OIL PRODUCTS: Oil Products Summary at European Close: Diesel Cracks Surge

• RES 4: 0.8768 High Nov 20 ‘23    
• RES 3: 0.8624/0.8738 High Apr 21/ High Apr 11 and the bull trigger
• RES 2: 0.8541/8557 High May 2 / High Apr 28
• RES 1: 0.8457 50-day EMA
• PRICE: 0.8421 @ 16:37 BST May 20
• SUP 1: 0.8394 Low May 16   
• SUP 2: 0.8359 1.236 proj of the Apr 11 - 16 - 21 price swing
• SUP 3: 0.8316 Low Mar 28 and a key support
• SUP 4: 0.8277 1.618 proj of the Apr 11 - 16 - 21 price swing  

EURGBP is trading at its recent lows. A bearish theme remains in play. The cross has recently cleared 0.8457, the 50-day EMA, signalling scope for a continuation lower near-term. The 0.8400 handle has been pierced, a continuation lower would open 0.8359, a Fibonacci projection. Key near-term resistance to watch is 0.8541, the May 2 high. A break of this hurdle is required to signal a potential reversal.     

RRP usage retreats to $136.033B this afternoon from $180.417B yesterday, total number of counterparties at 32. Usage had fallen to $54.772B last Wednesday, April 16 -- lowest level since April 2021. Conversely, usage had surged to the highest level since December 31, 2024 on Monday, March 31: $399.167B.

St Louis Fed President Musalem (2025 FOMC Voter, hawk) gave an update on his scenario-based outlook for policy in a speech Tuesday, reiterating that overall he agrees with the "wait-and-see" approach adopted by the Fed amid heightened tariff-related uncertainty. Depending on how tariffs and their impacts play out, Musalem appears to suggest he could support either an easing bias; a "balanced" approach, or holding rates indefinitely. In the meantime, policy "is currently well positioned." (Speech text here.)

• "The range of possible economic outcomes for the next few quarters is wide. Economic policy uncertainty is unusually high", and "announced tariffs are higher, have been more broadly applied and have prompted stronger retaliation than I and many others had expected ["even after the de-escalation of May 12" re China-US]... if a cycle of high tariffs and retaliation is sustained, economic activity and employment are likely to moderate meaningfully over the next few quarters, and inflation is likely to rise."
• He notes that while economic activity has "moderated", and survey data suggest it could "slow appreciably", the economy "continues to exhibit underlying strength" with the labor market "at or near full employment. On inflation, while inflation has resumed progress toward 2%, "price pressures appear to be building".
• As such, "should tension between our dual mandate goals arise, I believe a balanced response to both inflation and employment is feasible— provided the public continues to expect inflation will return to 2%."  On that note, "while one survey of long term inflation expectations has risen [referring to UMichigan], other measures of longer-term inflation expectations have remained stable".
• He lays out two tariff scenarios, which he says are equally likely to play out: one is a modest/temporary impact on inflation in which a slowdown in activity dampens some of the inflationary pressures - "Under this scenario, a monetary policy of looking through the temporarily higher inflation and possibly easing policy to counter negative effects on employment could be appropriate." Though that carries a risk: "Getting the persistence of inflation wrong could prove costly, especially if persistent inflation leads the public to expect higher inflation to continue over the medium to long term."
• On a second scenario, the inflationary impetus from higher tariffs are more persistent, potentially due to multiple factors: "The pre-tariff starting point for inflation is above target;  The recent period of high inflation likely has raised the public’s sensitivity to it; Some measures of inflation expectations have risen; and  Tariffs apply broadly to intermediate inputs, encouraging rearrangement of global supply chains." In this case, "a balanced monetary policy that is responsive to deviations of inflation from target and to employment shortfalls will be appropriate, provided that longer-term inflation expectations are well anchored."
• He appends a third possibility in which trade tensions de-escalate, putting the US economy back on the path it was previously - in which case, "the current stance of monetary policy...will remain appropriate" (suggesting he would be supportive of a prolonged hold).