EURGBP TECHS: Short-Term Reversal

A new survey from Gallup has found that, “solid majorities of Republicans [voters] believe all five economic factors will improve over the next six months.”

• Gallup: “This includes three-quarters who say the stock market and economic growth will increase over the next six months and six in 10 who say inflation and interest rates will go down. Nearly as many, 57%, expect unemployment to go down, while 20% believe it will go up.”
• Republican optimism suggests there could be a snapback in approval for President Trump if his actions fail to bolster the economy and deliver on promises to lower interest rates and tackle inflation. 

Figure 1: Expectations for Key Economic Factors, by Political Party “Over the next six months, do you think that each of the following will go up a lot, go up a little, remain the same, go down a little (or) go down a lot?”

Source: Gallup

Latest round of bullish trades fading weakness in short end underlying, flatter curves and weaker projected rate cut pricing through mid-2025, latest vs. this morning's (*) levels as follows: Mar'25 at -3.5bp (-3.7bp), May'25 at -9.8bp (-10.3bp), Jun'25 at -19.2bp (-19.7), Jul'25 at -24.4bp (-24.9bp).

• +20,000 SFRJ5 96.12/96.37 call spds, 1.75 ref 95.87
• -6,000 SFRU5 95.43 puts, 3.0 vs 96.02/0.10%

• FX markets have been extremely volatile Monday, with the initial likely implementation of tariffs prompting a broad strengthening of the greenback, and particular pressure on the Mexican peso and the Canadian dollar. However, positive discussions between US and Mexican officials, and an associated tariff pause on Mexico, have seen currency markets reverse significantly.
• The Mexican peso came surging back as President Sheinbaum appears to have made good on her promises that Mexico had a plan in the event of tariff implementation. While only pushed back by a month, the multiple accords have provided a much more optimistic backdrop and should foster hopes of a broader trade agreement.
• USDMXN traded as low as 20.4164 after rising to 21.2932 overnight. Short-term positioning likely leaves the downside vulnerable at this juncture, and the 50-day EMA is the closest point of reference for some added momentum south. This average intersects today at 20.4111, closely matching session lows. Below here, key support has been defined at 20.1343, the Jan 24 low.
• Despite the headlines being Mexico centric, similar price action saw USDCAD almost reverse the entire gap to last Friday’s close, hitting a pullback low of 1.4546 from session highs of 1.4793.
• Overall, the USD index does remain over half a percent in the green, largely reflective of the general weakness for major equity indices, highlighted by 0.75% declines for the likes of AUD, NZD and EUR. EURUSD specifically was unable to bridge its opening gap, rising only to a recovery high of 1.0335 before fading back below 1.03. The earlier extension to fresh cycle lows today highlights a resumption of the technical downtrend. Attention is on 1.0138, the 1.764 projection of the Sep 25 - Oct 23 - Nov 5 price swing.
• US JOLTS data highlights the Tuesday docket, before the more meaningful calendar points of US refunding, the BOE decision and Friday’s NFP.