OPTIONS: Larger FX option Pipeline

• RES 4: 0.8835 High May 3 2023  
• RES 3: 0.8800 Round number resistance 
• RES 2: 0.8769 High Jul 28 and the bull trigger 
• RES 1: 0.8725/8751 High Oct 10 / High Sep 25  
• PRICE: 0.8677 @ 15:48 BST Oct 13
• SUP 1: 0.8675/8656 50-day EMA / Low Aug 10
• SUP 2: 0.8633 Low Sep 15 
• SUP 3: 0.8597 Low Aug 14 and key support 
• SUP 4: 0.8562 50.0% retracement May 29 - Jul 28 upleg

Recent weakness in EURGBP appears corrective and trend signals remain bullish. Note that the cross has pierced support around the 50-day EMA, at 0.8675. A clear breach of this EMA would signal scope for a deeper retracement and open 0.8633, the Sep 15 low. Key trend support lies at  0.8597, the Aug 14 low. On the upside, key resistance and the bull trigger is unchanged at 0.8769, the Jul 28 high. 

Asked in Q&A if she's in line with the Dot Plot median for 3.4% rates at end-2026 (when she is an FOMC voter) as well as her stated view that she agrees with the FOMC median estimate for 2 more cuts the rest of this year, Philly Fed's Paulson doesn't reveal much, saying "I think next year we're going to have to really evaluate the data as it comes in. We're going to have to see what happens, both with inflation and with employment and with growth. Right? I mean, I think next year is is a long way off right now."

• On where she sees the neutral rate: "We're really going to have to feel our way."
• Asked if she saw potential for rate hikes in 2026 if inflation proves to be stickier than anticipated (always a tricky question), Paulson says: "I mean, I think you can never say never about that. If inflation shows a burst of, you know, shows some life, then the Fed's going to have to react appropriately, whether that's keeping the policy rate at current levels or whether that's increasing, it is going to depend on what the data say. But I think we we need to be open to doing what it takes to achieve both of our mandates."
• Paulson says the NABE survey estimate of breakeven payroll employment (the pace of job gains that is needed to keep the unemployment rate steady) of 75,000 nonfarm payroll jobs "sounds really reasonable... I would suspect that it's lower than 75,000".
• She says "I know it's [the breakeven rate] lower than it was before... it's going to be within the standard of error. That includes some things that are negative. And so I think that's going to that's another reason why I think it's really important to look at ratios rather than those job flow numbers. Because when you've got supply and demand changing at the same time, it's really hard to assess...we've got structural things going on, at the same time that cyclical things are going on. And so that's why I'm going to be looking at at some of those ratios."

• There is little reaction to Philly Fed’s Paulson debut speech since replacing Harker after his retirement in June.
• She revealed she was indeed one of the nine dots who look for two additional cuts this year following the 25bp cut last month (the median view), as we guessed, and she wouldn’t be drawn on her rate outlook for 2026 (“I think next year is a long way off right now”).
• US rates hold today’s steady move back towards Friday’s highs, ultimately fading Trump’s weekend comments that looked to downplay China tariff threats from Friday. That’s despite US equity futures holding close to session highs having pared some of Friday’s sharp losses.
• Fed Funds futures cumulative cuts from an assumed 4.10% effective: 24bp Oct, 47.5bp Dec, 59.5bp Jan, 72bp Mar, 79.5bp Apr and 93.5bp Jun.
• SOFR futures are unchanged on the day for the Z5 before an almost uniform increase of just 1 tick looking out to end 2027 contracts.
• The terminal yield of 2.98% (SFRH7) is 2.5bp lower since the NY crossover (ahead of a Columbus Day holiday-thinned session), pointing to between 112-115bp of cuts ahead depending on fixed rate assumptions (i.e. roughly 4.5 25bp cuts in total). It’s set for the lowest close since Sep 18, the day after the FOMC decision.