STIR FUTURES: BLOCK: Mar'26/Dec'26 SOFR Spread

The Congressional Budget Office releases a short report on the potential impact of a full government shutdown in response to a request by Senator Ernst, here.

• The analysis is based largely on the impact report published after the partial shutdown in Dec 2018-Jan 2019. The key findings are that around 750,000 federal employees could be furloughed (around the generally accepted consensus of 800,000), and that the economic impact - while dependent on the details - could see a short-term negative impact reverse when payments were restarted.
• On the scope of the "CBO estimates that under a lapse in discretionary funding for fiscal year 2026 about 750,000 employees could be furloughed each day; the total daily cost of their compensation would be roughly $400 million." The CBO does not make this explicit but the impact could be more acute if the Trump administration follows through with its threat to fire many workers instead of furloughing them. (It says "the Administration has indicated that it might subject some employees, who might otherwise be furloughed, to a reduction in force."
• On the economic impact: "The effects of a government shutdown on the economy would depend on its extent and duration. For example, CBO reported that the five- week partial shutdown ending in January 2019 delayed discretionary spending for compensation and for purchases of goods and services and suspended some federal services. Once the government reopened, most of the payments were made. At the time, CBO estimated that although most of the real gross domestic product (GDP; real GDP is adjusted to remove the effects of inflation) that was lost during the fourth quarter of 2018 and the first quarter of 2019 eventually would be recovered, about $3 billion would never be. In its report, CBO projected that amount at 0.02 percent of annual GDP in 2019." Most analyst estimates of the GDP impact are around 0.1-0.2pp (annualized) per week of shutdown.
• Most of the other impacts - including "delayed procurements and lapsed contracts during a shutdown" are more difficult to determine, but unsurprisingly "In general, a longer lapse will have larger effects than a shorter one will."

• RES 4: 1.2063 2.236 proj of the Feb 28 - Mar 18 - 247 price swing
• RES 3: 1.2000 Round number resistance 
• RES 2: 1.1919/23 High Sep 17 / 2.0 proj of Feb 28 - Mar 18-27 swing
• RES 1: 1.1755/1820 High Sep 29 / 23  
• PRICE: 1.1730 @ 16:26 BST Sep 29
• SUP 1: 1.1646 Low Sep 25 
• SUP 2: 1.1574 Low Aug 27
• SUP 3: 1.1528 Low Aug 5
• SUP 4: 1.1392 Low Aug 1 and bear trigger.

The trend theme in EURUSD remains bullish and the recent pullback appears corrective. Attention is on support at 1.1682. the 50-day EMA. It has been pierced, a clear break of this average would signal scope for a deeper retracement and expose 1.1574 initially, the Aug 27 low. For bulls, a clear  resumption of gains would refocus attention on 1.1923, a Fibonacci projection. Initial firm resistance to watch is 1.1820, the Sep 23 high.       

• Bearish dollar momentum continues to be a function of concerns related to the potential US government shutdown, which President Trump has said will probably occur. Haven demand for the Japanese yen has prompted USDJPY to fall another 0.5%, while a moderate hawkish tilt to the September RBA meeting promotes AUD to the top of the G10 leaderboard.
• USDJPY traded to a low of 147.66, with spot narrowing the gap to initial support which lies at 147.59, the 50-day EMA. Stronger pivot support has been defined at 145.49, the Sep 17 and post-Fed low.
• The broad dollar weakness has boosted AUDUSD back above the 0.66 handle on Tuesday. RBA Governor Michele Bullock declined to say whether the central bank retains an easing bias after the Board held the cash rate at 3.6%, stressing that future moves will depend on incoming data, with the current level still viewed as slightly restrictive.
• Overall, the AUDUSD uptrend remains intact and recent weakness appears to have been a correction. Initial firm resistance to watch at 0.6628 has been met today and will be closely monitored ahead of the APAC crossover. A stronger reversal higher would refocus attention on 0.6707, the Sep 17 and post-Fed high.
• Price action prompted another impressive surge for AUDNZD, rising to a fresh cycle high above 1.14, continuing to narrow the gap with the 2022 highs located at 1.1491.
• US data did little to spur volatility in currency markets. Job openings were relatively steady in August in the latest JOLTS report, but secondary metrics suggested further loosening in labor market conditions. Consumer confidence was weaker-than-expected.
• On Wednesday, the first focus will be on Japan’s Q3 Tankan Survey. Eurozone inflation data, US ADP employment and the ISM manufacturing PMI release are all scheduled.