3:18 pm -
Treasuries See Second Day of Selling:
- Treasuries finished on their lows as sellers remained in control for a second session.
- The complex held small gains into the cash open, and put in its best levels of the day shortly before the in-line CPI (+0.1%) and better than expected housing starts (1093K actual v. 964K expected) and building permits (1052K actual v. 1001K expected) data crossed the wires.
- Selling over the remainder of the session would erase the early gains and push maturities into negative territory.
- Light selling up front saw the 2y tack on +1.3bps to 0.435%. Participants will be watching resistance in the 0.450% region over the coming days.
- The 5y climbed +1.3bps to 1.580% after surviving an early test of support near 1.540%. Many traders are keeping a close eye on the 1.600% level as resistance there is guarded by the 200 dma.
- The 10y added +1.8bps to 2.405%. The benchmark yield settled on minor resistance in the 2.400%2.425% region.
- The 30y lagged, rallying +2.7bps to 3.221%. The yield on the long bond finished near a one-week high as action finished on resistance near 3.225%/3.250%.
- A slightly steeper curve took hold as the 2-10-yr spread widened to 197bps.
- Precious metals went off on their lows with gold -$3 @ $1296 and silver -$0.25 @ $19.39.
- Data: MBA Mortgage Index (7) and the latest FOMC minutes (14).
2:21 pm -
Dollar Readies for Best Close in 11 Months:
- The Dollar Index trades near 81.90 as action looks likely to close at an 11-month high.
- The greenback is higher against all of its major counterparts.
- EURUSD is -45 pips @ 1.3315 as trade readies for its lowest close since September. Fears of a Japan-like stagnation have weighed on the single currency in recent days with traders now shifting their focus to ECB head Mario Draghi's speech on Friday at the Jackson Hole Symposium.
- GBPUSD is -115 pips @ 1.6610 as trade flushes to its lowest level in more than four months. Today's cooler than expected CPI data has pushed back Bank of England rate hike expectations with many now not expecting action until sometime next year. Today's session will see sterling close below its 200 dma for the first time since August 2013. Tomorrow, the latest Bank of England Monetary Policy Committee votes accompany CBI Industrial Order Expectations.
- USDCHF is +25 pips @ .9090 as action contends with its best levels of 2014. Today's bid is correlated with the weakness in the euro and has action testing the key .9100 area.
- USDJPY is +30 pips @ 102.85 as trade flirts with its best close in four and a half months. A move through 103.00 puts the 104.00 area and the 2014 highs in focus. Japanese data due out tonight is limited to the trade balance.
- AUDUSD is -15 pips @ .9305 as sellers take control for the first time in five days. The hard currency saw some early buying develop after the Reserve Bank of Australia minutes warned of 'significant' uncertainty ahead while maintaining its view rates are likely to remain stable; however, trade was rejected at .9340 resistance and the 100 dma and is now contending with its lowest close in a week. RBA Governor Glenn Stevens will testify tonight before the House of Representatives' Standing Committee on Economics.
- USDCAD is +60 pips @ 1.0945 as buyers take charge for the first time in seven days. Canada's wholesale sales will be released tomorrow.
11:49 am -
Treasuries Slide into Negative Territory:
- This morning's better than expected housing data and continued run in U.S. equities has dropped Treasuries to their worst levels of the session.
- Selling at the long end has the 30y +2.1bps @ 3.215%. Trade now contends with resistance in the 3.200%/3.225% area.
- The 10y is +1.3bps @ 2.400% as action now holds +10bps off Friday's lows. The first level of resistance comes into play in the 2.400%/2.420% region.
- Outperformance in the belly has the 5y little changed near 1.570%. Key levels to watch include support in the 1.540% area and resistance near 1.600% that is defended by the 200 dma.
- A steeper curve has developed as the 2-10-yr spread trades 198bps.
- Precious metals are trapped on their lows with gold -$3 @ $1296 and silver -$0.23 @ $19.40.
11:29 am - DXY Rallies Ahead of Minutes: The Dollar Index has rallied to 81.85 this morning, its best level since September as markets prepare for tomorrow's FOMC minutes. The dollar was aided by better than expected housing starts and permit numbers. Housing has been one of the headwinds for markets over the past couple of weeks, but better than expected NAHB, starts, and permits reports have helped ease that worry. CPI numbers came in-line with expectations and continue to run within the Fed target rate. Some of today's moves may be some front running ahead of tomorrow's minutes, which are expected to show a slightly more hawkish lean given the very dovish commentary we have seen from Janet Yellen and Stanley Fischer over the past couple of weeks.
