GBP: EURGBP Testing Trendline Support, MS Recommend Buying Call Spreads
- It is worth highlighting that EURGBP has been testing trendline support in recent sessions. Drawn across the March and June lows from last year, the line intersects at 0.8653 today. Morgan Stanley have noted this level and believe EURGBP looks poised for a rebound, given both RSI and Bollinger bands suggest the cross has entered oversold territory, while also highlighting that positioning is stretched with GBP/EUR in the 92nd percentile.
- MS economists are below consensus on the upcoming UK employment data and their forecast of 3.99% for RPI is noticeably below RPI fixings (4.23%). This contrasts with market pricing of only 1-2bp of cuts at the February meeting, while their economists expect a 25bp cut.
- MS say at the same time, volatility is favourable for EURGBP longs and recommend buying a 1m 1x1 EUR/GBP call spread (buy ATMF, sell 0.8840 strike) at market. Importantly, the one-month covers both employment and CPI data, as well as the next BOE decision.
- We highlight that on the upside, primary resistance to watch is 0.8727, the 50-day EMA. A break of this average would be needed to indicate a possible technical reversal.
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US TSYS: Extending Highs With Bunds, Paring Move
- Treasuries extended the top end of the range in the last 5 minutes, tracking move in German Bund - both currently paring move at the moment.
- Cross asset correlated rather than flow, headline or data related (NAHB Housing Market in-line with expectations).
- Mar'26 10Y tapped 112-16.5 high (+11) trades 112-14.5 last, 10Y yield -.0293 at 4.1548%.
- Note, 2s10s curve just off this morning's 66.683 high at 65.732 (-.247) after climbing to highest level since mid-Jan 2022 Friday.
ECB: Analyst Expectations For the December Macroeconomic Projections
A key focus at Thursday’s ECB decision will be the December macroeconomic projections. Analysts generally expect upward revisions to GDP growth and core inflation projections relative to September, while 2027 headline inflation may be pulled downward by the likely one-year delay to ETS2. 2028 projections will be presented for the first time.
GDP: President Lagarde noted last week that growth projections will likely be revised higher.
- The median analyst expects a 0.2pp upgrade to 2025 GDP to 1.4% (range 1.4-1.5%), owing to stronger-than-expected GDP and survey data outturns in recent months.
- 2026 GDP is also seen 0.2pp higher at 1.2% (range 1.1-1.3%), driven by better momentum heading into the year and the anticipated German fiscal boost.
- 2027 GDP is expected unrevised at 1.3% (range 1.2-1.4%). Meanwhile, 2028 is also seen at 1.3% (range 1.2-1.4%).
Core Inflation: Analysts expect one tenth upgrades to 2026 and 2027 core inflation projections, owing to slightly stronger-than-expected recent momentum and the anticipated economic recovery next year.
- 2025 core is unanimously seen steady at 2.4%. The 2026 median is seen at 2.0%, but RBC are a notable outlier looking for 1.7%.
- 2027 core is expected at 1.9%, albeit with several analysts expecting a 1.8% outturn. 2028 core is seen back at 2.0%.
Headline Inflation: 2027 headline inflation is expected to be pulled lower by the ETS2 delay, while core upgrades provide some offset to lower-than-expected energy pressures.
- For 2027 headline inflation, there is a sizeable 1.6-2.0% range around the median of 1.8%.
- For 2028, headline is seen back at the 2.0% target, albeit with several analysts pencilling in a 2.1% reading (the ETS2 delay pulls inflation down in 2027, but this is compensated by an upgrade in 2028).
EURIBOR OPTIONS: 1yr vs 2yr Midcurves
2RH6 97.75/97.62ps vs 0RH6 97.93/97.81ps, bought the 2yr for 1.5 in 10k.
