EQUITIES: EU Bank Put Fly

• Fed Funds implied rates are sharply lower from Friday’s close on broad risk-off on the back of the tech-led equity sell-off.
• This week’s decision is still seen as a lock-in for a pause, but a 25bp cut in March is starting to be seen as closer to 50/50 call with 10bp priced. June is still the next meeting with a 25bp cut fully priced though.
• Fed Funds last priced >50bp of cuts for 2025 briefly before the hawkish Dec 18 FOMC decision and before that Dec 13. It leaves the end-2025 point back in line with the median FOMC dot from that decision, having climbed from the 32bp priced before CPI less than two weeks ago.
• Cumulative cuts from 4.33% effective: 0.5bp Jan, 10bp Mar, 18.5bp May, 31bp Jun, 35.5bp Jul and 51bp Dec. 

• In FX, EURUSD remains in a short-term bull cycle - a correction. Last week’s gains resulted in a breach of the 50-day EMA, at 1.0457. The break higher strengthens short-term bullish conditions and sights are on 1.0574, 38.2% of the Sep 25 - Jan 13 bear leg. Initial support to watch is 1.0377, the 20-day EMA. A move through the EMA would signal a possible reversal.
• Friday’s gains in GBPUSD reinforces current bullish conditions. The pair has traded cleanly through the 20-day EMA, marking an extension of the reversal that started Jan 13. The break higher exposes the 50-day EMA, at 1.2520 and an important resistance. Clearance of the average would highlight a stronger bull cycle. First support lies at 1.2294, the Jan 23 low.
• The primary trend condition in USDJPY remains bullish, however, today’s move down suggests scope for a stronger short-term bearish cycle. The pair has cleared two important support points; 155.15, the 50-day EMA (pierced), and 154.97, a trendline drawn from the Sep 16 ‘24 high. This paves the way for an extension towards 152.55, 61.8% retracement of the Dec 3 - Jan 10 bull leg. Initial firm resistance has been defined at 156.75, the Jan 23 high.

Reuters reporting comments from EU diplomats saying that the Foreign Affairs Council has agreed to another six-month rollover of sanctions on Russia. There had been some speculation that permission could be withheld from Hungary, and given the requirement for unanimity in sanctions the prospect of the deal being scuppered. 

• Hungarian Foreign Minister Peter Szijjarto says that he has received guarantees from the European Commission regarding the protection of Hungary's energy supply that were said to be crucial to gaining Budapest's backing. BBG: "The statement will reaffirm commitments to help Ukraine repair and stabilize its infrastructure as well as address the supply of gas and oil.[...] The EU is already working in parallel on its next set of sanctions but officials are bracing for more resistance from Budapest. The bloc hopes to approve the measures next month."