STIR: BLOCK: May'25 SOFR Call Flys

• RES 4: 1.2811 High Dec 6 
• RES 3: 1.2767 50.0% retracement of the Sep 26 ‘24 - Jan 13 bear leg 
• RES 2: 1.2667 High Dec 19
• RES 1: 1.2630 High Feb 14
• PRICE: 1.2600 @ 15:42 GMT Feb 17
• SUP 1: 1.2449 20-day EMA     
• SUP 2: 1.2333/2249 Low Feb 11 / 3 and a key short-term support
• SUP 3: 1.2161 Low Jan 17 / 20
• SUP 4: 1.2100 Low Jan 10 and the bear trigger   

A bull cycle in GBPUSD remains in play and last week’s climb strengthens the short-term bullish condition. Recent gains have resulted in a move above both the 20- and 50-day EMAs, and a breach of resistance at 1.2550, the Feb 5 high. Furthermore, 1.2610, 38.2% of the Sep 26 ‘24 - Jan 13 bear leg, has been pierced. A continuation higher would open 1.2767, the 50.0% retracement. Initial firm support to watch lies at 1.2333, the Feb 11 low.

• The USD index has spent Monday consolidating its most recent decline near two-month lows. The Japanese yen continues to be the best performing G10 currency on Monday, slowly grinding higher in a subdued session owing to the US President’s Day holiday. As such, USDJPY has declined 0.60%, and sits 100 pips off the overnight highs at 151.40. Price action has steadily narrowed the gap to key support and the bear trigger, which remains unchanged at 150.93, the Feb 7 low. Clearance of this level would resume the bear cycle that started on Jan 10.
• In similar vein, EURJPY’s technical resistance at the 50-day EMA has remained intact, and losses in 2025 now total 2.5% in 2025. Renewed weakness would refocus attention on 155.61, the Feb 10 low and bear trigger. Below here, the August and September lows from last year also mark important medium-term parameters, at 154.41 and 155.15 respectively.
• A bull cycle remains in play for GBPUSD, and spot looks set to close at its highest level for two months, above the 1.2600 handle. Recent gains have resulted in a move above both the 20- and 50-day EMAs, and a continuation higher would open 1.2767, the 50.0% of the Sep 26 ‘24 - Jan 13 bear leg retracement.
• Last week, we noted AUDUSD’s first close back above the 50-day EMA since October last year. Since then, the pair has extended higher, eroding the FOMC-induced decline on Dec 18, and now reaching a fresh 2-month high at 0.6374. Above here, 0.6384 (Dec 13 high) and 0.6429 (Dec 12 high) remain the most notable short-term targets for the move. A stronger rally would open 0.6471, the Dec 9 high.
• Developments are significant given the RBA is expected to cautiously ease policy overnight and lower the cash rate by 25bps to 4.10%. Elsewhere, UK labour market and German ZEW data re due, before Canada CPI highlights the North American docket.

• EGBs closed lower across the curve, led by a sizeable sell-off in Bunds at the open on the back of higher defense spending expectations in the event of a US-brokered peace deal between Russia and Ukraine.
• Those moves mainly held for German paper, keeping to a narrow range as 10Y yields didn't want to retreat too far after an unsuccessful attempt to push above 2.50%.
• Other major EGBs saw a greater paring of those early losses however, with spreads more than reversing Friday’s widening with support from the EuroStoxx 50 climbing 0.5%.
• BTP-Bund spreads saw the most notable tightening, to 105.8bps (-3.2bp) and close to Thursday’s 105.5bp that marked fresh recent lows.
• Germany 2Y +2.3bps & 10Y +5.7bps, France 2Y +1.2bps & 10Y +3.8bps and Italy 2Y -0.4bps & 10Y +2.6bps.
• Swap spreads: Long-end German ASWs meanwhile have more than reversed Friday’s widening, with the Bund ASW vs. 3-month Euribor 4bp tighter and the Buxl ASW 4.5bp tighter.
• The prospect of debt brake reform following the election result (the probability of which depends on the eventual composition of the Bundestag) presents a key near-term risk to ASWs, even if the implementation of any reforms would likely take some time.
• We pencil in a 30-year Bund syndication for this week but our conviction is increasingly waning ahead of the election.
• ECB speak has seen pre-eminent hawk Holzmann viewing “some” probability of a March rate cut, sufficiently loose compared to the 98% of a 25bp cut priced to have seen Germany 2Y yields rise 1bp post-comments.   
• Bundesbank’s Nagel meanwhile noted a tariff scenario where the level of German GDP would be circa 1.5pps lower by 2027.
• ECB Executive Board Member Cipollone will peak on the ECB's balance sheet at an MNI Event tomorrow at 1400GMT/1500CET (sign up here).