US TSY FUTURES: Long Setting Dominated On Tuesday

• In FX, EURUSD has started the week on a bullish note. The pair remains above last week’s low and recent weakness appears corrective. A key support at the 50-day EMA, at 1.1096, is intact. A clean break of this average would undermine the uptrend. Key trend signals continue to highlight an uptrend and, a key resistance to watch is 1.1381, the May 2 - 6 high. Clearance of this level would signal the end of the correction and highlight a bullish break.
• Recent weakness in GBPUSD appears corrective. The May 13 bounce highlights a possible reversal pattern - a bullish engulfing candle. The pattern remains valid and if correct, signals the end of the recent corrective cycle and a resumption of the uptrend. Key support to watch is 1.3117, the 50-day EMA. Sights are on the key resistance and a bull trigger, at 1.3444, the Apr 28 / 29 high.
• USDJPY continues to trade below the May 12 high and the pair maintains a softer tone. The latest pullback underpins the view that gains since Apr 22 appear corrective. A stronger reversal lower would refocus attention on 142.36, the May 6 low. 145.21, the 20-day EMA. has been pierced, a clear break would strengthen a bearish theme. Key short-term resistance has been defined at 148.65, the May 12 high.

The latest CFTC CoT report revealed a bias towards cover of existing positions for both asset managers and leveraged funds, with a particular focus on trimming exposure in FV futures.

• Note that leveraged funds did still manage to add a cumulative ~$6mn DV01 equivalent of net shorts across TY, US & WN.
• Asset managers remain net long across the curve, while leveraged funds are net short across all contracts.
• Wider non-commercial positioning saw a mix of net short setting and cover, with the cohort remaining net short across the curve (see table below).

• Fed Funds implied rates are up to 2bp lower from Friday’s close for 2025 meetings as lower equity and and crude oil futures weigh (S&P 500 -1.3%, WTI -1.1%).
• They’re still close to recent hawkish extremes though, with a next Fed cut only fully priced for October (but still close with Sept).
• Cumulative cuts from 4.33% effective: 2bp Jun, 9.5bp Jul, 22.5bp Sep, 35bp Oct and 52bp Dec.
• SOFR implied yields are increasingly higher further out the curve though, amidst Treasury market steepening following Moody’s downgrading the US from Aaa to Aa1 on Friday,.
• The terminal yield of 3.40% (SFRZ6) is 3bp higher on the day, back close to levels seen just prior to Apr 2 Liberation Day announcements. It pushed as high as 3.485% last week (for pricing at close) but struggled to hold onto the move. SFRZ7 meanwhile is 5.5bp higher.
• President Trump offered his latest criticism of the Fed’s Powell on Saturday. His May 17 Truth Social post: “THE CONSENSUS OF ALMOST EVERYBODY IS THAT, “THE FED SHOULD CUT RATES SOONER, RATHER THAN LATER.” Too Late Powell, a man legendary for being Too Late, will probably blow it again - But who knows???”
• Today’s docket is led by Fedspeak – see our 0604ET bullet on why we think main focus there should be on ’26 voters Kashkari and Logan.