FED: Asset Runoff Winding Down, KC's Schmid Eyes Shorter-Duration Holdings (2/2)

From our "Shadow" employment report for September circulated earlier (PDF): While now of course delayed, the September nonfarm payrolls report had seen a primary dealer analyst median estimate of a 60k increase in nonfarm payrolls (range -20k to 105k). 

• These estimates came with the usual analyst forecast round ahead of the release, including before a weak ADP release.
• It’s possible that these will be revised down ahead of the actual release, whenever that may be.

• RES 4: 0.6726 1.236 proj of the Jun 23 - Jul 24 - Aug 21 price swing
• RES 3: 0.6660/6707 High Sep 18 / 17 and a bull trigger
• RES 2: 0.6629 High Sep 30 & Oct 01 and key short-term resistance
• RES 1: 0.6556 50-day EMA
• PRICE: 0.6519 @ 16:00 BST Oct 15
• SUP 1: 0.6440 Low Oct 14
• SUP 2: 0.6415 Low Aug 21 / 22 and a bear trigger
• SUP 3: 0.6373 Low Jun 23
• SUP 4: 0.6357 Low May 12 

A bear theme in AUDUSD remains intact. However, yesterday’s recovery highlights a possible reversal pattern - a hammer candle formation. If correct, it signals the end of the bear leg that started Sep 17. Note too that MA studies have remained in a bull-mode position during the latest bear leg, and this highlights a dominant M/T uptrend. Initial resistance is 0.6556, the 50-day EMA. A resumption of weakness would open 0.6415, the Aug 21 and 22 low.      

The Fed's Standing Repo Facility (SRF) saw its highest takeup this morning since the quarter-/month-end date of June 30. 

• The $6.8B usage of the facility comes as SOFR printed 4bp above IORB (4.19% vs 4.15%) yesterday, with a variety of other indicators suggesting mounting funding market pressures. It compares with the $6.0B takeup at the last month-/quarter end date of September, and is the 2rd-highest takeup (after June 30) since Q2 2020. (The SRF was made permanent in 2021).
• Even so this rise should be put into perspective; takeup was many times larger in 2019 during a previous episode of funding pressures that led to the Fed restarting asset purchases. And per the September meeting minutes, "a few participants noted that the SRF would help keep the federal funds rate within its target range and ensure that temporary pressures in money markets would not disrupt the ongoing reduction in Federal Reserve securities holdings to the level needed to implement monetary policy efficiently and effectively in the Committee’s ample-reserves regime"
• Even so, there's a variety of factors contributing to the rise in takeup. Based on various measures we (and the Fed) look at, some funding market pressure has been building up for a few weeks now as reserves fell below $3T - the pressures are still on the light side but enough to get the Fed thinking about slowing runoff (as evidenced by Chair Powell's speech Tuesday in which he suggested QT could end in the coming months).
• Today's pressures may be related to a tax date and decently large coupon settlements (just under $40B, sandwiched between $52B in bills combined over Tuesday and Thursday) removing reserves from the system.
• SOFR was 4.19% Tuesday so it wouldn't be surprising if it weren't far below the 4.25% SRF rate today, making it a closer-than-usual tradeoff.