STIR: Fed Rate Path Split Between Two and Three Cuts For 2025

• Fed Funds implied rates are up to 1.5bp higher from Friday’s close for near-term meetings after President Trump’s weekend threats of 30% tariffs on the EU (the largest source of US imports) ahead of a Aug 1 deadline.
• Trump talking up an upcoming “Major Statement” on Russia has also supported oil futures.
• Increases in implied rates are quickly limited further out the curve owing to the associated growth concerns, with the Mar 2026 rate just 0.5bp higher for example.  
• Cumulative cuts from 4.33% effective: 1.5bp Jul, 16bp Sep, 30.5bp Oct, 49bp Dec, 59bp Jan and 73bp Mar.
• Similarly, SOFR futures trade flat to 3 ticks firmer on the day.
• The SOFR implied terminal yield of 3.21% (SFRZ6, -2.5bp) inches lower after Friday’s close of 3.235% was the highest since Jun 20.  
• It's a particularly thin docket today, with no notable data or Fedspeak. US CPI looms large tomorrow - the MNI Preview will be out later today but we currently see unrounded estimates for core CPI with a median of 0.24% or average of 0.26% M/M, suggesting downside risk to broad Bloomberg consensus of 0.3%.

• In FX, a corrective cycle in EURUSD remains intact. The primary trend condition is bullish with moving average studies continuing to highlight a dominant uptrend. Support to watch is 1.1660, the 20-day EMA. It has been pierced, a clear break of it would signal scope for a deeper retracement, potentially towards the 50-day EMA at 1.1495. For bulls, a resumption of gains would signal scope for a climb to 1.1851, the Sep 10 2021 high.
• A softer short-term tone in GBPUSD remains in place for now. Price has pierced a key support around the 50-day EMA, at 1.3481. A clear break of this level would undermine a bull theme and signal scope for a deeper retracement. Note that a trendline support - drawn from the Jan 13 low - lies at 1.3419. A break of this support would strengthen a bearish threat. Initial firm resistance to watch is 1.3681, the Jul 4 high.
• USDJPY is trading at its recent highs and a short-term bull cycle remains intact. The pair has recently breached resistance at the 50-day EMA, highlighting a stronger reversal. Note too that 146.77, 76.4% of the Jun 23 - Jul 1 bear leg, has also been cleared, exposing 148.03, the Jun 23 high. Support to watch is 145.20, the 50-day EMA. A clear breach of the average would be bearish.

The latest CFTC CoT report revealed the following positioning swings in the week to Tuesday July 8.

• Asset managers added to existing net longs in the wings of the curve (TU, US & WN), while trimming net longs in the belly/intermediates (FV, TY & UXY). They remain net long across the curve, adding a little over $1mn of net curve-wide DV01 exposure on the week.
• Leveraged funds added to net shorts across longer dated contracts, TY, UXY, US & WN, while the cohort trimmed net shorts in TU & FV. They remain net short across the curve and added ~$3.5mn of net curve-wide DV01 exposure on the week.
• Broader non-commercial net positioning was dominated by net short extensions in FV, TY, UXY & US futures, while there was more modest trimming of net shorts in TU & WN. They remain net short across the curve.

Source: MNI - Market News/CFTC/loomberg Finance L.P.