STIR: Dovish Reaction As Powell Doesn't Meet Hawkish Expectations
Powell has had a net dovish impact on US rates, reversing a hawkish reaction to initially patient rhetoric. The push back towards session highs has come with help from various factors including pushing back on a rate hike question, noting the post-shutdown boost to the 2026 GDP growth upgrade and discussing a weaker payrolls trend when factoring in expected downward revisions along with the labor market “cooling “maybe just a touch more gradually than we thought”.
- Fed Funds futures implied rates are 0.5-2bp lower since shortly before the FOMC announcement, with about half of that coming since Powell’s press conference.
- Cumulative cuts from an assumed 3.64% effective: 5bp Jan, 13bp Mar, 18.5bp Apr, 32.5bp Jun, 47bp Sep and 54.5bp Dec.
- SOFR futures sit up to +0.04 through 2026 contracts since the FOMC decision, with the day’s gains led by the U6 (+0.07).
- The terminal implied yield of 3.16% (Z6) is 6.5bp lower on the day but only gives back yesterday’s climb to its highest since July – it’s still more ~15bps above levels seen in late November after a recent push higher on reasonable domestic data and global factors.
- An example of patience when asked whether the Fed has taken out sufficient insurance against labor market weakness: "We're going to get a great deal of data between now and the January meeting, and I'm sure we'll talk more about that, and that will the data that we get are going to factor into our thinking.... We did some cutting, and then we paused for a while to work our way through what was happening in the middle of the year. And then we resumed cuts in September.... We're well positioned to wait and see how the economy evolves from here."
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AUDUSD TECHS: Bear Threat Remains Present Despite S/T Gains
- RES 4: 0.6707 High Sep 17 and a bull trigger
- RES 3: 0.6663 2.0% 10-dma Envelope
- RES 2: 0.6644 76.4% retracement of the Sep-Oct bear leg
- RES 1: 0.6537/0.6618 50-day EMA / High Oct 29
- PRICE: 0.6520 @ 16:31 GMT Nov 10
- SUP 1: 0.6459 Low Nov 5
- SUP 2: 0.6440 Low Oct 14 and key support
- SUP 3: 0.6415 Low Aug 21 / 22 and a bear trigger
- SUP 4: 0.6373 Low Jun 23
Despite Monday’s early gains, a bearish short-term tone in AUDUSD remains intact. The recent breach of the 50-day EMA undermines a recent bullish theme. This has exposed the next key support at 0.6440, the Oct 14 low. Key resistance and a short-term bull trigger is at 0.6618, the Oct 29 high. Initial resistance to monitor is at 0.6537, the 50-day EMA. A clear break of the average would strengthen a bullish case.
US FISCAL: CBO: October Deficit Shrinks, Shutdown/Timing Issues Muddy Comparison
The Congressional Budget Office estimates that the federal government posted a $219B deficit in October, vs just over $258B a year earlier. This would still be one of the bigger October deficit in recent years but regarding that $39B Y/Y decrease: revenues were up $75B vs a year earlier, "driven by larger collections of individual income and payroll taxes and by increased customs duties", and while outlays were up $37B that was due to a timing shift without which outlays would have decreased (not increased) by $70B vs Oct 2024.
- Overall accounting for timing changes in this first month of the fiscal year, "the decrease in the deficit for October also would have been larger— $145 billion rather than $39 billion. CBO estimates that outlays were smaller than a year ago in part because of the lapse in discretionary appropriations that began on October 1, 2025."
- As such the imminent reopening of the government will probably mean that outlays ramp up shortly to make up for lost ground.
- We should also note that CBO - whose estimates are usually quite accurate - undershot the actual September surplus by $34B, which it attributes to the lack of full data in shutdown: "Because data were not available from many agencies during the lapse in funding, CBO’s estimate of September spending did not account for certain transactions with the Treasury, a number of which were recorded as offsetting receipts."
- Treasury is due to publish its October estimates on Thursday but it's unclear whether it will produce a report even if the shutdown is resolved by then.
EURJPY TECHS: Bullish Trend Sequence
- RES 4: 180.37 1.500 proj of the Jul 31 - Sep 29 - Oct 2 price swing
- RES 3: 180.00 Psychological round number
- RES 2: 178.94 1.236 proj of the Jul 31 - Sep 29 - Oct 2 price swing
- RES 1: 178.82 High Oct 30 and the bull trigger
- PRICE: 177.84 @ 16:23 GMT Nov 10
- SUP 1: 175.29 50-day EMA
- SUP 2: 174.82 Low Oct 17
- SUP 3: 173.92 Low Oct 6 and a gap high on the daily chart
- SUP 4: 173.77 Bull channel support drawn from the Feb 28 low
The trend in EURJPY remains bullish and a price sequence of higher highs and higher lows is intact. Moving average studies are in a bull-mode position too, highlighting a dominant uptrend. Recent gains signal scope for an extension towards 178.94 next, a 1.236 projection of the Jul 31 - Sep 29 - Oct 2 price swing. Support to watch lies at the 50-day EMA, at 175.29. A clear break of this EMA would signal scope for a deeper retracement.
