US TSYS/OVERNIGHT REPO: Secured Funding Rates Pull Back, FOMC Awaited
Secured rates came off monthly highs Tuesday as expected, with SOFR pulling back 3bp to 4.62% and BGCR and TGCR dipping 2bp as well. Large net bill redemptions ($26B) Tuesday helped rates come off higher levels earlier in the week that had been spurred by tax payments and Treasury settlements.
- There was no change in effective Fed funds, as usual. The expected 25bp cut to the Fed funds rate Wednesday will only be implemented on Thursday. There's also expected to be a 5bp downward adjustment to ON RRP (to 4.25%), which is likely to pull down SOFR but have a much more modest impact on EFFR.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.62%, -0.03%, $2341B
* Broad General Collateral Rate (BGCR): 4.59%, -0.02%, $856B
* Tri-Party General Collateral Rate (TGCR): 4.59%, -0.02%, $830B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.58%, no change, volume: $103B
* Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $225B
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FOREX: Softer Greenback Sees EURUSD Edge Back Towards 1.06
- Following the greenback rally pausing for breath on Friday, the USD index also trades softer to start the week, currently down around 0.35% as we approach the APAC crossover. The price action has been assisted by a more stable backdrop for global equity indices, as well as the US 10-year yield once again firmly rejecting the 4.50 level and now residing lower on the day.
- The EUR trades more optimistically, rising to levels around 1.0600 against the dollar, the notable breakdown point during last week’s trade. The 0.5% move higher for EURUSD does little to alter the overall bearish backdrop, and might be allowing an oversold condition to unwind. On the downside, focus remains on a move to 1.0448, the Sep 3 2023 low and a key support, whereas initial firm resistance to watch is 1.0742, the 20-day EMA.
- The JPY is among the weakest in G10, briefly helping USDJPY gravitate back above the 155.00 handle, with the currency receiving little support from an appearance from BoJ's Ueda, who declined to provide a clear indication or time-linked path for the next BoJ rate hike.
- USDCAD has continued its pullback today with a now sizeable drop settling around the 1.4030 level (-0.43%). CAD gains closely follow other growth sensitive peers in the AUD and NOK, along with EUR, potentially offering a slightly less stretched level heading into tomorrow’s Canada inflation report. Support isn’t seen until 1.3959 (Nov 1 and 6 highs)
- Market focus remains on Trump's cabinet picks, with the Treasury Secretary position still up for grabs. Latest reports suggest that Trump's shortlist is growing, and he is to hold interviews this week with the leading candidates, including (but not limited to) Scott Bessent, Howard Lutnick, Kevin Warsh and Marc Rowan. Their perceived support for Trump's tariff regime will prove key to any market reaction on the formal appointment.
- RBA minutes headline the docket overnight before the final readings of Eurozone CPI on Tuesday. Attention will then turn to Canada CPI and US building permits data.
EURUSD TECHS: Bears Remain In The Driver’s Seat
- RES 4: 1.0997 High Oct 8
- RES 3: 1.0937 High Nov 5 and key short-term resistance
- RES 2: 1.0742 20-day EMA
- RES 1: 1.0601/0683 Low Apr 16 / Low Nov 6
- PRICE: 1.0570 @ 16:37 GMT Nov 18
- SUP 1: 1.0484 1.00 proj of the Sep 25 - Oct 23 - Nov 5 price swing
- SUP 2: 1.0448 Low Sep 3 2023 and a key support
- SUP 3: 1.0377 1.236 proj of the Sep 25 - Oct 23 - Nov 5 price swing
- SUP 4: 1.0311 1.382 proj of the Sep 25 - Oct 23 - Nov 5 price swing
EURUSD remains in a clear downtrend and the pair is trading just above its recent lows. Note that the trend is oversold, however, a clear reversal signal is required to highlight a short-term base. Recent weakness confirmed an extension of the impulsive bear leg, and moving average studies remain in a bear-mode position. Sights are on 1.0484 next, a Fibonacci projection. Initial firm resistance to watch is 1.0742, the 20-day EMA.
OPTIONS: Decidedly Mixed Rates Trade As Cut Pricing Pares Back
Monday's Europe rates/bond options flow included:
- RXF5 135/136cs, bought for 19 in 2k (ref 131.76).
- ERZ4 97.37/97.50/97.62c fly, bought for 1 in 3k
- ERG5 97.62/97.50ps 1x2, bought for flat in 15k.
- ERJ5 98.12/98.37cs vs 97.62p, bought the cs for 2.25 in 16k.
- ERM5 97.875/98.125^^ vs 2x ERM5 97.375/98.625^^, sold the body at 16.5 in 8k.
- SFIG5 95.45/95.35/95.25/95.15p condor, bought for 2 in 5k.
- SFIH5 95.75/96.00cs 1x2, bought for 1.75 in 8k.
