JPM G10 FX Daily

EUR: Summer Market, Neutral EUR, No Need to Short USD

Maybe it is the lack of sleep after the England match, but yesterday felt like a proper summertime market.

As I said earlier this week, there are not many catalysts before US CPI next week.

Fed minutes may give a little more insight, but that is about it.

I do not feel like being short USD here despite the scale of the move over recent weeks.

So the stance remains more neutral.

Preferred expression remains CHF-funded carry and growth trades.

Portfolio is unchanged from yesterday.

EUR/USD: From Bearish to Neutral

I have moved from bearish to neutral EUR for the reasons outlined yesterday.

This does not mean I think things should dramatically turn around.

But the market is already pessimistic about the region.

Lower oil and gas prices, as well as upgraded European growth forecasts, should at least cushion the currency after the recent move lower.

At minimum, shorts are not straightforward here.

Tight ranges and limited franchise appetite do not suggest people will be rushing to add EUR risk today either.

Trade bias: Neutral EUR/USD.
USD view: Not short USD, but not chasing either.
Preferred structure: CHF-funded carry/growth trades.
Catalyst: US CPI next week; Fed minutes as secondary risk.
Market tone: Summer consolidation, low appetite for fresh EUR risk.

JPY: Still Long, But Intervention Fatigue Is Real

Attention remains on JPY after the notable reversal since Thursday.

Yesterday, the desk saw significant JPY supply from:

• Real money

• Systematic accounts

That helped push USD/JPY back toward recent highs.

JPY is trading marginally better this morning.

But intervention risk remains high at these levels.

So we continue to run modest JPY longs in the hope of action.

That said, the fatigue is getting real.

Trade bias: Modestly long JPY.
Driver: Intervention risk remains elevated.
Flow: RM and systematic JPY supply.
Risk: MoF delay leads to further fatigue and renewed JPY selling.

CHF: Sell CHF Rallies, Use as Funder

There was not much to latch onto yesterday.

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

USD recovered some of its post-NFP losses, taking USD/CHF above 0.8070, though the pair came off the highs after London left.

The CHF view remains the same.

We are happy to sell CHF on rallies against USD.

That acts as a hedge to higher-beta longs elsewhere.

Flow remains very light.

Positioning is more nuanced:

• Systematics still hold decent CHF longs.

• Hedge funds have grown short CHF positioning.

Trade bias: Bearish CHF; sell CHF rallies vs USD.
USD/CHF: Recovered above 0.8070 before fading.
Portfolio role: CHF as hedge/funder against high-beta longs.
Risk: Crowded HF short CHF positioning allows deeper CHF squeeze.

AUD / NZD: AUD Longs Still Working; RBNZ Is Close

AUD outperformed yesterday.

That rewarded the view that high beta would rally after last Thursday’s US NFP print.

I retain AUD longs against:

• USD

• EUR

• CHF

With the VIX on a 15 handle and unlikely to be challenged by an uneventful data week, the grind should continue.

RBNZ: Hike Is the Easy Decision, But Hold Is Possible

Tonight, the RBNZ meets.

Market pricing:

• 18bp priced

• 17 of 23 economists expect a hike

• Our own Ben Jarman expects a hike

The easy decision looks like a 25bp hike.

But I think it is close again, and a hold would not be a total surprise.

The board was split at the last meeting.

Those voting for a hike did so largely because of high oil prices.

Now that oil has fallen, there is arguably less pressure at this meeting.

The board would probably like to have:

• Q2 QSBO report, which was weak last time

• Q2 inflation due 20 July

But there have been limited data releases since the last meeting, while Q1 GDP was better.

So the path of least resistance is probably for the RBNZ to hike, as signalled at the last meeting, when it said the OCR would need to increase sooner and by more than envisaged.

NZD Reaction: Fade the Initial Rally

At the press conference, I would be surprised if Governor Breman endorsed the nearly four hikes currently priced.

I expect a data-dependent message.

That should mean any initial NZD rally after the announcement fades fairly quickly.

AUD trade bias: Long AUD vs USD, EUR and CHF.
Backdrop: Low vol and carry supportive.
RBNZ base case: 25bp hike, but close call.
NZD reaction: Fade initial rally if guidance is data-dependent.
Risk: Hawkish RBNZ validates market pricing and extends NZD gains.

CAD: Stay Short, Payrolls the Main Event

It was a quiet, typical summer Monday.

US data printed broadly in line.

The dollar traded in a tight range and finished largely unchanged.

In USD/CAD, flows showed meaningful real-money selling pressure from both domestic and offshore accounts.

But systematic and hedge-fund accounts provided sizeable offsetting demand.

So headline net flow was broadly flat, but that masked substantial two-way interest:

• Real-money supply

• Fast-money bids

I continue to think CAD remains on the back foot.

So I am still short CAD.

Ivey PMI is due this afternoon, but the key focus is Canadian payrolls later this week.

Trade bias: Short CAD / long USD/CAD.
Flow: RM selling met by systematic/HF demand.
Catalysts: Ivey PMI today; Canada payrolls later this week.
Risk: Strong Canada jobs data forces CAD short-covering.

SEK / NOK: NOK Longs Still Favoured

Regular readers know I have been running NOK longs recently.

That view was further encouraged by a soft, though not alarming, US NFP print.

That should benefit high beta and carry.

This was evident yesterday, with NOK outperforming SEK.

Price action was even more encouraging when looking at franchise flows.

In SEK:

• Corporates were huge SEK buyers.

• Yet SEK closed the London session largely unchanged.

In NOK:

• Real money bought NOK for the seventh consecutive day.

• But that flow was dwarfed by short-term hedge funds.

• SHFs are now on a six-day NOK selling streak.

• They have increased YTD shorts again.

No change in view.

Focus now turns to inflation prints in both countries this week.

Those will either encourage the view or force reassessment.

Trade bias: Long NOK.
Supportive backdrop: High beta, carry, softer NFP, RM demand.
Flow concern: SHF selling streak now six days.
SEK: Corporate buying failed to move price much.
Catalysts: Sweden and Norway inflation this week.