EURJPY TECHS: Bullish Trend Structure

GBP STIRs have edged away from yesterday’s dovish session extremes, with core global FI markets selling off a little in early London trade.

• Still, BoE-dated OIS nearly fully discounts 50bp of easing through year-end in the wake of yesterday’s labour market data. A reminder that 50bp of cuts had not been priced over that horizon since May 13.
• The next 25bp cut is fully discounted through the end of the September MPC, with ~19.5bp priced through August.
• SONIA futures flat to +1.5. May 12 highs present resistance in SFIZ5 and SFIZ6, after the contracts traded to the highest levels seen in June yesterday.
• Recent comments from BoE’s Saporta covered bank reserve matters. She noted that the latest survey suggests that PMRR is £385-540bn, with the upper bound marginally higher than the £385-530bn range observed in the Q3 2024 survey. Ultimately, this suggests that there is a risk that the PMRR is reached slightly sooner than was previously envisaged.
• On that front, a model estimate presented by Saporta points to the upper range of that band being reached by Q226.
• The presentation of the government’s spending review headlines the local calendar during the remainder of the day; we will write more on that in our early morning gilt piece.

• The NZD is the early small worst performer in G10 against the Dollar, NZDUSD has pushed through Yesterday's low, but is still some way short of Friday's printed low of 0.6007 post US NFP.
• The Rest of G10s Currencies are mostly flat, but some focus should be right back in the USDJPY.
• The cross spiked to 145.29 overnight Yesterday, following a leaning Dovish Ueda, and USDJPY is back towards this level in early trade, managing a 145.25 high Today.
• Next small resistance in USDJPY comes at 145.38, this is the very short Term retracement of the May/June Range.

• Regarding the latest survey estimate of PMRR, Saporta notes that “we could arrive at the upper range of this estimate by Q2 2026”. However, “Exactly when we reach this level will depend amongst other things on changes in our facilities usage, as well as the pace of QT (which is a decision for the MPC). But it sharpens the mind as a planning assumption”
• A few other excerpts from the speech to note:
  • “Usage of our weekly lending facilities have been steadily increasing, which we encourage and welcome. Currently, we have lent £68bn in the Short-Term Repo (STR) and £23bn in the ILTR”….” STR usage has tended to decline somewhat before quarter-ends, during which times banks seek to manage down their balance sheets temporarily for regulatory reasons. This balance sheet management activity – which is anticipated and understood well by us and market participants – is also reflected in short-term spikes in overnight repo rates around quarter ends that are then brought down through greater STR usage”.
  • “Chart 2 shows a time series of the spread between SONIA and Bank Rate. Although the spread has been narrowing it is still negative. In an environment of falling reserves and upwards pressure in repo markets, depositors in overnight unsecured markets have been able to demand a higher rate of return on their deposits with SMF banks. We would expect the spread to narrow further as reserves and deposits reach their preferred level.”
• Market Notice on “Transitioning to a repo-led operating framework – discussion paper feedback statement” here. Key points from Saporta:
  • “The Bank will continue to review the ILTR to ensure it remains effective and aligned with market conditions. From November 2025, the minimum spread on bids against Level A collateral in the ILTR will rise from 0 to 3 basis points above Bank Rate”.
  • “By introducing a modest spread above Bank Rate, this change is intended to balance incentives for participants between the STR and ILTR facilities against Level A collateral by more closely aligning the effective costs of the facilities given the longer tenor of the ILTR. This change will be confirmed in advance, with no changes planned for Level B or C collateral”.