)
• EUR/GBP: Gbp0.8450-60(E680mln), Gbp0.8650(E588mln)
• NZD/USD: $0.6475(N$553mln)
• USD/CAD: C$1.2750-70($1.1bln), C$1.2900-10($705mln)
• USD/CNY: Cny6.7250($780mln)

Price Signal Summary - EURUSD Bulls Have Sights On The 1.0822 Bear Channel Top

• In the equity space, S&P E-Minis traded higher Thursday and in the process, managed to climb above the 20-day EMA at 4047.83. The break higher suggests scope for a continuation of the current corrective cycle and opens 4099.00, May 9 high and key short-term resistance. The bear trigger is unchanged at 3807.50, May 20 low. EUROSTOXX 50 futures have traded through the 50-day EMA, at 3722.90. This signals scope for an extension towards 3775.00, the May 5 high. A break of this resistance would open 3883.00, the Apr 21 high. Key support and the bear trigger is unchanged at 3466.00, May 10 low. Initial firm support is at 3576.00, the May 19 low.
• In FX, EURUSD maintains a positive short-term theme. The pair has recently cleared the 20-day EMA and breached a key resistance at 1.0642, May 5 high. This strengthens the current bull cycle that began on May 13. The focus is on 1.0822, the top of a bear channel drawn from the Feb 10 high. Initial support is at 1.0643, May 25 low. GBPUSD maintains a firmer tone and the current corrective bull cycle is still in play. The pair has breached 1.2638, May 4 high. This signals scope for a climb towards the 50-day EMA at 1.2731. Key support and the bear trigger is unchanged at 1.2156, the May 13 low. Initial firm support lies at 1.2472, May 24 low. USDJPY appears vulnerable. The pair has this week traded through support at 126.95, the Apr 27 low and an important short-term pivot level. The breach suggests scope for a continuation lower. Attention is on the 50-day EMA, at 126.00 - a key support.
• On the commodity front, Gold is holding on to its recent gains. The yellow metal has this week traded above the 20-day EMA. This opens the 50-day EMA at $1882.0. Recent gains are still considered corrective and the trend direction remains down. A resumption of bearish activity would refocus attention on $1787.0, May 16 low. In the Oil space, WTI futures traded higher Thursday to confirm a resumption of the current bull cycle. The break opens 116.43, the Mar 7 contract high and the bull trigger. A breach of this level would confirm a resumption of the primary uptrend and clear the way for a test of the psychological $120.00 handle. The firm short-term support to watch is at $103.24, May 19 low.
• In the FI space, resistance in Bund futures is at $155.33 May 12 high. The trend direction remains down and an extension lower would open 150.49, the May 9 low and the bear trigger. The trend condition in Gilts remains down. The focus is on 115.70, the May 9 low. Initial resistance is at 118.63, May 24 high.

EQUITIES: Tech Rebound Continues

• Asian markets closed higher on tech gains: Japan's NIKKEI closed up 176.84 pts or +0.66% at 26781.68 and the TOPIX ended 9.72 pts higher or +0.52% at 1887.3. China's SHANGHAI closed up 7.132 pts or +0.23% at 3130.24 and the HANG SENG ended 581.16 pts higher or +2.89% at 20697.36.
• European equities are gaining, with tech and consumer discretionary stocks leading the way: the German Dax up 81.39 pts or +0.57% at 14314.89, FTSE 100 up 10.42 pts or +0.14% at 7573.74, CAC 40 up 57.81 pts or +0.9% at 6470.85 and Euro Stoxx 50 up 26.08 pts or +0.7% at 3766.74.
• U.S. futures are higher, with the Dow Jones mini up 20 pts or +0.06% at 32620, S&P 500 mini up 8.5 pts or +0.21% at 4064.25, NASDAQ mini up 38 pts or +0.31% at 12317.25.

COMMODITIES: Copper Leads Gains Following A String Of Down Days

• WTI Crude up $0.24 or +0.21% at $114.46
• Natural Gas down $0.08 or -0.9% at $8.814
• Gold spot up $7.58 or +0.41% at $1857.99
• Copper up $4.5 or +1.06% at $430.45
• Silver up $0.18 or +0.82% at $22.2042
• Platinum up $1.95 or +0.2% at $954.41