FED: Reserves + ON RRP Fall To Late April Levels As Treasury Cash Builds (1/2)

• HSBC think the ECB is unlikely to change its deposit rate of 2.0% at the July 24 meeting, aligning with its strategy to reserve action for significant economic shocks.
• “There shouldn’t be any change in July, with no need to head back from the beach (if you left early).”
• Recent euro appreciation and potential US tariffs on EU goods could lower inflation forecasts, but the ECB is expected to wait until September to assess their impact.
• Policymakers are cautious about overreacting to currency volatility, focusing instead on domestic risks like sticky services inflation and corporate margin pressures.
• The ECB's current stance reflects confidence in the eurozone's resilience, supported by fiscal policy and stable consumption trends.
• HSBC are one of the five analysts amongst the twenty nine reviewed in the MNI ECB Preview who look for no further cuts from the current deposit rate of 2.00% (see in full here). 

• RES 4: 1.3920 High May 21  
• RES 3: 1.3862 High May 29 
• RES 2: 1.3798 High Jun 23  
• RES 1: 1.3744/74 50-day EMA / High Jul 17 
• PRICE: 1.3640 @ 16:03 BST Jul 22
• SUP 1: 1.3631/3557 Low Jul 22 / 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

Resistance in USDCAD at 1.3744, the 50-day EMA, remains intact for now. It has been pierced, however, a clear break of it is required to highlight a possible stronger short-term reversal. This would open 1.3798 initially, the Jun 23 high. For now, a bear trend remains in place. A resumption of weakness would refocus attention on key support at 1.3540, the Jun 16 low. Clearance of this level would confirm a resumption of the downtrend.  

• Treasuries bounced off early Tuesday lows, initially tracking a similar move in German Bunds - before settling into a narrow range near session highs since midmorning.
• The US$ resumed its weakening trend on Tuesday, extending the pullback from last week’s highs to ~1.6% in recent trade, further eroding the cautious recovery that had been seen across the first half of July.
• Tsy Sep'25 10Y futures are +7 at 111-13 after the bell vs. -14.5 high, briefly through resistance at 111-13+, the Jul 10 high. A clear break of this hurdle would highlight a stronger reversal. Key support lies at 110-08+, the low on Jul 14 and 16. A move through this support would reinstate the recent bearish theme.
• The Philadelphia Fed's Nonmanufacturing Business Outlook Survey continued to show improvement in July, though cost pressures remained elevated. The regional current general activity index rose to a 6-month high -10.3 from -25.0 prior. This was the 3rd consecutive improvement since bottoming at -42.7 in April amid tariff policy concerns.
• The Johnson Redbook Retail Sales Index continues to post solid gains, rising 5.1% Y/Y in the week ending Jul 19, fairly steady compared with 5.2% the prior week.
• Look ahead: Wednesday's data limited to MBA Mortgage Applications at 0700ET, Existing Home Sales follow at 1000ET.