FOREX: EURUSD Plumbs Fresh Pullback Lows, US ISM Services Awaited

ERM6 98.50/98.625/98.75/98.875c condor, bought for half in 10k (ref 98.07).

Late on Friday J.P.Morgan turned bullish on front end swap spreads for several reasons:

• Quarter end passing meaning that funding conditions are likely to remain soft.
• Accumulated Other Comprehensive Income (AOCI) at banks set to increase modestly, potentially improving their demand for Tsys.
• Spread narrowness offers pickup vs. IOR
• Expected slowing of $IG issuance.
• As a result, they recommended longs in 3-Year swap spreads and 3s/5s swap spread curve flatteners.

Gilts continue to hold onto the bulk of the weakness linked to the political situation in Japan and France.

• Solid demand at the latest round of BoE APF sales of short maturity gilts (3- to 7-Year) is worth a ~1bp rally in 3-, 5- & 7-Year benchmarks, helping the space further away from session lows.
• Futures -22 at 90.72 vs. session lows of 90.41.
• Bears remain in technical control. Initial support and resistance in futures still located at 90.26 & 91.28, respectively.
• Yields 1-4bp higher vs. Friday’s close, curve still steeper on the day.
• SONIA futures +0.5 to -2.5, twist steepening.
• BoE-dated OIS continues to price ~5bp of easing through year-end, which we think is underappreciating the odds of a cut during that window.
• BoE Governor Bailey is due to speak today, delivering the keynote speech at Scotland’s Global Investment Summit 2025. The text will be released at 16:00 London.
• There is no title attached to the speech and it is therefore unknown at this point whether Bailey will be discussing anything relevant for monetary policy.
• We will provide a little more colour ahead of the speech.