USDJPY TECHS: Corrective Cycle

• Crude has seen support today from a report that Russia may be forced to cut production owing to recent Ukrainian strikes on its energy infrastructure.
• Russia’s oil pipeline monopoly Transneft warned producers they may have to cut output following drone strikes on critical export ports and refineries, Reuters reported, citing three industry sources.
• WTI Oct 25 is up by 2.2% at $64.7/bbl.
• Meanwhile, the market is monitoring sanction developments on Russia, alongside concern about the projected surplus for 2026. The US has said it will follow any new restrictions that the EU imposes against Russia, but only if it stops its own imports of Russian oil.
• The trend condition in WTI futures remains bearish and short-term gains are considered corrective. Initial resistance to watch is $66.03, the Sep 2 high, with key short-term resistance defined at $69.36, the Jul 30 high.
• Initial support is at $61.29, the Aug 13 low and the bear trigger.
• Meanwhile, spot gold is currently up by 0.2% at $3,688/oz, having risen to a fresh all-time high of $3,703 earlier in the session.
• The sharp rally in gold since mid-August has been a combination of Fed independence concerns and expectations for the resumption of Fed easing tomorrow. These tailwinds come alongside a backdrop of persistent central bank demand.
• Gold remains in clear bull cycle, and a clearance of $3,700 would expose Fibonacci projection levels of $3,705.2 (1.382 proj) and $3,744.2 (1.500 proj).

Secured rates rose sharply Monday, with SOFR rising 9bp to 4.51%. That was the highest rate outright and biggest spread to EFFR of 2025 so far (last exceeded in December 2024). 

• It's also notable that we saw the biggest takeup of the Fed's standing repo facility ($1.5B) Monday since end-June (which was a month- and quarter-end). That's reversed today with barely any SRF takeup.
• Monday's pressures were partly a result of an important tax date. It was probably also exaggerated by a net $78B Treasury coupon settlement, which should reverse to some extent Tuesday with just under $50B of net TBill paydowns due.
• Amid the funding market pressures as reserves wind down, however, attention turns to Wednesday's FOMC press conference, with some expectations that Powell could acknowledge that the Committee discussed ending QT in its 2 day meeting starting today (Goldman Sachs sees QT ending at the October meeting).

REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.51%, 0.09%, $2877B
* Broad General Collateral Rate (BGCR): 4.50%, 0.1%, $1136B
* Tri-Party General Collateral Rate (TGCR): 4.50%, 0.1%, $1097B

New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.33%, no change, volume:  $91B
* Daily Overnight Bank Funding Rate: 4.33%, no change, volume:  $181B
 

Tuesday's Europe US rates/bond options flow included:

• RXV5 127.50p, bought for 10 in 3k
• ERH6 98.125/98.25/98.4375/98.625c condor, bought for 2.5 in 5k
• ERM6 98.3125c, bought for 4 in 10k total
• ERX5 98.00/98.0625/98.125/98.1875c condor, bought for 0.75 in 3.5k
• ERZ5 98.00/97.875/97.75p ladder, sold at 3.75 in 5k
• 2RX5 97.6875/97.8125cs vs 3RX5 97.5625/97.6875cs, bought the 2yr for 1.75 and 2 in 18k total
• SFIZ5 96.15/20/25/30 call condor bought for 0.5 in 3k
• SFIZ6 97.25/97.75cs x5 vs 96.25p x1, bought the cs for 3 in 1.75k (8.75k x 1.75k)
• SFIZ6 97.25/97.75cs, bought for 4.25 in 3.75k