STIR: Euribor Futures Resilient Following Soft German Inflation Data
Euribor futures have been relatively resilient considering the recent pullback in SOFR counterparts. ERZ6 is +3.5 ticks at 97.925, just half a tick off session highs. Today’s softer-than-expected German state-level/national inflation has driven the dovish repricing in EUR STIRs, with markets looking through potential seasonality concerns and still-sticky domestic services inflation.
- ERZ6 has now recovered 14 ticks from the December 10 low, with the prior breakdown level of 97.950 (Nov 17 and Dec 2 low) the first resistance to monitor.
- ECB-dated OIS are up to 4bps more dovish on the session, removing any implied probability of a rate hike in 2026. There are 4bps of easing priced through September.
- The bar to an ECB rate change in either direction remains high, in our view. Our tracking of a one-tenth downside surprise to December headline HICP isn’t material enough to change that narrative.
- However, Q1 Eurozone inflation data will be important to monitor. A disinflationary set of start-of-year services price resets, taken alongside subdued core goods inflation pressures, may embolden more dovish members of the Governing Council to keep the door open to further easing.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Feb-26 | 1.932 | -0.1 |
| Mar-26 | 1.923 | -1.0 |
| Apr-26 | 1.917 | -1.6 |
| Jun-26 | 1.896 | -3.7 |
| Jul-26 | 1.896 | -3.7 |
| Sep-26 | 1.894 | -3.9 |
| Oct-26 | 1.905 | -2.8 |
| Dec-26 | 1.926 | -0.7 |
| Jan-27 | 1.944 | 1.1 |
| Source: MNI/Bloomberg Finance L.P. | ||
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USDCAD TECHS: Bull Channel Breakout
- RES 4: 1.4140 High Nov 5 and a key resistance
- RES 3: 1.4131 High Nov 21
- RES 2: 1.4051 High Nov 28
- RES 1: 1.3939/4016 Low Nov 28 / 20-day EMA
- PRICE: 1.3865 @ 16:35 GMT Dec 5
- SUP 1: 1.3853 Intraday low
- SUP 2: 1.3840 50.0% retracement of the Jun 16 - Nov 6 bull cycle
- SUP 3: 1.3812 Low Sep 23
- SUP 4: 1.3779 Low Sep 22
A bear theme in USDCAD remains intact and Friday’s strong sell-off reinforces a bear theme. The pair has breached an important support at 1.3942, the base of a bull channel drawn from the Jul 23 low. The break highlights a stronger bear cycle and signals scope for an extension towards 1.3840 next, a Fibonacci retracement point. Initial firm resistance to watch is 1.4016, 20-day EMA.
LOOK AHEAD: US Week Ahead: FOMC Decision Dominates, Post Shutdown Data Catch-Up
- Next week’s US calendar is dominated by the FOMC decision on Wednesday, with a third consecutive 25bp cut almost fully priced.
- Expect it to be a contentious meeting however, with many arguing for a pause not least whilst they’re still relatively in the dark on key official data releases following the government shutdown.
- Fed Chair Powell opted for a surprisingly hawkish tone at the late October press conference, highlighting a deeply divided committee on prospects for another cut in December.
- The “fog” had appeared to win out until NY Fed’s Williams, a senior permanent voter, gave unusually explicit guidance on still seeing room “for a further adjustment in the near term”. With no pushback from FOMC members or media briefings, it appears this message has approval from the core of the FOMC which should be enough to see a rate cut this month. The likely catalyst was the further increase in the unemployment rate to 4.44% back in September, although subsequent tracking suggests stabilization and jobless claims data don’t show any signs of deterioration.
- We’ll be looking for the number of hawkish dissents (we’d be surprised if anyone joins Miran dissenting for a 50bp cut) and expect a greater number to object to a cut in the 2025 dot plot, whilst the distribution of dots for 2026 should be in greater focus.
- As for the economic projections, we expect upward revisions to GDP growth but downward revisions to near-term core PCE inflation with tariff passthrough proving less severe than previously feared.
Aside from the Fed, we also receive two months worth of JOLTS data along with other delayed releases as the shutdown data backlog is slowly caught up.
AUDUSD TECHS: Bullish Impulsive Wave Extends
- RES 4: 0.6723 High Oct 21 ‘24
- RES 3: 0.6707 High Sep 17 and a key resistance
- RES 2: 0.6660 High Sep 18
- RES 1: 0.6649 Intraday high
- PRICE: 0.6630 @ 16:32 GMT Dec 5
- SUP 1: 0.6580/6533 High Nov 13 / 20-day EMA
- SUP 2: 0.6517 Low Nov 27
- SUP 3: 0.6466/21 Low Nov 26 / 21
- SUP 4: 0.6415 Low Aug 21 / 22 and a bear trigger
A strong impulsive bull wave in AUDUSD remains intact, having printed 10 consecutive sessions of higher highs. Recent gains have cleared a number of important short-term resistance points, strengthening a bull theme and highlighting scope for a continuation higher. Today’s rally has resulted in a breach of 0.6640, 76.4% of the Sep 17 - Nov 21 bear leg. This opens 0.6707, the Sep 17 high and key resistance. Key support to watch is at 0.6533, 20-day EMA.
