EURIBOR OPTIONS: Call Spread vs Put Spread

• JPY is comfortably the strongest performer in G10 early Tuesday, with the USD Index extending recent losses to move to new cycle lows. The latest phase of USD sales coincides with an adjustment lower for the US curve, as US 10yr yields slipp to a 2-month low below 4.2% this morning.
• This leaves USD/JPY almost 3.5% off last week's highs, aided by a cleaner positioning profile following last Monday's spike to 148.03. The shooting star candle formation highlights a reversal of the recent recovery and today's weakness in particular has been exacerbated on a break of short-term trendline support, drawn from the May lows.
• For GBP, the latest press lower for the USD has prompted GBP/USD to show to a new cycle high at 1.37893 - this is now the best marked levels since October 2021 and extends the bull cycle in the pair. An uptick in futures volumes on the break to new highs clearly helping here, and shifts focus to 1.38 round number resistance and then the October 20th 2021 high beyond at 1.3835
• The difficulty of passage of today's welfare bill in the House of Commons may not be directly market relevant, but the scale of opposition will serve as a further reminder of the hurdles facing the PM's pro-growth agenda.
• Eurozone CPI estimate came in alongside expectations at 2.0% for June - confirming the ECB's views that inflation should continue to converge with target. ISM Manufacturing data is the scheduled data highlight Tuesday, with markets expecting only a modest improvement in activity for June. Central bank speak is headlined by the ongoing Sintra ECB policy forum, at which central bank heads Lagarde, Powell, Ueda, Bailey and Rhee are all set to make appearances. 

SX7E (19th Dec) 180p, sold at 5.8 in 4k.

The rally in core global FI markets has stalled a little.

• Futures pierced first resistance at the June 25 high (93.57), but bulls couldn’t quite force a break of the June 13 high (93.68), with the rally topping out at 93.67 before a fade back to ~93.55.
• Yields last 1.5-6.5bp lower, curve flatter.
• 2s, 5s and 10s broke below their June yield lows, exposing early May lows.
• 2s10s and 5s30s print 63.5bp and 129.9bp, respectively. Recent steepening failed to test year-to-date closing highs on both curves (78.5bp & 138.6bp).
• Little readthrough from solid cover ratio and wider tail/soft pricing combination at the latest 1.50% Jul-53 green gilt auction.
• BoE Governor Bailey spoke on QT, with some suggesting that his comments point to the potential for a slowing of sales. We will provide our thoughts on his comments and BoE QT in general shortly.
• Moves in the short end more contained, with SFIZ5 & Z6 failing to break through their respective May 9 & 8 highs, while BoE-dated OIS has failed to push meaningfully beyond pricing 55bp of cuts through year-end.
• We still point to 2x 25bp cuts from the BoE through year-end (August & November) at this stage, although risks are skewed dovishly.
• Bailey will speak again later, in a panel with other central bank heads (14:30 London). We don’t expect much new from him.
• Elsewhere, the difficulty of passage of today's welfare bill in the House of Commons may not be directly market relevant, but the scale of opposition will be closely eyed.