- The euro tumbled below the 1.3330 support level to hit 1.3313, its lowest level against the dollar since last September. The dollar is the primary driver here, but we also may see some traders lean to the short side in the euro as markets prepare for the PMI data Thursday morning and ECB President Mario Draghi's speech Friday afternoon.
- The pound was hammered below its 200 dma (1.5582) following the release of inflation data. CPI, RPI, HPI, and PPI all fell short of expectations and continue to run below the Bank of England target. This will ease expectations of a rate hike coming as pricing pressures are unlikely to force the BoE's hand at this time. Sterling has now fallen 3% since hitting a multi-year high against the dollar on July 15.
- The yen is moving toward the 103 area and looks prepared to test that level for the first time since August 1. With the dollar strong and risk on trades booming in light of geopolitical tensions cooling, the yen has been one of the losers as the carry trade picks up.
09:53 am -
Treasuries Hold Small Gains:
- Treasuries remain just off their best levels of the session.
- Early buying has most yields lower between -1/-2bps.
- The 10y has spent the entire U.S. session in a tight 2bp range and is now -1.4bps @ 2.373%.
- An unchanged curve has the 2-10-yr spread holding @ 196.5bps.
- Attention now turns to tomorrow's release of the latest FOMC minutes.
- Precious metals are pressing their lows with gold -$2 @ $1297 and silver -$0.19 @ $19.45.
08:34 am - Data Reaction:
- Treasuries have slipped off session highs following the in-line CPI (+0.1%) and better than expected housing starts (1093K actual v. 964K expected) and building permits (1052K actual v. 1001K expected) data.
- Maturities across the complex hold slim gains with the 10y now -1.6bps @ 2.371%.
- A slightly flatter curve remains in play as the 2-10-yr spread trades 196bps.
- Precious metals have given up their gains with gold and silver flat @ $1299 and $19.62, respectively.
07:16 am -
Sterling Hit as Cool CPI Data Pushes Back Rate Hike Expectations:
- The Dollar Index presses session highs near 81.70 with trade on track to close at its best level in 11 months.
- EURUSD is -15 pips @ 1.3345 as early weakness has the pair contending with its lowest close since September. A close below 1.3360 would be detrimental to the single currency as action over the past two weeks has threatened the level, but has failed to close below it. Today's weakness is being aided by the narrower than anticipated current account surplus (EUR13.1 bln actual v. EUR19.3 bln expected, EUR19.8 bln previous).
- GBPUSD is -85 pips @ 1.6640 as trade presses to its lowest levels in four and a half months. Weighing on sterling is the cooler than anticipated CPI (1.6% YoY actual v. 1.8% YoY expected), PPI Input (-1.6% MoM actual v. -1.0% MoM expected), and RPI (2.5% YoY actual v. 2.6% YoY expected) readings, which have pushed back Bank of England rate hike expectations. Action is currently on track to post its first sub-200 dma close in a year.
- USDCHF is flat @ .9065 amid an uneventful trade. Early action has been limited to just 15 pips.
- USDJPY is +10 pips @ 102.65 as buyers look to put in the sixth gain in seven sessions. Traders continue to watch the 102.80 level which has not seen a close above it since the beginning of April.
- AUDUSD is +15 pips @ .9340 as trade ticks higher for a fifth day. The bid comes despite the Reserve Bank of Australia warning of 'significant' uncertainty ahead, but maintaining its view rates are likely to remain stable. Resistance at current levels is defended by the 100 dma. USDCNY eased to 6.1415, a five-month low.
- USDCAD is +15 pips @ 1.0905 as buyers take control for the first time in seven days. Early action has been confined to a tight 20 pip range.
06:56 am -
Treasuries Firm in Overnight Trade:
- Treasuries trade on session highs as the complex looks to repair the damage done during yesterday's session.
- Overnight ranges were a bit wider than usual, expanding to 4bps across much of the curve.
- Up front, the 2y is -1.2bps @ 0.411%. Action continues to flirt with levels last seen in early-June.
- In the belly, the 5y is -0.6bps @ 1.561%. Overnight action came close to testing the 200 dma (1.594%), but is now closer to support in the 1.540% region.
- The 10y trades -1.5bps @ 2.372%. The benchmark yield remains within a handful of bps of Friday's 13-month low.
- The 30y outperforms, -2.5bps @ 3.169%. The first level of resistance rests in the 3.200%/3.225% area.
- A slightly flatter curve has developed as the 2-10-yr spread trades tighter @ 196bps.
- Precious metals are firm with gold +$2 @ $1301 and silver +$0.02 @ $19.65.
- Data: CPI, core CPI, housing starts, and building permits (8:30).