POWER: French DA Flips to Discount to France, Spread Could Narrow for 22 Feb
Feb-20 11:58
France's day ahead flipped to a discount to Germany, as higher wind load factors and lower demand in...
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US TSYS: Firm Reversal Of Overnight Highs As Tariff Impacts Considered
Jan-21 11:54
- Cash Treasuries have seen large moves off overnight highs but still trade firmer compared to Friday’s close as US desks filter in after yesterday’s MLK Day holiday.
- Yields sit 1.5-5bp lower from Friday’s close, with declines led by the long end as 2s10s at 31.5bps is close to lows since Jan 3.
- That masks a 5bp intraday increase for 2Y yields as markets react to President Trump saying late yesterday he will push ahead with 25% tariffs on Canada and Mexico from Feb 1.
- TYH5 trades at 108-22 (04+) for close to session lows of 108-20+ and back close to levels prior to Trump’s inauguration address at 1200ET. It’s via overnight highs of 109-04 on heavy cumulative volumes.
- Gains are considered corrective from a technical viewpoint, with the overnight push higher coming close to resistance at 109-06 (Dec 31 high) whilst support is seen at 108-00 (Jan 16 low).
- Fed Funds futures meanwhile continue to price a next 25bp cut from the FOMC around June or July meetings before a cumulative ~40bp of cuts for 2025.
- There’s a particularly thin docket ahead, with potential macro spillover from Canada CPI at 0830ET but with tariff headlines more impactful. See a summary of Trump’s Executive Orders from our political risk team here.
- Data: Philly Fed non-mfg Jan (0830ET)
- Bill issuance: US Tsy to sell $84bn 13-w bills & $72bn 26-w bills (1130ET), $48bn 52-w bills & $85bn 42-d CMB (1300ET)
OUTLOOK: Price Signal Summary - USDJPY Support Remains Intact For Now
Jan-21 11:44
- In FX, the latest recovery in EURUSD appears corrective, however, the pair has breached the 20-day EMA, at 1.0346, and pierced trendline resistance at 1.0393, drawn from the Sep 30 ‘24 high. A clear breach of the line would expose the 50-day EMA at 1.0461. Clearance of this average would strengthen a bullish condition. Key support and the bear trigger is at 1.0178, the Jan 13 low. The medium-term trend condition remains bearish.
- The primary trend direction in GBPUSD remains down and recent gains are considered corrective - for now. Initial firm resistance to watch is 1.2371, the 20-day EMA. A clear breach of the average would highlight a stronger corrective phase and signal scope for an extension, possibly towards the 50-day EMA, at 1.2545. The bear trigger has been defined at 1.2100, the Jan 10 low. Clearance of this support would resume the downtrend.
- The trend condition in USDJPY remains bullish and recent weakness appears corrective - for now. The pair has traded through the 20-day EMA and an extension lower would signal scope for a deeper retracement. Support to watch is 155.00, the 50-day EMA, and 154.32, a trendline drawn from the Sep 16 ‘24 high. A clear breach of both levels would highlight a stronger reversal. Key resistance and the bull trigger is 158.87, the Jan 10 high.
FOREX: EURCHF Pulls Back After Printing Highest Level Since September
Jan-21 11:43
- In the aftermath of the WSJ report induced volatility, EURCHF rose to a near four-month high at 0.9461, notably piercing above the pre-US election highs situated just below the 0.9450 mark. While the cross has pulled back today, price has been consolidating above 0.94 and moving average indicators are turning more bullish in tandem.
- With this in mind, a cluster of daily highs around the 0.95 handle remain a key target for the move should the Swiss Franc continue to underperform. This might closely coincide with USDCHF returning to cycle highs around 0.9200 and the key medium term resistance area between 0.9224/44.
- As a reminder last week, Bank of America recommended buying a 3m 0.92/0.9450 USDCHF call spread, citing "trade uncertainty, strong growth and policy divergence" behind a stronger Dollar alongside bullish technical conditions and a forward discount / carry factors supporting the position.
- The Swiss calendar remains light until CPI data on February 13, with the SNB not meeting again until March 20.
