STIR: Dovish Move In GBP Short End Stalls Around 3.30% Terminal Rate Pricing

• In FX, a bear leg in EURUSD remains intact. Last week’s move down resulted in a breach of an important support at 1.1542, the Oct 9 low. This confirms a resumption of the current downtrend. Note that 1.1516, the 76.4% retracement of the Aug 1 - Sep 17 bull leg, has also been cleared. An extension of the bear leg would expose key support at 1.1392, the Aug 1 low. Initial resistance is at 1.1577, the Oct 22 low.
• A bear cycle in GBPUSD remains intact and the pair has resumed its downtrend today. A key support at 1.3142, the Aug 1 low, has recently been cleared. The break confirmed a resumption of the downtrend that started Sep 17. Sights are on 1.3041 next, the Apr 14 low. Initial firm resistance is 1.3304, the 20-day EMA. Note that the trend is in oversold territory, a recovery would allow this condition to unwind.
• The trend condition in USDJPY remains bullish and the pair is still trading closer to its recent trend highs. The break higher last week confirmed a resumption of the uptrend and note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 154.80, the Feb 12 high. First important support to watch lies at 152.06, the 20-day EMA. A pullback would be considered corrective.

• While the risk off moves across major equity indices have been the dominant driver of today’s JPY outperformance, a fresh reminder that Japanese officials continue to monitor rapid adjustments in the yen has helped exacerbate the moves.
• Japanese Finance Minister Satsuki Katayama issued another set of verbal warnings on currency movements, stating “There’s no change in our stance of assessing developments with a high sense of urgency,” referencing the recent “one-sided and rapid moves” seen in recent weeks.
• Based on historical remarks, the comments merely suggest concern at this juncture, however, they provide a reminder of how the JPY remains prone to volatile swings amid an uncertain short-term outlook both politically and with regard to monetary policy. Indeed, Bank of Japan Governor Kazuo Ueda’s speech to business leaders in Nagoya City on December 01 could be crucial for determining the probability of a rate hike at the December meeting.
• For USDJPY, the pair has stalled for a third time around the 154.45 level overnight - a potentially bearish short-term signal. The pair has quickly returned to the prior breakout level of 153.27. First important support to watch lies further out at 152.06, the 20-day EMA, with pullbacks considered technically corrective for now.

OI data points to a mix of net long setting (TU), short cover (FV), long cover (UXY & US) and short setting (WN) as the curve twist steepened on Monday.

• TY futures were unchanged at settlement, which makes it difficult to provide any real inference outside of a reduction in exposure in that contract as OI fell on the day.