GILTS: /STIR/SWAPS: BMO Point To Baseline Of 1 More BoE Cut In Near-Term
BMO note that this week’s “inflation prints, plus the outcome of the May MPC meeting and Monetary Policy Report, which were more hawkish than expected, demand a reconsideration of the expected path of the Bank Rate”.
- They argue that “the market’s central case should now be for only one 25bp cut between now and the Feb 2026 MPC meeting. Crucially, at a constant 4.25% Bank Rate, the BoE’s modal projections are for no recession, and inflation within +-50bp of target from January next year - an excellent outcome vs. recent years”.
- BMO caution that “downside risks to this central case certainly do exist, we know, principally from global event risks”, but they also highlight that “upside risks exist too, primarily from domestic inflation pressures”.
- In terms of related trade recommendations, they outline the following:
- Pay 2-Year swap at 3.90% targeting 4.00% (and paying 1y1y at 3.75% targeting 4.00%), to price in a 50:50 probability that Bank Rate won’t fall below 4.00% this cycle.
- Pay 10-Year swap or sell 10-Year gilt at 4.75% targeting 4.90% (January’s high)
- Buy 10-Year gilts on ASW, which stand to benefit from the potential for lower projected government spending and lower active QT.
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Historical bullets
USDCAD TECHS: Southbound
- RES 4: 1.4415 High Apr 1
- RES 3: 1.4296 High Apr 7
- RES 2: 1.4165 50-day EMA
- RES 1: 1.3906/4029 High Apr 17 / 20-day EMA
- PRICE: 1.3814 @ 08:01 BST Apr 23
- SUP 1: 1.3781 Low Apr 21
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
A bearish theme in USDCAD remains intact for now and the pair is trading at its recent lows. Fresh cycle lows continue to highlight a resumption of the downtrend and signal scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear -mode position, highlighting a dominant downtrend. First resistance to watch is 1.4029, the 20-day EMA.
AUDUSD TECHS: Maintains A Bullish Tone
- RES 4: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6528 High Nov 29 ‘24
- RES 2: 0.6471 High Dec 9 ‘24
- RES 1: 0.6439 High Apr 22
- PRICE: 0.6418 @ 07:58 BST Apr 23
- SUP 1: 0.6349/6299 Low Apr 21 / 20-day EMA
- SUP 2: 0.6181 Low Apr 11
- SUP 3: 0.6116 Low Apr 10
- SUP 4: 0.5915 Low Apr 9 and key support
AUDUSD is holding on to its recent gains and a bullish theme remains intact. The pair has breached a key resistance at 0.6409, the Dec 9 ‘24 high. This reinforces bullish conditions and signals scope for a continuation higher near-term. Sights are on 0.6471 next, the Dec 9 2024 high. Initial key support to monitor is 0.6299, the 20-day EMA. A clear break of this EMA would be a concern for bulls.
GILTS: Opening calls
Gilt Opening calls, these DO NOT take the remit into account.
- Range 92.04/92.50, would give a ~92.27 mid
