JPM G10 FX Daily

EUR: Deal Hopes Still Cap the USD Chase

Close, but no cigar.

Markets have largely assumed an Iranian deal is forthcoming, so they are not fully prepared for further skirmishes — even if those are framed as “defensive.” There may be other factors keeping the dollar supported, but FX still feels like it needs to see the whites of the eyes of a deal before fully participating in the relief trade.

This may all be part of the negotiation process. We may still get there. That makes it hard to chase overnight risk-off moves, especially into month-end.

Maybe there is a tipping point where markets are finally roiled by the continued stasis, but in my view we are not there yet.

Risk-wise, I used the dollar buying to reduce some sterling shorts. UK data was weak last week but largely ignored, so this dip felt a little lucky. I will look to re-engage closer to the Burnham by-election.

I am keeping USD/CHF longs.

I also sold some USD/ZAR, though admittedly a bit prematurely, and have been too greedy on levels to buy the AUD dip so far. Still, all reasonably social as we wait for more clarity.

Corporate dollar demand kept EUR under pressure yesterday before the overnight geopolitical shuffle lower. But I would be wary of chasing EUR lower here, given the prevailing view that a deal gets cobbled together at some stage, with month-end also looming.

The more interesting question is what happens if the red headline finally comes.

EUR could bounce more than people expect. The narrative on Europe is negative, so there should be appetite to sell rallies. But the market is already short EUR on the crosses, and that matters.

Resistance at 1.1680/1.1710 feels too close not to be breached on genuinely good news. The better re-sell zone is probably 1.1750/1.1800, which would set up nicely into June payrolls and Warsh’s first Fed meeting.

Trade bias: Neutral-to-bearish EUR, but do not chase lows.
Near resistance: 1.1680/1.1710.
Ideal sell zone: 1.1750/1.1800.
Catalysts: Iran deal headline, month-end, June payrolls, Warsh Fed meeting.
Risk: Deal squeeze extends further than expected due to short EUR positioning.

GBP: Weak Data vs Burnham Centrist Repricing

The Iran stalemate continues, with more washing-machine price action — frustrating to watch and even more frustrating to write about.

No surprise, but little has changed. We still like being long USD, but enthusiasm remains tempered by:

Month-end.
Eventual Iran resolution.
The next US data round.
Warsh’s first Fed meeting.

We need to get past a few of these before building more meaningful USD length.

For sterling, the latest UK data round has meaningfully relaxed BoE expectations. But the market also had to digest the Burnham snapback. Many chased GBP lower, only to find Burnham sounding more centrist into the Makerfield by-election.

I am not going to say everyone has exited GBP shorts — they have not — but the initial disappointment impulse looks behind us.

It will be very interesting to see how Burnham’s language changes if he wins Makerfield and starts appealing more directly to the Labour left.

For now, GBP can drift a little lower, but there is no reason to hold a huge position. I will look to reduce EUR/GBP longs in the 0.8680/0.8700 region.

Flows are interesting:

SHF have now bought GBP for five sessions.
Yesterday’s purchase was 3z.
SHF are now longer than they were pre-local elections.

That is notable given cable is back below all major moving averages this morning:

200dma: 1.3423
50dma: 1.3443
100dma: 1.3476

Trade bias: Still modestly bearish GBP, but reduced.
EUR/GBP: Reduce longs around 0.8680/0.8700.
Cable: Below 200d, 50d and 100d again.
Risk: Burnham stays centrist and GBP short-covering resumes.
Re-engage: Closer to Makerfield by-election if political risk rebuilds.

JPY: Intervention Danger Zone

USD/JPY is still probing higher through the 159.30/40 zone, where the MoF first acted almost a month ago.

Progress remains glacial, which has allowed JPY crosses to relax somewhat despite overnight escalatory headlines. But we are very much in intervention danger territory.

For the conspiracy theorists: we are now value date next month, so reporting of any fresh action would be pushed back until end-June. We will find out the collective magnitude of prior — still alleged — activity tomorrow, although BoJ current account data has already given us reasonable expectations. The breakdowns of each action will not come until August.

Flows:

DHF reversed some prior JPY selling with a 1z purchase.
This was offset by RM JPY selling of 1z.

I am keeping short CHF/JPY.

Trade bias: Long JPY via short CHF/JPY.
USD/JPY danger zone: Above 159.30/40.
Intervention risk: High.
Flow note: DHF buying offset by RM selling.
Risk: MoF stays quiet and USD/JPY grinds toward 160.

CHF: Stay Short, Add on Month-End Rally

USD/CHF topped near 0.7900 this morning as the pair rallied on reports of “defensive” strikes. It has since come lower as the market continues to hope for a deal.

We remain short CHF against a mixture of USD, JPY and AUD.

The fundamental CHF bearish case is intact:

No carry.
SNB does not want a strong currency.
The market is long CHF.
CHF should underperform if risk stabilises.
CHF remains a preferred funder if carry returns.

Also coming into view is the “No to 10 Million” vote. This has a whiff of Brexit about it, given the potential impact on Swiss growth and relations with the EU.

We are sticking with CHF shorts and would add if CHF rallies into month-end.

Trade bias: Short CHF versus USD, JPY and AUD.
USD/CHF reference: Topped near 0.7900 this morning.
Tactical plan: Add to CHF shorts on month-end CHF strength.
Risk: Genuine escalation revives CHF haven demand.

AUD / NZD: Tactical AUD/NZD Short Paid, Now Reassess

Regular readers will know I went into the RBNZ meeting long NZD and then rotated into short AUD/NZD yesterday.

AUD/NZD had been a market favourite for some time. My broader preference is still to be long AUD, although recent soft data has made me dial back that commitment.

After a 1.6% fall in AUD/NZD yesterday, and with the random walk of month-end to contend with, I have taken profit on what was always intended to be a short-term tactical trade.

Admittedly, the close below the 50dma around 1.2130 is bearish. SHF cross-selling yesterday is also interesting and could matter if it becomes a theme.

But after a successful 24 hours, it seems prudent to reassess rather than overstay the trade into month-end.

Trade bias: Took profit on short AUD/NZD.
Technical: Close below 50dma near 1.2130 is bearish.
Flow signal: SHF cross-selling worth monitoring.
Broader AUD view: Still prefer AUD longs eventually, but recent data has reduced conviction.
Next step: Reassess after month-end noise.

CAD: Still a Cross Short

Little to add to recent CAD commentary.

We remain short CAD, mainly on the crosses, given:

Weak domestic growth.
Subdued inflation.
BoC unlikely to hike.
Upcoming USMCA negotiations as a likely headwind.