USD: Net Non-Commercial Shorts Form For First Time Since October

• RES 4: 164.08 High Jan 24  
• RES 3: 162.71 76.4% retracement of the Dec 30 - Feb 10 bear leg     
• RES 2: 162.49 High Jan 29
• RES 1: 160.88/161.19 50-day EMA / High Feb 13
• PRICE: 157.86 @ 16:14 GMT Feb 19
• SUP 1: 157.76/155.61 Low Feb 19 / 10 and the bear trigger 
• SUP 2: 155.15 Low Sep 16 ‘24
• SUP 3: 154.42 Low Aug 5 ‘24 and key medium-term support
• SUP 4: 153.87 Low Dec 14 ‘23

EURJPY has pulled back from its recent high. For now, resistance at 160.88, the 50-day EMA, remains intact. It has been pierced, however, a clear break is required to strengthen a bullish condition and signal scope for an extension towards 162.71, a Fibonacci retracement. For bears, a stronger reversal would refocus attention on 155.61, the Feb 10 low and a bear trigger. Clearance of this level would resume the downtrend.  

The first thing that stands out in the January FOMC minutes was the surprising amount of balance sheet discussion, considering there was little said at the meeting press conference or indeed since then by participants. This appears to have been a modest surprise to markets as well: 10Y Swap spreads widened by about 2bp after the minutes release.

• Overall on QT, there doesn't appear to be much of a rush to shift gears. The SOMA manager "noted that a range of indicators continued to suggest that reserves had remained abundant over the intermeeting period. However, the manager cautioned that the debt limit situation may cloud the signals provided by the indicators. In addition, reserves might decline quickly upon resolution of the debt limit and, at the current pace of balance sheet runoff, might potentially reach levels below those viewed by the Committee as appropriate."
• One of the theories behind an early-2025 end to QT was that the Fed would lose visibility on reserve scarcity when Treasury was impacted by the debt limit, and the uncertainty would lead to an end to runoff, but that hasn't happened and doesn't seem to be the prevailing sentiment by FOMC members.
• The Committee was briefed on post-QT reinvestment options, which unsurprisingly involved reinvesting MBS proceeds back into Treasuries, though there seems to be some optionality in the approach to adjusting the maturity composition of the Treasury portfolio: "The scenarios presented corresponded to different trajectories of the holdings of Treasury securities in the SOMA. Under all scenarios considered, the maturity composition of Treasury holdings in the SOMA portfolio moved into closer alignment with the maturity composition of the outstanding stock of Treasury securities. The scenarios differed on how quickly this alignment would be achieved and, correspondingly, on the assumed increase over coming years in the share of Treasury bills held in the SOMA portfolio."
• In the end, no decisions were made, and it sounds like those who were concerned about the impact of the debt limit on reserves were in the minority. For now while it is notable that details of post-QT operations have been discussed, we would think that this is still a decision for mid-year at the earliest (consensus is shifting toward Q3 as opposed to Q2 at the outset of the year). That's particularly since Fed leadership including Powell and NY Fed's Williams seem to regard reserves as remaining abundant.
• Per the minutes: "Regarding the potential for significant swings in reserves over coming months related to debt ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet runoff until the resolution of this event. Several participants also expressed support for the Desk's future consideration of possible ways to improve the efficacy of the SRF."

• RES 4: 158.87 High Jan 10 and a bull trigger   
• RES 3: 156.75 High Jan 23 
• RES 2: 155.89 High Feb 3 
• RES 1: 154.24/80 50-day EMA and a pivot resistance / High Feb 12       
• PRICE: 151.51 @ 16:11 GMT Feb 19
• SUP 1: 150.93 Low Feb 07 and a bear trigger 
• SUP 2: 149.69 Low Dec 9 
• SUP 3: 148.65 Low Dec 3 ‘24 and a key support 
• SUP 4: 148.01 Low Oct 9 ‘24     

USDJPY continues to trade below the Feb 12 high. Recent weakness  highlights that - for now - a key resistance around the 50-day EMA, at 154.24, remains intact. A clear break of the EMA is required to confirm a stronger bullish reversal. This would open 155.89, the Feb 3 high. Key support and the bear trigger is unchanged at 150.93, the Feb 7 low. Clearance of this level would resume the bear cycle that started on Jan 10.