JPM G10 FX Daily

EUR: Middle East Blip, But Still a Neutral USD Portfolio

Just when you thought it was safe to get back in the water.

The Middle East could not stay quiet for long.

Whether these renewed skirmishes become anything more than that, given recent history, I do not know.

But in a quiet post-payrolls market, it is enough to cause at least a small blip.

Tech was already under pressure yesterday, and oil is a little higher this morning.

Is the market complacent? Most likely.

But with some way still to go in the agreed 60-day negotiations, I think we need to get closer to the deadline before markets are properly shaken up.

Yields ticked higher in response to the escalation.

On that front, the Fed minutes will be of interest this evening — although judging by our volumes over the last two days, it will be a long wait until 7pm.

Feroli wrote an interesting piece last night on the technicalities around the minutes, given scrutiny of potential Warsh institutional upheaval.

For me, though, the data matters most now.

If guidance is out of the window, the minutes should become less and less market-moving over time.

Portfolio: Neutral USD, CHF-Funded EM Longs

I am happy to ignore the gyrations and keep a more neutral USD portfolio.

I still think EM longs will be okay as long as CPI is not red hot, barring proper Middle East escalation.

Current positioning:

• Long ZAR

• Long HUF

• Funded mainly through CHF shorts

• Tactical AUD longs have been cut, as they went nowhere

Admittedly, the smalls are underwater this morning.

Two other points to watch:

1. We continue to see good demand for GBP despite political and fiscal risks.
   I do think this is worth fading again at some point, but I am trying to be patient.

2. I wonder if MoF is getting FOMO from the move lower in USD/KRW.
   Either that, or they do not care as much as we think.

EUR/USD: Funder Status Helps, But No Fresh Catalyst Yet

EUR traded another tight range yesterday.

This morning’s modest risk aversion probably helps EUR slightly outperform, given its funder status.

There was seemingly good demand back into 1.1400 again overnight.

Fundamentally, nothing has changed.

I am less bearish EUR given recent moves lower in:

• FX

• ECB expectations

• Oil

If USD rips broadly, EUR/USD will of course go lower.

But I think we need a new catalyst for the next leg.

That catalyst is likely either:

• US CPI

• Proper Iran escalation

Trade bias: Neutral EUR/USD.
Support: Demand near 1.1400.
Drivers: Funder status, lower oil, less bearish Europe view.
Catalysts: US CPI, real Middle East escalation.
Risk: Broad USD rally breaks the range lower.

GBP: Neutral, But Demand Remains Good

A fresh bout of Middle East escalation has weighed on high-beta currencies.

But the impact in G3 has been far more limited.

The USD is surprisingly offered despite the jump in energy prices.

The general view seems to be that the bar for re-engaging in all-out conflict is high.

That means appetite to fade these flare-ups remains prevalent.

Tonight, we get Fed minutes.

Investors will comb through the document for insight into Warsh’s stance.

But the Fed Chair has been resolute on forward guidance, so this exercise is unlikely to yield many rewards.

Domestically, it has been quiet beyond Farage’s resignation as MP.

That has little feedthrough to GBP.

We remain neutral sterling for now.

Key levels:

• EUR/GBP: 0.8470/0.8600

• Cable: 1.3150/1.3400

Flows yesterday:

• RM were large GBP buyers.

• Systematics extended their GBP buy streak to nine sessions.

• HFs were GBP sellers.

Trade bias: Neutral GBP.
EUR/GBP range: 0.8470/0.8600.
Cable range: 1.3150/1.3400.
Flow: RM and systematic demand; HF selling.
Risk: Political/fiscal risks reprice or USD strengthens after CPI.

JPY / CHF: Intervention Watch and CHF Funding

Market attention remains firmly on JPY and intervention risk.

USD/JPY continues to hover near recent highs.

Yesterday, we saw significant USD/JPY demand from RM accounts.

That was materially larger than the USD/JPY supply from systematic accounts.

But it was easily absorbed.

Spot traded mostly unchanged through the session and only moved higher overnight.

JPY remains all about intervention risk.

In CHF, there was not much to latch onto.

FX remains in a holding pattern ahead of next week’s data.

The dollar recovered through the session, but came off the highs sharply overnight.

USD/CHF is now back below 0.8070.

