FOREX: Firmer Trump Stance on EU Tariffs Weighs on Euro, EURCAD Sharply Lower

European yields fell Monday though finished off session lows, mirroring intraday movements in equities.

• U.S. equity weakness (less pronounced in Europe), triggered by Chinese tech firm DeepSeek's AI advancements weighing on U.S. tech megacaps, saw bonds supported for most of the session.
• However, yields finished up from intraday lows as stocks recovered. 10Y Gilts closed 3bp up from the session lows, with Bunds bouncing 4bp.
• Even so, German curve bull steepened, with the UK's more mixed with belly outperformance. Periphery/semi-core EGB spreads to Bunds widened slightly; RAGBs slightly underperformed peers following an Austrian dual-tranche syndication mandate.
• In data, January German IFO came in a little stronger than expected, but Expectations unexpectedly fell. Market reaction was limited.
• Focus for the week remains on Thursday's ECB decision, as well as multiple data points including Eurozone country-level preliminary inflation data for January.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 4.1bps at 2.249%, 5-Yr is down 4bps at 2.341%, 10-Yr is down 3.8bps at 2.531%, and 30-Yr is down 3.4bps at 2.751%.
• UK: The 2-Yr yield is down 3.7bps at 4.288%, 5-Yr is down 5.4bps at 4.283%, 10-Yr is down 4.4bps at 4.585%, and 30-Yr is down 4.7bps at 5.143%.
• Italian BTP spread up 1.5bps at 110.2bps / French OAT up 0.2bps at 74bps  
   

• Tsy futures remain well bid but off highs ahead of the $70B 5Y note auction (91282CMG3) at 1300ET, WI is currently running at 4.347%, 13.1bp rich to last month's stop.
• December 5Y auction recap: Tsy futures pared losses (TYH5 trades 108-13 last, -2) after $70B 5Y note auction (91282CMD0) stopped 0.2bp through (second consecutive stop since June): drawing 4.478% high yield vs. 4.480% WI; 2.40x bid-to-cover vs. 2.43x for the prior auction.
• Peripheral stats showed indirect take-up climbed to 67.27% vs. 64.12% prior, directs at 20.26% vs. 24.58% prior (highest since Jul 2014), primary dealer take-up 12.47% vs. 11.30% prior.
   

• RES 4: 110-25   High Dec 12
• RES 3: 110-19   76.4% retracement of the Dec 6  - Jan 13 bear leg.    
• RES 2: 109-31   High Dec 18  
• RES 1: 109-12+ 50-day EMA 
• PRICE:‌‌ 109-02+ @ 17:01 GMT Jan 27
• SUP 1: 108-00/107-06 Low Jan 16 / 13 and the bear trigger    
• SUP 2: 107-04   Low Apr 25 ‘24 and a key support  
• SUP 3: 107-00   Round number support
• SUP 4: 106-11   2.00 proj of the Oct 1 - 14 - 16 price swing  

The medium-term trend condition in Treasury futures is down, however a bullish short-term cycle highlights an ongoing corrective phase and the contract is trading higher today. Attention is on 109-12+, the 50-day EMA - a level tested on Monday. A clear break of this EMA is required to strengthen a bullish theme. This would open 109-31, the Dec 18 high. The bear trigger is unchanged at 107-06, the Jan 13 low. Initial support has been defined at 108-00, the Jan 16 low.