EURJPY TECHS: Pullback Would Be Considered Corrective

EUR STIRs see light dovish spillover from SONIAs following this morning’s soft UK inflation report, but aggregate moves are very modest.

• ECB-dated OIS now price 20bps of easing through September 2026, up from just under 10bps at the start of this month.
• There’s very little meeting-specific conviction in this pricing though. There’s virtually no implied probability of a cut at next week’s meeting, and less than 6bps of sequential cuts priced into each of the seven subsequent meetings.
• If another cut is delivered this cycle, markets lean in favour of such a move coming at a meeting with updated macroeconomic projections – highlighted by the negative Oct/Dec/Feb, Feb/Mar/Apr and Apr/Jun/Jul butterfly spreads.
• Euribor futures are flat to +1.5 through the blues.
• Regional focus remains on Friday’s flash October PMIs. The remainder of today’s calendar is light – we don’t expect much new from ECB’s de Guindos or Lagarde. 

Reuters reports comments from Slovak PM Robert Fico, claiming that his gov't can support the EU's 19th sanctions package against Russia, "If we see the demands we pushed for in the summit conclusions." As Euronews reported on 20 Oct, "The latest conclusions from the upcoming EU summit add more detailed references to energy prices and the automotive sector, the two issues that Slovak PM Robert Fico had raised as condition [sic] for lifting his veto."

• Fico has not raised objections to the actual provisions of the proposed 19th package of sanctions, which are largely intended to hit Russian LNG flows, oil infrastructure, its "shadow fleet" of ageing tankers and crypto platforms, as well as impact the movements of Russian diplomats.
• Instead, the Slovak PM has demanded that the EU "substantially" discuss high energy prices, the struggling European auto sector, and EU competitiveness. Fico argued these topics are often left to the end of any conclusions and not given enough time for discussion when compared to the war in Ukraine.
• As MNI's Policy team reported previously, "European leaders will signal a more pragmatic approach on the green transition in order to mute its impact on industrial competitiveness when they meet in Brussels later this week, draft summit conclusions show." (see 'MNI: EU Summit Draft Shows Pragmatism On Green Transition', 20 Oct).
• The gov't in Vienna withdrawing Austria's objection to the sanctions could pave the way for a vote to implement the latest package soon. 

• RES 4: 94.24 1.618proj of the Sep 3 - 11 - 26 price swing  
• RES 3: 94.00 Round number resistance        
• RES 2: 93.95 1.500 proj of the Sep 3 - 11 - 26 price swing
• RES 1: 93.78 Intraday high  
• PRICE: 93.43 @ 08:02 BST Oct 22
• SUP 1: 93.17/92.07 High Oct 17 / Low Oct 15      
• SUP 2: 91.82 High Sep 24 and a recent breakout level 
• SUP 3: 91.65 20-day EMA
• SUP 4: 91.01 Low Oct 13    

A bull cycle in Gilt futures remains intact and today’s gap higher strengthens the bullish condition. The contract is through its recent high of 93.17, the Oct 17 high. This confirms a resumption of the uptrend and signals scope for an extension towards 93.95 next, a Fibonacci projection. Note that the contract is overbought, a pullback would allow this condition to unwind. Firm support to watch lies at 91.65, the 20-day EMA.