STIR: Long Cover Seen In Most SOFR Futures On Thursday

• Significant pressure on UK Gilts is filtering through to a weaker currency, with the firm dollar bid prompting GBPUSD (-1.1%) to slide the best part of 120pips in short order. Momentum picked up through the early session lows of 1.2440, with spot printing lows of 1.2335 so far.
• The trend condition in GBPUSD remains bearish and the sharp sell-off on Jan 2 confirmed a resumption of the medium-term downtrend. The bear trigger of 1.2353 (Jan 2 low) has been breached and below here, the focus will be on the 2024 lows at 1.2300 and 1.2266, the Nov 14 2023 low.
• The US dollar is firmly bid, with topside momentum gaining amid reports that Trump is considering a national economic emergency declaration to allow for new tariff program. As such, EURUSD (-0.61%) has been eroding the rally from earlier in the week, and is now ~160 pips off the week’s highs and notably back below the prior breakdown point of 1.0335. The bear trigger has been defined at 1.0226, the Jan 2 low. 
• The broad dollar bid has helped AUDUSD (-0.64%) back below 0.6200 to near 2-year lows. Recent weakness maintains the price sequence of lower lows and lower highs, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection.
• The bullish trend for USDCHF since the US election remains firmly intact, and yesterday’s Swiss CPI data has assisted the pair back above the 0.91 handle during this morning’s session. Cycle highs reside at 0.9137, and above here, the medium-term targets at 0.9158 and 0.9224 appear well defined. Prior pullbacks have been well supported by the 20-day exponential moving average, which now intersects at 0.9015.
• US ADP employment and jobless claims headline the Wednesday data calendar before the FOMC minutes. FOMC Member Waller is on the speaker schedule, while ECB’s Villeroy speaks in Paris.

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On 7 Jan, a meeting of deputies from the centre-left Socialist Party (PS) agreed to engage with the minority gov't of PM Francois Bayrou to try to reach agreement on a state budget for 2025.  With under a week to go until Bayrou's general policy speech to the National Assembly on Tuesday 14 Jan, swift progress will be needed in order for an agreement to be reached. It is expected that a budget will be put forward a short time after the policy speech. 

• Should the PS support the budget it would not guarantee its passage (if all other opposition parties voted against it would still fail), but would markedly improve its prospects. As Le Monde notes, "The government would like to reach an agreement with the moderate left on a sufficiently consensual budget project so that it does not vote for censure in the probable event that the Prime Minister uses Article 49.3..."
• PS deputy for Indre-et-Loire, Laurent Baumel, told FranceInfo after a meeting between PS representatives and Economy Minister Éric Lombard that “If the Bayrou government does not want to be censored, it will have to make real concessions,”. These concessions will focus on reducing spending cuts and pushing for more significant tax hikes on large businesses and high earners.
• BFM reports that the final details of Bayrou's policy speech may not be confirmed until 14 Jan, just hours before he addresses parliament, reflecting the difficulty the PM faces in gaining support (or at least avoiding censure) from various parties across the Assembly.