FED: Reserves Dipped This Week But Overall Remain "Abundant" (2/2)

Treasury futures weakened Tuesday, completing the reversal from last Friday's highs. 

• Since the Globex re-open Monday evening, Treasuries have been under mild but steady pressure: Mar 10-Yr futures (TY) are last down 17/32 at 108-25 (L: 108-25 / H: 109-11) - above immediate support at 108-04/00 (the post-CPI low on Feb 12 / Low Jan 16).  
• That leaves front TYs 22 ticks below Friday's high and back at levels seen just after last Thursday's seemingly benign PPI report.
• Seemingly the dovish implications of Friday's weak retail sales report are being faded, with Fed Gov Waller late Monday expressing less optimism than usual over the prospect of near-term rate cuts. That helped pare end-2025 implied Fed rate cuts by 3bp, last 3.96% (or, one-and-a-half 25bp cuts).
• Data was mixed, with Empire State manufacturing beating and NAHB sentiment missing - but both reports suggested private sector concern over the growth and inflationary impact of tariffs, with New York State manufacturers expecting increasing price pressures over the next half-year.
• Cash Treasuries bear steepened in the return to trade after Monday's Sifma-recommended holiday: the 2-Yr yield is up 4bps at 4.2992%, 5-Yr is up 7.1bps at 4.3986%, 10-Yr is up 7.6bps at 4.5523%, and 30-Yr is up 7.5bps at 4.7717%.
• Treasury supply resumes Wednesday with $16B 20Y Bond auction, while we also get January housing starts/permits data and the January FOMC meeting minutes (followed by an appearance by Fed VC Jefferson).

• RES 4: 0.6471 High Dec 9 ‘24 
• RES 3: 0.6429 High Dec 12 ‘24               
• RES 2: 0.6414 38.2% retracement of the Sep 30 ‘24 - Feb 3 bear leg 
• RES 1: 0.6384 High Dec 13 
• PRICE: 0.6352 @ 16:17 GMT Feb 18 
• SUP 1: 0.6305/6231 50-day EMA / Low Feb 10 
• SUP 3: 0.6171/6088 Low Feb 4 / 3
• SUP 3: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
• SUP 4: 0.6000 Round number support

AUDUSD is trading at its recent highs and a bull theme remains intact. The pair has cleared 0.6331, the Jan 24 high and a key short-term resistance. The breach highlights a stronger reversal and paves the way for gains towards 0.6414, a Fibonacci retracement. Note that moving average studies remain in a bear-mode position. This suggests the latest recovery is a correction. Initial firm support to watch is 0.6231, the Feb 10 low.

The implied Fed rate path shows a little less easing Tuesday, with end-2025 futures pricing a 3.96% funds rate, up 3bp vs Monday.

• That's still below the 4.05% closing peak after last Wednesday's CPI data, but less-dovish-leaning comments by Gov Waller overnight (eyeing rate cuts "at some point this year" vs his musing last month of cuts earlier than markets expected) set the tone. SF's Daly, usually dovish leaning, noted Tuesday that "policy needs to remain restrictive until, from my vantage point, until I see that we are really continuing to make progress on inflation.”
• The first full cut is still only priced for September (around 27bp), with another :"half-cut" implied by year-end.
• Wednesday's schedule includes the January FOMC minutes (MNI's preview will be out later today).