FX Flows – Rates Flows

 From the FXWW Chatroom: •Cash: In G10, the trading desk notes seeing good selling in GBP and two way flows in both USDCAD and EURUSD. In Asia FX, the desk noted buying of USDPHP versus selling of USDTWD and USDINR.
Canada: USDSCAD traded down to 1.3271 after BoC statement ‘acknowledges the strength of the recent data’  Now that USDCAD is finally pulling away from the 1.3330-40 level I am more confident about taking a directional view and selling USDCAD on rallies as long as the pair stays below 1.3340. (Mark Ingledew)
Yen: In JPY, the downtrend unfolding since 113.65 could have it next leg lower in the coming weeks if risk assets stay under pressure – perhaps targeting as deep as the Nov. 2016 lows sub 103.00. Next to watch for: a break and close below the 200-day moving average at 108.71. EURJPY closed below its 200-day last Friday for the first time this year and hasn’t really looked back since. (New York FX spot trading)
•Options: The main theme was buying of JPY vols.
Rates Flows
US Treasuries: USTs traded well into the auction today, with a decent bid tone. This continued as the headlines from President Trump were released. From here, Rob Strebel, US Rates Sales, still like the flattener with 5s/Bonds back up towards the top end of the trend line and GT10s sticky in yield below 2.30%. He thinks, there’s enough geo-political risk out there to justify going into an extended long weekend with a bullish bias to long end USTs.
US Inflation: The trading desk saw better buying – mostly in the 10yr sector – throughout the day and break-evens seem to have stabilized after touching in the high 180s in 10s yesterday. 10s closed around 191.5 this afternoon – and even despite the late day pop in nominal, breaks held in just fine.
•USD STIR: Very little action in the rates market despite the almost 1 bp tail of the 10y auction and Russia headlines. It feels like the market is already set for the long weekend. In basis bids emerged in 3s1s, which pushed the belly (5y sector) about 0.5bp wider on the day, which is the first meaningful widening in the last month. I think the flow was driven by increasing expectation for swapped issuance in the coming days. Currently, I think the front end is too tight for an issuance driven widening to be sustainable. If the widening persists through next week, I would likely use it as an opportunity to enter into tighteners. I would especially like tighteners if the 5y trades above 1y.
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