Our CHF view is unchanged:

• Sell CHF rallies versus USD.

• Use CHF as a hedge/funder against higher-beta longs elsewhere.

JPY trade bias: Intervention watch; cautious long JPY optionality.
USD/JPY: Hovering near recent highs.
CHF trade bias: Bearish CHF; sell rallies versus USD.
USD/CHF: Back below 0.8070.
Risk: MoF delay extends JPY weakness; CHF rallies deepen on risk-off.

AUD / NZD: RBNZ Hikes, But NZD Upside Is Not a Slam Dunk

The RBNZ hiked rates overnight to 2.5%.

The message was what I would call data-dependent with a slightly hawkish lean, as expected.

NZD has outperformed after the decision, partly because the move was not fully priced.

But with NZ rates still below peers, this is no smoking gun for an aggressive NZD rally in my view.

The board expects some further unwinding of stimulatory policy, but the outlook remains uncertain.

Before we get too carried away, the next key releases are:

• Next week’s QSBO

• Q2 inflation on 20 July

I cannot rule out further gains for a currency that has been unloved for months.

But the game plan is to buy AUD/NZD dips toward the 100dma around 1.2101.

Trade bias: Buy AUD/NZD dips.
AUD longs: Tactical AUD longs cut.
RBNZ: Hiked to 2.5%; mildly hawkish/data-dependent.
AUD/NZD buy zone: Around 1.2101 100dma.
Catalysts: QSBO next week; NZ CPI 20 July.
Risk: More hawkish RBNZ repricing extends NZD gains.

CAD: Oil Spike Supports CAD, But Medium-Term Bearish View Stays

Overnight, the US carried out strikes in Iran and revoked the waiver permitting new Iranian oil sales after ship attacks in the Strait of Hormuz.

Brent is up more than 3% this morning.

That has pulled CAD sharply off its highs, as expected.

The next question is how the situation evolves from here.

If escalation continues and oil moves higher, CAD can remain supported.

But if this does not turn into a broader escalation, I still like being short CAD over the medium term, mainly versus high yielders.

Flows yesterday were quiet:

• Real money were small CAD sellers.

• HFs were small CAD buyers.

Trade bias: Medium-term short CAD, but oil spike creates near-term support.
Driver: Brent up more than 3% on Iran escalation.
Preferred expression: Short CAD versus high yielders if escalation fades.
Risk: Sustained oil rally supports CAD further.

SEK / NOK: NOK Still Favoured, But Trimmed Into Support

Swedish inflation printed in line with the Riksbank forecast at 1.3%.

Core was 0.2pp above forecast.

Monthly GDP rose from a revised 0.6% to 0.9%.

This morning’s data is supportive for SEK.

But SEK remains a funding currency.

So any short-term rally should be short-lived, and SEK is already weaker as I type.

NOK: Oil View Finally Gets Some Support

Regular readers know I had labelled the Middle East ceasefire fragile.

The escalation over the last 48 hours confirms that.

I had also suggested that with inventories apparently at critical levels, the move in oil toward $70 looked overdone.

Increased supply should be met with increased demand.

I acknowledged that price action was not supporting that view.

But this latest move, even if neither side wants to fully re-engage, has caused energy prices to rebound in a market that had become complacent.

I am not calling for Brent back to $100, but the situation should be followed closely.

The view that SEK remains a funder was supported by RM demand for NOK/SEK yesterday.

RM have now bought NOK for eight consecutive days.

SHFs have surprisingly extended their NOK selling streak to seven sessions.

EUR/NOK: Still Short, But Reduced

Next up is Norwegian inflation on Friday.

Together with the August print, this will be instrumental for Norges Bank’s decision on the 13th.

The FI market currently has 16.5bp priced.

I retain NOK longs.

But after the 1.8% fall from the highs, I have reduced a little as EUR/NOK approaches support:

• Channel support: 11.1350

• Fib support: 11.1065

• 100dma: 11.0494

Trade bias: Long NOK, but reduced into support.
EUR/NOK supports: 11.1350, 11.1065, 11.0494.
NOK drivers: Oil rebound, RM demand, SEK funder status.
Catalyst: Norway inflation Friday.
Risk: SHF selling persists or oil rally fades.