BONDS: EGBs-GILTS CASH CLOSE: Modest Yield Rise On US Tariff Relief
European yields rose modestly Tuesday, with Bunds slightly outperforming Gilts.
- After some initial risk-on pressure stemming from the US's delay imposing tariffs on Canada and Mexico, core EGBs/Gilts saw an afternoon bid as US job openings data were weaker than expected.
- MNI published a sources story noting that the ECB is likely to adjust its reference to policy restrictiveness in its next statement in March, but there would be resistance on the Governing Council to completely removing it (link). And on the US tariffs front, MNI reported that while the EU is likely to seek to deescalate any trade dispute with the U.S. via negotiation, it may also look to increase non-tariff barriers (link).
- Limited data included French budget balance (2024 deficit slightly smaller than foreseen in November's draft finance bill); Spain saw a smaller rise in January unemployment than expected.
- The German curve lightly bear flattened, with the UK's bear steepening.
- Periphery EGB spreads tightened marginally, led by BTPs. French OAT spreads were flat ahead of Wednesday's censure votes on the Bayrou government.
- Wednesday's schedule includes final Services/Composite PMIs (including the first and final readings for Italy and Spain) and Eurozone PPI, while ECB's Lane makes an appearance. Attention turns to the Bank of England decision Thursday - MNI's preview is here (PDF).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.7bps at 2.051%, 5-Yr is up 1.5bps at 2.17%, 10-Yr is up 1.1bps at 2.396%, and 30-Yr is up 0.7bps at 2.646%.
- UK: The 2-Yr yield is up 1.6bps at 4.181%, 5-Yr is up 2.7bps at 4.188%, 10-Yr is up 3.5bps at 4.522%, and 30-Yr is up 3.5bps at 5.125%.
- Italian BTP spread down 1.7bps at 110bps / French OAT down 0.2bps at 72bps
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Historical bullets
JGB TECHS: (H5) Returns Lower
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 144.48/146.53 - High Nov 11 / High Aug 6
- PRICE: 142.12 @ 15:01 GMT Jan 03
- SUP 1: 141.65 - Low Dec 30
- SUP 2: 141.56 - 1.764 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 3: 141.05 - 2.000 proj of the Aug 6 - Sep 3 - 9 price swing
Markets slipped on the hawkish Fed and are yet to fully recover, touching 141.65 on the way lower. Medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.56, a Fibonacci projection point on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high. Further out, key resistance is at 146.53, the Aug 6 high (cont).
USDCAD TECHS: Bull Flag Highlights A Clear Uptrend
- RES 4: 1.4669 2.0% 10-dma envelope
- RES 3: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4508 3.236 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4467 High Dec 19
- PRICE: 1.4392 @ 15:50 GMT Jan 3
- SUP 1: 1.4336 Low Dec 20
- SUP 2: 1.4307/4232 20-day EMA / Low Dec 17
- SUP 3: 1.4136 50-day EMA
- SUP 4: 1.4011 Low Dec 5
USDCAD is unchanged and bulls remain in the driver’s seat. The latest pause appears to be a flag formation - a bullish continuation signal. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4508 next, a Fibonacci projection level. Initial firm support to watch lies at 1.4307, the 20-day EMA. A pullback would be considered corrective.
AUDUSD TECHS: Southbound
- RES 4: 0.6471 High Dec 9
- RES 3: 0.6408 50-day EMA
- RES 2: 0.6341 High Dec 18
- RES 1: 0.6247/6282 High Dec 30 / 20-day EMA
- PRICE: 0.6204 @ 15:21 GMT Jan 3
- SUP 1: 0.6179 Low Dec 31
- SUP 3: 0.6158 1.236 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 3: 0.6100 Round number support
- SUP 4: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
A bearish trend condition in AUDUSD remains intact and the pair continues to trade closer to latest lows. Recent weakness maintains the price sequence of lower lows and lower highs. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection. Initial firm resistance to monitor is 0.6282, the 20-day EMA.
