AMERICAS OIL: Hedge Funds Cut Net Bullish Nymex Diesel Bets to 12-Week Low

Wednesday's US rates/bond options flow included:

• SFRU5 96.00/96.12/96.25c fly, trades again for 1, bought for 0.75 and 1 in 15k Total
• SFRU5 95.81/95.75/95.68p fly, traded half in 3k.
• SFRU5 95.93/96.00/96.12c fly 2x3x1, traded 2.25 in 2.5k.
• SFRU5 96.00/95.75ps, traded 8 in 5k.
• SFRU5 96.00p, traded 8.5 in 5k.
• SFRU5 96.06/96.12cs traded 1 in 8k total.
• SFRU5 96.12/96.25cs, traded 1.5 in 13k.
• SFRU5 95.8125 puts bought for 1.75 in 5k (block)
• SFRV5 96.37/96.50cs, traded 3 in 2k.
• SFRZ5 95.75/95.68cs, traded 0.25 in 12k.
• SFRZ5 96.37/96.50cs vs 2QZ5 96.93/97.06cs, bought the front for -0.25 in 2.5k. This was bought Yesterday for -0.5 in 2.5k.
• SFRH6 96.25p, traded 10.5 in 2k.
• FVU5 109/108.5 put spread sold at 10.5 in 7.5k (block) - (cov 109-00, 34%)
• TYU5 113 calls bought for 6 in 15.5k (block) - (vs 112-03+, 5%)

The summary of the BOC's deliberations of the July monetary policy decision (link) showed some disagreement among members about the economic outlook and the appropriate policy response, best summed up with "given the uncertainty around estimates of slack and underlying inflation, and how households, businesses and governments will adapt to tariffs, members agreed they would need to wait for more clarity before drawing firm conclusions."

• Governing Council debated whether to cut 25bp, which is no surprise. While they ultimately held rates, the debate was between:
  • "some members" who "held the view that, having reduced the policy interest rate to the middle of the Bank’s estimated range of the neutral interest rate, and the economy showing some resilience to US tariffs, the Bank may have already provided sufficient support to aid in this transition....there was a risk that further easing might take effect only as demand was recovering, which could add to price pressures."
  • and "others " who "highlighted that further monetary policy support would likely be needed given the estimated amount and persistence of slack in the economy, particularly if the labour market softened further. If incoming data showed that the upside risks to underlying inflation were not materializing, there could be more room for monetary policy to ease further, reducing economic slack and supporting the economy’s adjustment to the reconfiguration of global trade."
• The document notes that inflation was a focus ("Discussions about different indicators of inflationary pressures, and the trajectory for headline inflation, occupied much of the deliberations.") and ultimately "Members agreed that the degree of firmness in underlying inflation was an important consideration for the policy decision....members assessed underlying inflation to be around 2½% recently, up from around 2% in the second half of last year."
• Looking forward they didn't sound particularly concerned about the inflation outlook. While "the impact of tariffs on consumer prices appeared to be modest so far. They also noted that wage increases and unit labour costs had continued to ease and the recent appreciation of the Canadian dollar had reduced import prices. There were no signs that inflation expectations had become de-anchored. Moreover, none of the three tariff scenarios suggested a sharp rise in inflation." However "members judged the risks to inflation to be elevated given evident pressures on underlying inflation and the uncertainty around the impacts that tariffs and trade disruptions could have on Canada’s economy over time".
• There was "considerable" discussion about "how households, businesses and governments will react and adapt to tariffs", but to sum up, "members agreed that it was still too early to assess how tariffs and the rewiring of trade would affect economic activity and inflation in Canada."
• There was little market reaction to the release, which in any case captured deliberations that occurred before a weak July labour market report. Futures markets currently price a September rate cut at 33% probability, with a full 25bp cut nearly priced through the end of the year (24bp Dec).

• RES 4: 0.6700 76.4% retracement of the Sep 30 ‘24 - Apr 9 bear leg
• RES 3: 0.6688 High Nov 7 ‘24
• RES 2: 0.6677 0.764 proj of the Jun 23 - Jul 11 - 17 price swing  
• RES 1: 0.6563/6625 High Aug 13 / 24 and the bull trigger
• PRICE: 0.6552 @ 16:00 BST Aug 13
• SUP 1: 0.6419 Low Aug 1
• SUP 2: 0.6373 Low Jun 23 and a bear trigger 
• SUP 3: 0.6354 38.2% retracement of the Apr 9 - Jul 24 upleg  
• SUP 4: 0.6323 Low Apr 16

AUDUSD rallied well off the week’s lowest levels last week on broad USD weakness - erasing any signs of a bearish breakout on the show through the 20- and 50-day EMAs. While support at 0.6455 the Jul 17 low, has been cleared, the recovery in prices keeps key resistance in focus at 0.6625 the Jul 24 high. It also represents the bull trigger. Any return lower would signal a bearish threat into 0.6373, the Jun 23 low.