OPTIONS: Larger FX Option Pipeline

The Senate Judiciary and Homeland Security Committees unveiled the legislative text for the GOP’s USD$72 billion immigration enforcement package. Republicans are aiming to get the bill - the second major piece of legislation to be passed along party lines using budget reconciliation - to President Donald Trump’s desk by June 1.

• According to Punchbowl, the bill includes, “$38.2 billion for ICE. $26 billion for offices under CBP. This includes $3.5 billion for border security technology and screening. $5 billion extra for DHS. $1.5 billion for the Justice Department, [and] $1 billion for the Secret Service. This is “for the purposes of security adjustments and upgrades” related to Trump’s ballroom project, according to the Judiciary Committee text.”
• Except for funding Trump’s ballroom project, the bill is narrowly focused, suggesting there is likely to be limited friction in passing both chambers of Congress in the coming weeks. Focus now turns to the prospect of a third reconciliation bill, the last opportunity for the GOP to pass major legislation before the midterm elections, when the Republican Party is expected to lose majority control of Congress.
• A third party-line bill would have to balance a broad range of competing GOP priorities, including "healthcare provisions, defense spending, affordability measures, indexing capital gains to inflation, tax revenue offsets, and voter identification legislation," per BDO. Such a bill would be an exceptially heavy rift for House Speaker Mike Johnson (R-LA) considering his increasingly fractured majority, time constraints, and midterm election capaigning.

Norges Bank’s first central bank certificate auction was held this morning, with a combined NOK15bln of 4- and 12-week certificates sold.

• The 4-week certificate attracted a yield of 4.248%, which compares to a 1M NOWA OIS swap rate of 4.15% (Bloomberg Finance L.P data). The bid-to-cover ratio was 2.52x.
• The 12-week certificate attracted a yield of 4.398%, which compares to a 3M NOWA OIS swap rate of 4.28% (also Bloomberg Finance L.P data). The bid-to-cover ratio was 1.80x.
• As one gauge, Danske Bank wrote last week that "Our “guesstimate” for the pricing of the 1M and 3M papers has since the autumn been Nowa +5-10b. We stick to this going into the first auction on the assumption that it primarily will be bank treasurers that buy them"..."If the certificates are sold even cheaper we would expect a larger participation by corporates"

Certificates have been introduced as another instrument (alongside the existing F-loan and F-deposit framework) to absorb excess liquidity from the banking system, helping Norges Bank maintain its NOK30-40bln target range.

• Over the next two months, certificate volumes will be built up to a NOK70-80bln level. Once this level is reached, Norges Bank forecasts that troughs in its structural liquidity forecast will be around NOK10bln. This would pull liquidity below the target range, and could mean F-loans will need to be used on occasion to supply liquidity to the banking system.
• NOK money market spreads are unsurprisingly related to expected developments in structural liquidity. After narrowing into year-end amid healthy liquidity levels, the 3M NIBOR/OIS spread re-widened through Q1, and the forward curve sees the spread settling just above 25bps over the coming 12 months. Danske Bank wrote that “we think this is marginally to the low side given the outlook for a return of F-loans, but at this stage we will refrain from adding any new trades.”
• Norges Bank projected this money market premium to remain around 25bps through 2029 in the March MPR.

• In FX, attention in EURUSD is on support at the 50-day EMA - currently at 1.1683. It has once again been pierced. While this support holds, the outlook remains bullish. However, a clear break of it would suggest scope for a stronger S/T reversal and open 1.1505, the Apr 6 low. For bulls, a reversal higher would refocus attention on 1.1849, the Apr 17 high and bull trigger.
• The current bull cycle in GBPUSD remains intact and last week’s gains reinforce current conditions. Recent fresh cycle highs confirm a resumption of the uptrend and signal scope for an extension towards 1.3701, the 76.4% retracement of the Jan 27 - Mar 31 bear leg. Support to watch lies at 1.3456, the 50-day EMA. A clear break of it would be a bearish development and reinforce a potential bear threat.
• A short-term bearish theme in USDJPY remains intact and price continues to trade below both the 20- and 50-day EMAs. A continuation lower would expose a trendline at 154.99, drawn off the 2025 low. This represents the next key support. Initial firm resistance to watch is 158.38, the 50-day EMA. A clear break of it would be a bullish development and expose last Thursday’s high of 160.72 - the bull trigger.