US: FED Reverse Repo Operation

• Amid the renewed focus on rate differentials in FX, the bull flattening move for the US curve has helped the US dollar extend its most recent weakness, with the dollar index falling around 0.5% to fresh cycle lows. The moves come amid President Trump stepping up his criticism of Fed Chair Powell and his ‘entire board’ over the level of US interest rates. Notably, Goldman Sachs have also pulled forward their call for the next Fed cut to September.
• Gains across G10 have been led by the likes of CHF (+0.71%) AUD (+0.72%) and NZD (+0.64%) as the continued resilience for major equity benchmarks underpins the firm sentiment for risk. For AUDUSD, this promotes spot to a fresh cycle high above 0.6570. A clear break of key resistance and the bull trigger, at 0.6552, would confirm a resumption of the trend and initially opening 0.6603, the Nov 11 2024 high.
• USDCHF now tracks around 0.7930 as the move below the psychological 0.80 handle extends. Indeed, CHFJPY has had an impressive bounce of the early morning lows at 180.20 to trade at a fresh record high once more above 181.75.
• EURUSD has also edged to fresh session/cycle highs Monday, continuing to track at the best traded levels since September 2021 above 1.1770. Last week’s gains reinforced the uptrend, emboldened by a breach of the bull trigger at 1.1631, the Jun 12 high. Immediate sights are on 1.1783, a Fibonacci projection, before 1.1821, the Sep 16 2021 high.
• Rates/dollar dynamics may place a greater focus than usual on this week’s US employment report, notably scheduled on Thursday owing to the July 4th holiday. Separately, ISM and JOLTS data are scheduled tomorrow. The global calendar kicks off with the release of Eurozone HICP.

• RES 4: 1.3852 1.764 proj of the Feb 28 - Apr 3 - 7 price swing
• RES 3: 1.3835 High Oct 20 2021
• RES 2: 1.3800 Round number resistance
• RES 1: 1.3771 High Jun 26
• PRICE: 1.3720 @ 17:00 BST Jun 30
• SUP 1: 1.3632/3552 High Jun 13 / 20-day EMA 
• SUP 2: 1.3414 50-day EMA
• SUP 3: 1.3318 Trendline support drawn from the Jan 13 low 
• SUP 4: 1.3140 Low May 12 and key support

The trend needle in GBPUSD continues to point north and last week’s climb reinforces bullish conditions. Fresh cycle peaks maintain the price sequence of higher highs and higher lows. Note too that moving average studies are in a bull-mode position, highlighting a dominant medium-term uptrend. Sights are on 1.3800 next. Initial support to watch lies at 1.3552, the 20-day EMA. A break would signal scope for a corrective pullback.         

Treasury Secretary Bessent reiterated in a Bloomberg TV appearance Monday that the Trump administration's replacement for Gov Kugler's term expiring in January 2026 could eventually become the Fed Chair. 

• Asked "Is a new appointee supposed to be considered [a] shadow Fed Chair?" Bessent said: "Not necessarily. We will see. The 14-year seat is opening up in January, so we have given thought to the idea that perhaps that person would go on to become the Chair when Jay Powell leaves in May, or we could appoint the new Chair in May. That is just a two-year seat." Asked if he thinks there could be confusion, Bessent says "I do not see why there would be confusion. There are people who are currently at the Fed who are under consideration, so why would there be confusion if you add another candidate in January?"
• Federal Reserve Board seats have 14-year terms. Gov Kugler was appointed in September 2023 to an unexpired term that ends in January 2026 (and it's clear she won't be re-appointed). So her replacement will have a term ending in 2040.
• Powell's term as Chair expires in May 2026. However his term as a Board Member isn't over until January 2028, so he can stay on until then even after being replaced as Chair. (Bessent said in another appearance last week: "Chair Powell doesn’t have to leave — he could stay on the board, not as Chair.")
• It's unclear whether Powell will stay on for his full Board term, which is what Bessent appears to refer to here when saying it is "just a two-year seat".
• The White House could appoint a) a current Board member, as Bessent says is possible (this implies Waller or, less likely, Bowman), b) a new Board member appointed to replace Kugler in January, or c) a new Board member appointed to replace Powell if he steps down in May. If c), the new Fed chair would have a 4-year term as Chair, but theoretically would have to be reappointed to a Board seat in January 2028 to continue as Chair.
• Overall Bessent's comments in the last few days appear to suggest that the White House hasn't made up its mind on who will be Powell's eventual replacement or even the board appointment strategy ahead. Overall the White House has pushed back on the notion that they could name a Chair in the coming months, contrary to some speculation and a WSJ report last week.
• Waller, Kevin Warsh, Kevin Hassett, and Bessent himself are widely considered to be the front-runners for Powell's position.
• Note President Trump later on Monday criticized the "entire Board" for not cutting rates, seemingly the first time he's expanded his criticism beyond Powell. The next Board seat term expiries are Waller (2030), Barr (2032) and Bowman (2034) - Trump appointed Waller and Bowman in his first term. Jefferson is in until 2036 and Cook until 2038.