Overbought but reversal in yields & dollar not guaranteed if US unemployment stays low
OVERNIGHT NEWS
# Dollar upswing pauses ahead of NFP, DXY trades just shy of 110. FX technicals oversold for GBP, NOK, CHF, JPY, KRW, TRY. Bond yields overbought on 10y Bunds (1.60%) and Treasuries (3.29%). Global bond market officially in bear market with Bloomberg global aggregate total return index down over 20% from 2021 peak.
# Day ahead: US NFP, SG forecast +300k, range 75k-452k, Euro PPI, Brazil industrial production.
# China: PBoC sets Yuan fixing stronger than expected for eighth day, reference-point 6.8971, 245pips above forecast.
# Germany trade surplus narrowed to €5.4bn in July from €6.3bn in August, exports -2.1% (non-EU -5.6%), imports -1.5%.
# South Korea CPI slows to 5.7% yoy in August from 6.3% in July. Core rate slows a tick to 4.4%. USD/KRW +0.1% at 1,356.
# Nikkei -0.1%, EUR 10y IRS -2bp at 2.43%, Brent crude +1.4% at $93.7/b, Gold +0.4% at $1,701/oz.
Carry on tightening: US unemployment rate down despite 225bp of Fed hikes
Typical
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Today’s NY Open is abbreviated and published from Asia – normal coverage will resume on September 05.
A typical pre-NFP session, with interbank FX volumes 20% below 30d averages. DXY grinded lower overnight, while NOK led the G10 complex on higher oil prices. EUR found some support as European nat gas futures fell after Nord Stream flows were seen following works. Meanwhile, oil prices ticked higher as we await OPEC+ on Monday. US equity futures and treasury yields were flat on the day.
Ahead, NFP will be key for markets, with our economists expecting a return to a slowing pace of job growth with 305k jobs added in August. Lastly, we flag that Monday is a US holiday.
As The Sun Rises: USD Strength Continues
By Jabril Alston
As The Sun Rises: USD Strength Continues
Both the DXY and USDJPY failed to complete bullish outside months on Wednesday with closes above 109.29 and 139.39 respectively. Today, however, price action continued higher and closed above both levels, setting new 2022 highs in process. This continues to support our strong USD view; however, given payroll numbers on Friday and, the extended US holiday weekend, we’re a bit cautious in the short-term. In light of this, in addition to other market developments, we took profit on our USDJPY call detailed more in our note, Portfolio: Taking profit on our USDJPY call.
In the medium-term, we bias USD strength, targeting 117.50 on the DXY (double bottom neckline at 102.99) with resistance at 115.47 (long-term ascending resistance) and 121.02 (2001 high). This bias is especially true with USDJPY. We’re watching for a move to the 1998 high at 147.66 given the bullish outside months completed on US5YR, 10YR and 30YR charts with closes above 3.21%, 3.10%, and 3.28%, that suggest an acceleration back to the 2022 highs at 3.62%, 3.50%, and 3.49% respectively. Detailed and illustrated in our notes, Diary: Year 3 Week 26 – Stonewall Jackson & As The Sun Rises: US Yields Moving Higher.
Additionally, we seen both the SPX and NASDAQ close below their 55-day-MA’s, discussed further in our weekly piece, IF The Shoe FITZ: Taking Stock. And lastly Gold is below 1,700 and is approaching support between 1,677-1,681 (2021 & 2022 low respectively) which a close below , if seen, suggests further losses toward 1,280, detailed more in our note IF The Shoe FITZ: The 12 Charts Of Summer.
We do expect these trends of USD and yields higher, as well as Equites and Gold lower to continue in September; however, we caution that price action can get choppy as we head into Labor Day weekend.
Double bottom formation on DXY…
Overbought but reversal in yields & dollar not guaranteed if US unemployment stays low
OVERNIGHT NEWS
# Dollar upswing pauses ahead of NFP, DXY trades just shy of 110. FX technicals oversold for GBP, NOK, CHF, JPY, KRW, TRY. Bond yields overbought on 10y Bunds (1.60%) and Treasuries (3.29%). Global bond market officially in bear market with Bloomberg global aggregate total return index down over 20% from 2021 peak.
# Day ahead: US NFP, SG forecast +300k, range 75k-452k, Euro PPI, Brazil industrial production.
# China: PBoC sets Yuan fixing stronger than expected for eighth day, reference-point 6.8971, 245pips above forecast.
# Germany trade surplus narrowed to €5.4bn in July from €6.3bn in August, exports -2.1% (non-EU -5.6%), imports -1.5%.
# South Korea CPI slows to 5.7% yoy in August from 6.3% in July. Core rate slows a tick to 4.4%. USD/KRW +0.1% at 1,356.
# Nikkei -0.1%, EUR 10y IRS -2bp at 2.43%, Brent crude +1.4% at $93.7/b, Gold +0.4% at $1,701/oz.
Carry on tightening: US unemployment rate down despite 225bp of Fed hikes
Latin America:
Latam currencies continued to underperform, pressured by a stronger USD and weak risk appetite, as local headlines once again remained quiet. COP lagged regional peers, depreciating 1.3%, and was followed closely by BRL, which closed ~1% weaker. In contrast, CLP closed roughly flat, as market participants likely continued to reduce risk going into this weekend’s constitutional referendum. Local rates broadly followed US Treasuries, with pressure concentrated mostly across longer-dated tenors; 10y TIIE and 10y IBR each closed 7bp higher, at 8.80% and 9.59%, respectively. The DI curve was the notable outlier of the region, with ~20bp rallies in the belly of the curve (January 25s and January 27s).