JPY: USDJPY is clearing the initial notable resistance

• The 10s/30s SONIA curve remains very flat, sitting only around 7bp or so off last month’s lows (the flattest levels since March 2025). However, this relatively modest steepening has taken the spread back much closer to model-implied fair value based on a linear regression against intermediate BoE policy paths - proxied by the 1y1y rate.
• 10s/30s SONIA has exhibited a strong inverse relationship with 1y1y this year. With the 1y1y rate having recently edged higher back above 4.90%, the structural flattening pressure remains clear. Visibility around the evolution of energy prices is limited, although we have noted that the directionality of 1y1y to rolling front Brent futures has weakened recently.

Large Estoxx Option, unconfirmed buyer:

• SX5E (18th Dec) 5600p, traded for 39.5 in 55k.

• In FX, EURUSD trend conditions remain bearish and the pair continues to trade at this year's lows.The bear channel base, drawn from the Apr 17 high, has been pierced. The base is currently at 1.1205. A clear break of this support area would strengthen the downtrend and open 1.1111, 50.0% of the Feb 3 ‘25 - Jan 27 bull leg. Initial firm resistance to watch is 1.1342, the 20-day EMA.
• The trend structure in GBPUSD is unchanged, it remains bearish. Recent fresh cycle lows reinforce current trend conditions. Scope is seen for an extension towards 1.3140, the Jun 24 low and the next key support. Resistance at the 20-day EMA is at 1.3297. Short-term gains would be considered corrective.
• A short-term bull cycle in USDJPY remains in play and the pair continues to trade closer to its recent highs. A continuation higher would pave the way for a test of an important resistance at 160.39, the Sep 2 high. On the downside, initial support to watch lies at 156.38, the Sep 30 low. A break of this level would signal a possible reversal.