US TSY OPTIONS: Late 10Y Wing Trade

• RES 4: 1.2667 High Dec 19
• RES 3: 1.2610 38.2% retracement of the Sep 26 ‘24 - Jan 13 bear leg   
• RES 2: 1.2576 High Jan 7 
• RES 1: 1.2550 High Feb 5
• PRICE: 1.2430 @ 16:04 GMT Feb 12
• SUP 1: 1.2333/2249 Low Feb 11 / 3   
• SUP 2: 1.2161 Low Jan 17 / 20
• SUP 3: 1.2100 Low Jan 10 and the bear trigger 
• SUP 4: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing    

GBPUSD found support Tuesday but for now, the pair continues to trade below its Feb 5 high. Price recently traded above the 20- and 50-day EMAs, and pierced 1.2523, the Jan 27 high. A resumption of gains would signal scope for a move towards 1.2610, a Fibonacci retracement. Key short-term support to watch has been defined at 1.2249, the Feb 3 low. Clearance of this level would instead highlight a reversal and strengthen a bearish threat.

• Focus within the print lies on domestic and services inflation, with the latter's momentum (3m/3m Saar) measure having decelerated significantly during 2024 (to 0.89% from 2.38% Dec'23). A continuation of that trend should also see the Y/Y rate, currently at 1.60%, further decelerate.
• Electricity prices will see around a 10% M/M decrease in January according to national electricity commission Elcom, which would have around a 0.2pp negative contribution to headline CPI -  and thus fully accounts for its expected deceleration in January.
• However, there are only five analysts in the Bloomberg survey forecasting core CPI. And the median (and mean) of their headline CPI forecasts is 0.3%Y/Y (a tenth below the wider consensus). So it seems as though these analysts take into account the change in electricity prices with a further negative contribution from core items.
• Additionally, the January release should also bring a basket reweighting - which we do not expect to bring a material impact on the overall inflation rates, though.
• Looking further ahead, a UBS survey sees nominal wage growth at 1.4% in 2025 - similar to a KOF study looking at 1.6% (compared to around 1% average during the 2010's according to UBS), so some pressure remains here.

Swiss January CPI (released 07:30 GMT / 08:30 CET Thursday) is expected by consensus to decelerate 0.2pp to 0.4% Y/Y. On a sequential basis, consensus is for -0.1% M/M (-0.1% Dec) while core inflation is expected at 0.6% (0.7% Dec).

• The December SNB conditional inflation forecast for Q1-25 is 0.3%. A print in line with consensus at 0.4%Y/Y would therefore be above that and need inflation to come in lower in Feb/Mar in order to not exceed the Q1 forecast. However, it is worth noting that the SNB does expect further deceleration ahead: for Q2 it forecasts CPI at 0.2%.
• So if we get a 0.4%Y/Y print in January, it is not necessarily inconsistent with the SNB's quarterly path.
• We note that consensus is also skewed to the downside, with the average Y/Y headline estimate standing at just 0.36%.