AUDUSD TECHS: Trend Needle Points North

Wells Fargo has specified its Fed rate cut expectations, after it noted following the January employment report that there were risks to its baseline view for March and June cuts. While still looking for two 25bp cuts this year, those have been pushed back until June and September.

• Wells Fargo: "In our view, the recent stabilization in labor market conditions significantly lowers the likelihood of a March rate cut. Downside risks stemming from the labor market have diminished but not completely disappeared. This leaves additional cuts later this year still on the table, especially given the more benign inflation outlook." (They forecast core PCE to fall from "just under" 3% Y/Y in Q1 to 2.6% Y/Y in Q4 2026 and 2.3% by Q4 2027).
• They also acknowledge that "Given our generally constructive forecasts for the labor market and inflation, we acknowledge the balance of risks remain tilted toward fewer rate reductions this year."
• We count 12 analysts who postponed their rate cut views from March after seeing the January payrolls data out last week.
• At this point there are only a couple of analysts that we are aware of who explicitly looking for cuts before the June meeting: Citi and Jefferies who see the next reduction in April. (A few others had previously seen a March cut but we haven't seen any updates in the last week.)

• Treasuries dipped - extended lows slightly after the January FOMC minutes release showed most voting members cautioned "disinflation could be slower than expected", while keeping open the possibility that the next Fed rate move could be a hike.
• Currently, TYH6 trades -6 at 112-30 vs. 112-28 low, Initial firm support to watch is 112-09+, the 50-day EMA.
• Mar'26/Jun'26 quarterly Tsy futures roll has accelerated ahead of the Feb 27 first notice date, 5Y leading the move with over 760,000 spreads in late trade.
• Prior to the minutes release, $16B 20Y Bond auction tailed - contributing to weaker Tsys in second half trade: the sale drew a high yield of 4.664% vs 4.644% WI at the cutoff; 2.36x bid-to-cover (lowest since Nov 2024)vs. 2.86x prior. Peripheral stats: indirect take-up falls to 55.17% (lowest since Feb 2021) vs. 64.71% prior.
• Look ahead: Australian employment data highlights Thursday’s calendar, before US jobless claims and Philly fed data. Focus will swiftly turn to Friday’s docket, where European PMIs and US GDP & PCE headline.
• Earning expected after the close: Coeur Mining, CF Industries, Texas Pacific Land, Edison Int, DoorDash, Occidental Petroleum, Carvana, eBay and Blue Owl Capital.

Decent two-way SOFR/Treasury option volumes Wednesday, less one-way compared to yesterday's heavy call buying all openers: +140k SFRZ6 98.00 calls, +45k SFRU 98.00 calls, and appr 140k midcurve calls, call spds targeting Jun'27, Sep'27 and Dec'27. Underlying futures weaker, low end narrow range, current projected rate cut pricing consolidating vs. late Tuesday (*): Mar'26 at -1.5bp (-2.1bp), Apr'26 at -5.6bp (-6.6bp), Jun'26 at -19bp (-19.4bp), Jul'26 at -28.6bp (-29.1bp).

• SOFR Options:
  • -5,000 0QZ6 98.00/98.50 call spds 3.0
  • +6,000 0QM6 96.37 puts, 2.0 vs. 96.91/0.10%
  • +5,000 SFRZ6 98.00 calls, 6.5 vs. 96.895/0.14%
  • +4,000 SFRZ6 97.25/98.00 1x2 call spds, 1.5 ref 96.90
  • +5,000 SFRK6 96.75/96.81 call spds, 0.75 ref 96.55
  • -5,000 0QH6 97.00 calls, 6.0
  • -18,000 SFRZ6 96.50/96.75 put spds, 10 ref 96.90
  • -2,000 SFRZ6 96.87 calls, 25.5 ref 96.91/0.52%
  • +12,000 SFRM6 96.56 puts, 11.25 ref 96.55
  • +15,000 SFRZ6 98.00 calls, 6.75 vs. 96.905/0.14%
  • -20,000 SFRM6 97.25 calls 2.0 vs. 96.54 to -.55/0.10%
  • +4,000 0QM6 96.43 puts, 2.0
  • -25,000 SFRZ6 97.25/97.75/98.00 broken call trees, 0.75-0.5
  • over 5,600 0QH6 96.75 puts, ref 96.95
  • 5,000 SFRH6 96.31 puts
  • 4,500 SFRH6 96.43 calls ref 96.355
  • 1,000 SFRJ6 96.43/96.50/96.56 put flys ref 96.545
  • 1,000 0QJ6 96.56/96.68/96.81 2x3x1 put flys ref 96.955
• Treasury Options:
  • -5,000 TYM6 113 straddles, 203 vsd. 112-31.5/0.04%
  • over 26,000 TYJ6 113.5 calls
  • +30,000 TYH6 113.5 calls, 3 ref 112-30.5 (total volume over 60k)
  • 5,000 TYJ6 115 calls, 9 ref 112-29
  • 13,000 TYK6 110.5/TYM6 110 put calendar spds ref 112-30
  • 1,500 USK6 102 puts, 1 ref 117-11
  • over 11,300 TYH6 113 calls, 10-12 ref 112-31.5 to 113-01.5
  • over 6,700 today's 10Y 113 puts, 5 ref 113-00.5
  • over 7,500 today's 10Y 112.75 puts, 1 ref 113-01
  • 3,800 TYH6 113.5 calls, 5 ref 113-03 to -03.5
  • 2,000 FVH6 110.75 calls, .5 ref 109-19.75