EURJPY TECHS: Outlook Remains Bullish

• RES 4: 163.72 High Nov 27
• RES 3: 162.25 High Nov 29
• RES 2: 160.97/161.86 High Jan 25 / 19 and the bull trigger
• RES 1: 160.34 High Jan 30
• PRICE: 159.72 @ 17:01 GMT Feb 5
• SUP 1: 158.08 Low Feb 1 and a key near-term support
• SUP 2: 157.21 Low Jan 9
• SUP 3: 156.08 Low Jan 4
• SUP 4: 155.08 Low Jan 2

A bullish trend in EURJPY is intact, however, the current bear cycle remains in play. The cross has recently traded below the 20- and 50-day EMAs and this signals scope for a deeper pullback. A break of 158.08, the Feb 1 low, would resume bearish pressure and open 157.21, the Jan 9 low. For bulls, a stronger reversal would refocus attention on 161.86, the Jan 19 high and bull trigger. A break of this level would reinstate the recent bullish theme.

Better put volume reported on net in SOFR and Treasury options, SOFR leading on size and breadth of flow Monday. Underlying futures opened weaker and extended lows after stronger than expected ISM Services across all items, especially prices

• As a result, projected rate cut chances continued to retreat: March 2024 chance of 25bp rate cut currently -16.4% vs. -18.3% this morning w/ cumulative of -4.1bp at 5.283%, May 2024 at -56.2% vs. -57.1% w/ cumulative -19.1bp at 5.133%, while June 2024 -81.9% from -82.4% (105% pre-NFP for comparison) w/ cumulative -39.6bp at 4.930%. Fed terminal at 5.32% in Feb'24. Salient second half trade includes:
• SOFR Options:
  • Block, 10,000 SFRU4 94.87/95.00/95.12 put flys, 1.0
  • Block, 10,000 SFRU4 94.62/94.75 put spds, 1.75/splits
  • -15,000 SFRH4 94.75/94.87 put spds 9.25
  • Block, -10,000 SFRG4 94.68/94.93 strangles, 1.0 ref 94.78
  • Block, 10,000 SFRH5 95.00/95.62/96.25 put flys, 13.0 ref 96.19
  • Block, 5,000 SFRH4 96.50/97.50 call spds w/95.50/96.50 put spd, 70.5
  • +9,600 SFRK4 95.12/95.87 1x2 call spds, 4.5 vs 95.125/0.17%
  • 11,000 SFRM4 95.12/95.31/95.37/95.50 put condors ref 95.12
• Treasury Options:
  • 4,800 FVH4 108 puts, 60 ref 107-11.5
  • over 10,000 TYH4 109 puts, 4 last ref 111-05.5 to -06.5
  • 2,000 TYH4 109/110 3x2 put spds, 16 ref 111-07

Well timed with Bostic’s remarks on the labor force, SF Fed economists have published a letter on drivers behind prime-age participation increases.

• “The labor force participation (LFP) rate for prime-age workers surged from early 2021 through early 2023, especially for women. This helped reduce the large shortfall of available workers relative to available jobs that emerged during the recovery from the pandemic.”
• “Analysis of state labor markets indicates that the cyclical response of prime-age LFP was much more pronounced during the two most recent business cycles than in prior ones. This state-level relationship weakened in 2023, however, suggesting that the cyclical gains in prime-age LFP are winding down.”
• Consistent with the latter, these gains have indeed slowed with the prime-age rate dropping back and then stalling at 83.2-83.3% in the four months of data since October (charts of which can be seen in the MNI Employment Insight).