FED: Reserves And ON RRP Continue To Fall As TGA Rises (1/2)

• RES 4: 1.4016 High May 12 / 13  
• RES 3: 1.3920 High May 21  
• RES 2: 1.3862 High May 29 
• RES 1: 1.3798 High Jun 23 and a key near-term resistance
• PRICE: 1.3771 @ 19:05 BST Jul 29
• SUP 1: 1.3679/3557 20-day EMA / Low Jul 03
• SUP 2: 1.3540 Low Jun 16 and the bear trigger
• SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
• SUP 4: 1.3473 Low Oct 2 2024

A short-term correction in USDCAD remains in play. However, note that price has traded through the 50-day EMA at 1.3728. A clear breach of this average would highlight a stronger short-term reversal, exposing 1.3798, the Jun 23 high. Clearance of 1.3798 would strengthen a bullish condition. On the downside, 1.3540, the Jun 16 low, marks key support. A break of this level would resume the downtrend.  

• Treasuries look to finish near late session highs, TYU futures back at last week's highs on July 22 as markets consolidate ahead of tomorrow's FOMC rate annc.
• A strong 7Y note auction helped rates extend highs after the $44B note sale (91282CNR8) stopped through again: 4.092% high yield vs. WI of 4.120%; bid-to-cover 2.79x from 2.46x prior. Peripheral stats: Indirect take-up retreats to 62.26% vs. 76.74% prior; Direct take-up climbed to new high at 33.68% vs. 11.62% prior; Dealers fell to new low of 4.06% vs. 11.64% prior.
• First half support: Tsys extended highs briefly after lower than expected JOLTS openings, quits level lower (prior down-revised), layoffs broadly lower than expected. Prior to JOLTS, little react to Advance Goods Trade Balance, import decline and less negative goods export. Wholesale inventories slightly higher than expected, retail inventories in-line.
• Tsy Sep'25 10Y contract trades +19 at 111-11.5 vs. 111-12.5 high; nearing initial technical resistance at 111-14.5 (High Jul 22). A clear break would highlight a stronger reversal and open 111-28, the Jul 3 high. Key support remains intact at 110-08+, the Jul 14 and 16 low. A move through this support would reinstate a bearish theme.
• Curves bull flatten: 2s10s -3.051 at 44.734, 5s30s -3.148 at 95.557.
• Cross asset: Bbg US$ index firmer but off highs: BBDXY +1.65 at 1209.76 (1212.47 high); stocks moderately lower (SPX eminis -19.75 at 6403.0); gold firmer +9.30 at 3323.91.

The Dallas Fed's Texas Service Sector Outlook Survey has bounced from weak readings in Q2, suggesting a pickup in regional activity to more normal levels after a tariff-related fall in sentiment albeit amid stubborn price pressures.

• General Business activity rose to 2.0 in July from -4.4 prior, marking the first positive reading since February. In tandem, the 6-month outlook rose to 9.8 from 1.5, for the highest reading also since February. Various key metrics improved including revenue, employment, and hours worked, with uncertainty falling to around the longer-term average.
• This echoes improvement in July's Philadelphia, NY, and Richmond services/non-manufacturing surveys (Kansas City was an outlier), as well as the rise in the July flash S&P Global PMI index.
• One area of concern was a renewed pickup in current prices paid, to 25.3 from 21.3 prior for a 3-month high, even as prices received dropped to 3.3 from 6.8 prior, marking an 8-month low. That potentially points to margin pressures for regional services firms.
• Overall services prices paid looked to have steadied/risen in July based on regional Fed surveys  - we will preview the ISM Services reading for July ahead of release on August 5.
• Within the survey, Texas retail sales were flat, albeit at 0.8, the sales index was a strong improvement from -29.5 prior.