Making Sense

We had yields on US2s close above the recent consolidation range while the US10s did not make fresh lows but tracked losses. Yields on US10s treasury inflation protected securities closed sharply higher at 2.28% compared to 2.20% levels on Monday as the Employment cost Index rose 1.20% qoq following a 0.93% rise in the previous quarter. ECI rose 4.20% yoy. S&P CoreLogic Case-Shiller 20-City Composite Home Price Index for Feb showed prices rose 7.31% yoy. While the consumer confidence plummeted, market had eyes focused on the ECI, as the strength in the ECI followed the sticky prices of the services component of PCE, supporting the higher for longer Fed Fund Rate narrative.  Risk assets took a beating as US Equities closed sharply lower, Bond Yields sharply higher, Brent / Gold / Bitcoin all lower. Today morning risk sentiment in continuation with the US market mood looks fragile. 

The U.S GDP Data released overnight showed Q1 GDP grew at an annualized 1.60% qoq while Core PCE Q1 prices rose an annual 3.70%, sharply higher from consensus expectations of 3.40% and was up 2.90% from a year ago. Nick Timiraos makes an interesting point - The GDP report implies that without upward revisions to Jan (0.45%) or Feb (+0.26%), March would be at 0.48% Massive shift in interest rate pricing with 24 bps of rate cuts implied by the November Policy which is a day after the November Elections and 34 bps of rate cuts in 2024.  The initial jobless claims data showed employment numbers remain firm.  We square our USD shorts ahead of the weekend and release of the US PCE Report.

  The Market Implied Fed Fund pricing for Interest Rate Cuts by the US Federal Reserve is now seen at 40 bps of rate cuts into 2024 from 38 bps of rate cuts seen yesterday morning. We have sideways consolidation across Bonds and USD index though US Equities made a strong come back and Gold Prices posted a big negative day, an outside day candle after the one day reversal candle seen on Friday. I continue to favor USD Shorts into the 106.45 - 106.75 Levels. Yields on IN10s also posted a big outside day reversal candle and if the hypothesis about the a turn in USD index is correct and US Yields start moving lower, we would have timed the reversal in IN10s accurately. I am now looking for a pull back into the 7.20% - 7.22% to go long IN10s.  On the USDINR, the pair held the resistance at the weekly wedge at 83.70 and moved lower supported by FPO flows. I am now looking for a pullback into the 83.50 area for initiating USDINR shorts.

  Moves in US2Y stalled ahead of the 78.60% Fibo retracement of the 5.26% to 4.15% and have been congesting around the 4.90% - 5.00% over the last 6 trading days. US10Y found support at the upper end of the trend channel. Interestingly, also look at the TLT chart 20+ Year Treasury Bond ETF which has moved back within the channel. USD index saw a pullback from 106.52 (88.6% of the Fibo move from 107.35 to 100.62. I have been writing about the 106.45 - 106.75 zone as the level to look for to get a potential turn / correction in the USD index. The next crucial resistance on the pair will be previous highs at 107.35. For 107.35 levels to be truly taken out, watch for a strong catalyst - may be tensions in ME blow out crude goes to $ 100 levels etc..  So now we know the levels, we have some evidence of levels holding up, reckon we can play for tactical USD shorts with tight stops.