US: Reverse Repo Operation

Rep Fred Upton (R-MI) is the latest House rep to announce that he wont stand for re-election in November.

• Upton was one of the 10 Republicans who voted to impeach former president Donald Trump and his retirement will be considered a victory for the Trump faction in ongoing struggle for ideological control of the GOP ahead of the midterms in November.
• For those keeping count: Reps John Katko (R-NY), Adam Kinzinger (R-IL), Tony Gonzalez (R-TX), and now Upton, have all resigned.
• Reps Dan Newhouse (R-WA), Liz Cheney (R-WI), Peter Meijer (R-MI), Tom Rice (R-NC), David Valadao (R-CA), Jaimie Beutler (R-WA) will all be subject to primary challenges from Trump endorsed candidates in November.

• Daly (2024 voter) follows from weekend comments that the case for a 50bp hike has grown by adding that she doesn’t see supply-chain issues ending until Covid improves and the labour market extremely tight, but with the main addition is that the Fed could start balance sheet reduction as early as May.
• This mirrors upcoming VC Brainard’s earlier comments on potentially starting QT in May, who added that she expects the “balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps”.
• With the move coming after Brainard, FOMC-dated Fed Funds futures sit just shy of the new high of 220bps of hikes over the remaining six meetings this year.
• This begins with 46bps priced for May and a cumulative 90bps for June, the latter implying a greater chance of 125bps than 75bps come June (21% vs 16%) with 63% chance of 100bps.

FOMC-dated Fed Funds futures cumulative hikesSource: Bloomberg

• RES 4: 1.3439 High Feb 25
• RES 3: 1.3398 61.8% retracement of the Feb 10 - Mar 15 downleg
• RES 2: 1.3285/98 50-day EMA / High Mar 23
• RES 1: 1.3225 High Mar 25 and 23
• PRICE: 1.3098 @ 17:07 BST Apr 5
• SUP 1: 1.3051/3000 Low Mar 29 / Low Mar 15 and the bear trigger
• SUP 2: 1.2954 1.764 proj of the Jan 13 - 27 - Feb 10 price swing
• SUP 3: 1.2933 Low Nov 5 2020
• SUP 4: 1.2855 Low Nov 2 2020 and a key support

GBPUSD erased early gains to head into the Tuesday close lower on the day. A bearish threat remains present following the recent reversal from 1.3298, Mar 23 high. Cable has also recently failed to remain above a number of short-term resistance points and the pullback means price continues to trade below a key resistance at 1.3285, the 50-day EMA. The focus is on 1.3000, Mar 15 low and a bear trigger. Clearance of the 50-day EMA is required to highlight a short-term reversal.