EUROZONE T-BILL ISSUANCE: W/C 11 Aug

• Governor Bailey conducted an interview with The Times which was published late last night (around 22:20BST). His main points were that "gradual and careful" were still used in the guidance despite him believing more rate cuts would be required to help with communications given that inflation is above target.
• There was also more explicit language than he has used in the past about the impact of employers' NICs on the labour market - suggesting that this was opening up slack.
• We aren't sure how much to read into the quote about if slack opened up "more quickly, that would lead us to a different conclusion." This is undoubtedly a dovish statement - but it's not really clarified as to whether that means that cuts could be accelerated in his view or whether that means there could be a lower terminal rate.
• We would read it as potentially a lower terminal rate (rather than an increase in the pace of cuts) - because if Bailey is still concerned about the communication challenges of cutting with inflation above target, it's unlikely we will see inflation not notably above target until 2026 - by which point if we get quarterly cuts, Bank Rate would be much closer to neutral that it may then be seen as less desirable to accelerate the pace.

Key quotes from The Times:

• “I think the path [for interest rates] is down. I really do believe the path is downward. But we continue to use the words ‘gradual and careful’ because … some people say to me ‘why are you cutting when inflation’s above target?’”
• The Times reported that he added (but doesn't make clear if this is explicitly discussing August or not): “If we saw the slack opening up much more quickly, that would lead us to a different conclusion.”
• “I think we’re getting more consistently the story that [businesses], if you take the national insurance change, are adjusting via the labour market. I don’t think we’re getting to a tipping point in the sense that it’s ­becoming a sort of flood.”
• On QT: “Even if QT isn’t the cause of [rising yields], how that change interacts with QT. It’s not just monetary policy. We ­also have to look at market functioning. That is a relevant consideration in our decision-making,”

• RES 4: 107.475 High May 27
• RES 3: 107.430 High Jun 13
• RES 2: 107.365 High Jun 7 and key short-term resistance
• RES 1: 107.251 20-day EMA  
• PRICE: 107.185 @ 06:19 BST Jul 14
• SUP 1: 107.120 Low Jul 11   
• SUP 2: 107.112 1.236 proj of the May 23 - 29 - 30 price swing
• SUP 3: 107.000 Round number support 
• SUP 4: 106.890 2.000 proj of the May 23 - 29 - 30 price swing

Schatz futures traded lower last week and for now, maintain a softer tone. The latest move down has resulted in a breach of support at 107.195 and 107.180, the Jun 6 and 23 lows respectively. This highlights a range breakout and strengthens a short-term bearish theme. Sights are on 107.112 next, a Fibonacci projection, and the 117.000 handle. Initial resistance is 107.251, the 20-day EMA.

• RES 4: 1.3835 High Oct 20 2021
• RES 3: 1.3800 Round number resistance
• RES 2: 1.3681/3789 High Jul 04 / 01 and the bull trigger
• RES 1: 1.3588 20-day EMA
• PRICE: 1.3474 @ 06:32 BST Jul 14
• SUP 1: 1.3470 Intraday low 
• SUP 2: 1.3419 Trendline support drawn from the Jan 13 low
• SUP 3: 1.3371 Low Jun 23
• SUP 4: 1.3335 Low May 20 

A softer short-term tone in GBPUSD remains in place and the pair is trading lower once again, today. Price has pierced a key support around the 50-day EMA, at 1.3481. A clear break of this level would undermine a bull theme and signal scope for a deeper retracement. Note that a trendline support - drawn from the Jan 13 low - lies at 1.3419. A break of this support would strengthen a bearish threat. Initial firm resistance to watch is 1.3681, the Jul 4 high.