JPM G10 FX Daily

EUR: Rangebound Until the Next Headline Breaks It

Geopolitics is still a major focus, and the lack of clarity is keeping markets in a volatile state.

The Middle East situation remains an uneasy impasse: no severe escalation, but no visible endgame either. The market is taking comfort from the fact that the ceasefire is broadly holding despite skirmishes, and the working assumption remains that something will eventually be cobbled together.

For now, investors are choosing to ignore the potential growth drag if this drags out. Even oil’s overnight rally remains within recent ranges.

That makes this a very difficult market to trade. In quiet moments, risk wants to climb the wall of worry, but the equilibrium is too uneasy to trust fully. Add in the Trump-Xi meeting this week, Bessent in Japan, and US CPI tomorrow, and it is no surprise payrolls only received a cursory glance.

Portfolio-wise, the call is difficult. The carry narrative is keeping currencies like AUD and NOK as outperformers, but chasing here is uncomfortable given positioning is already there.

I still like short CHF as the funder of choice if markets remain stable. In EM, I have admittedly taken too much off EUR/HUF and would look to add back on any headline-driven rally. USD/ZAR also remains interesting for catch-up, as it is still well off the lows of the year.

EUR/USD itself remains uninspiring. The bullish and bearish narratives are cancelling each other out:

Bullish EUR: softer USD, reduced geopolitical stress, demand below 1.17.

Bearish EUR: risks include energy shock, European growth drag, tariff risk, and EUR as a funder.

Flows have been mixed and generally low volume over the last couple of sessions.

There is little to move the needle this week beyond US CPI and headline-watching. The longer the Middle East situation persists, the more the risk shifts toward a properly bearish EUR outcome, beyond the steady underperformance already visible on crosses.

Trade bias: Neutral EUR/USD while range holds.

Support: 1.1670/1.1700.

Momentum trigger: Need a clean break of 1.1800 to get topside interest going.

Risk: Persistent geopolitical drag eventually becomes EUR-negative through energy/growth channels.

GBP: Political Risk Is Live, But the Market Needs a Cleaner Signal

Labour lost 1,496 seats in the local elections, and the political pressure on Starmer is intensifying.

Despite growing speculation that the party could eventually coalesce around an Andy Burnham bid, little-known MP Catherine West has complicated the picture by openly calling for a cabinet member to formally challenge Starmer — or she will attempt to gather the 81 backers needed to launch her own bid. Her deadline is today.

The leadership path is messy:

Burnham remains the preferred route for many in the party, but he is not immediately available as he first needs to enter Westminster.

Streeting says he will not initiate a challenge, but wants to run if someone else triggers it.

Rayner remains weakened and has reportedly told Starmer he needs to shift left to survive.

Starmer may still prevail in the absence of a clean Burnham route.

From a market perspective, the most important question is not simply whether Starmer survives, but what ideological direction the party takes. A move toward Streeting would likely be easier for markets to digest. A sharper leftward pivot would be more difficult.

Starmer is expected to speak today as he attempts to cling to power.

The FX setup is therefore conflicted: a carry-seeking market versus an uncertain potential leftward shift in UK politics, with a healthy dose of Middle East war risk layered on top.

It is hard to have a high-conviction stance while the political drama plays out. What would make the bearish GBP case easier would be a clearer deterioration in UK data. EASIs are now at highs, but overnight’s REC report was poor, with permanent placements falling at the fastest pace since January. Thursday’s UK GDP data dump will be important.

Trade bias: Neutral GBP for now.

Cable range: 1.3450/1.3670.

EUR/GBP range: 0.8600/0.8700.

Bullish GBP scenario: Starmer survives with centrist backing / Streeting becomes the credible alternative.

Bearish GBP scenario: leadership panic plus a visible shift left, especially if UK data rolls over.

JPY: Fade Yen Weakness, But Respect the Intervention Regime

There is not much new to add, but USD/JPY has reclaimed the 157 handle after oil popped overnight on Trump’s dissatisfaction with the Iranian nuclear proposal.

Bessent arrives in Japan today ahead of the China summit and is due to meet Takaichi and Katayama tomorrow. Those meetings could generate headlines, though it is unclear what can be said that would materially change the market’s understanding, given the already well-advertised partnership between MoF and the US Treasury.

The game plan remains unchanged: fade yen weakness.

USD/JPY rallies now need to be treated with care. The MoF does not look done, and the recent intervention campaign has changed the risk/reward around chasing topside.

I would look to add USD/JPY shorts toward 158.

Franchise flows saw some local real-money JPY demand overnight.

Trade bias: Fade USD/JPY rallies.

Add shorts: Toward 158.

Key levels:

Cloud: 156.28 / 158.76

200dma: 154.32

100dma: 157.36

50dma: 158.70

CHF: Still the Cleanest Funder

Trump called Iran’s proposal “totally unacceptable,” leaving markets once again in limbo and Brent above $100.

The consensus still favours a deal over re-escalation, but the timing is increasingly hard to pin down. Appetite to chase aggressively in either direction is low.

Payrolls had something for everyone. The unemployment rate held at 4.3%, though it rose 8bp on an unrounded basis, while participation dropped 10bp. The headline payroll number was again above 100k. There are no obvious red lights flashing in the labour market, which should leave the Fed focused more on the price-stability side of the mandate. Tomorrow’s CPI print will matter.

The environment still supports carry, and that means CHF remains an attractive funder.

The CHF setup remains asymmetric:

CHF is not rallying meaningfully on risk-off.

The SNB is likely to lean against excessive CHF strength.

Low yield makes CHF a natural funding leg.

Stable markets keep carry demand alive.

I remain short CHF versus AUD and USD.

Encouragingly, 0.7750/75 support held in USD/CHF. In AUD/CHF, the target remains a move back toward YTD highs near 0.5675.

Flows support the view: hedge funds and real money were sellers of CHF.

Trade bias: Short CHF versus AUD and USD.

USD/CHF support: 0.7750/75.

AUD/CHF target: YTD highs near 0.5675.

Catalyst: US CPI tomorrow; Middle East headline risk.

AUD/NZD: Stay Long High-Beta Commodity FX

US data on Friday was solid, but the greenback reaction was muted, and flows in both AUD and NZD were subdued.

Despite Trump describing Iran’s response to the peace proposal as “unworkable,” risk is trading well this morning. That keeps the bias toward high-beta commodity currencies intact.

We continue to favour being long AUD.

Admittedly, it is not easy to chase AUD at current levels, especially with positioning already built. But in a carry-seeking, risk-supported market, AUD remains one of the cleaner long expressions in G10.

Following the notably weak Canadian labour data, we added to AUD/CAD longs on Friday.

Trade bias: Stay long AUD.

Preferred expression: Long AUD versus CAD and CHF; still constructive versus USD if risk holds.

Risk: Middle East escalation or a hawkish US CPI shock.

CAD: Labour Data Confirms Underperformance Bias

Canada’s labour data was notably weak.

Employment fell by 18k in April, driven by a 47k drop in full-time jobs. That was only partially offset by a 29k gain in part-time employment. The unemployment rate rose 0.2ppt to 6.9%, with participation up 0.1ppt.

This stands in sharp contrast to the US data, which was solid overall, and once again highlights the divergence between the two economies.

That divergence should keep the BoC on hold for the foreseeable future and strengthens the case for being short CAD, especially against higher-yielding currencies.

I added to CAD shorts on Friday and expect the loonie to remain an underperformer on crosses over the medium term.

Flows were mixed: real money and systematic accounts were large CAD sellers, while hedge funds were large buyers.

Trade bias: Short CAD on crosses.

Preferred expression: Long AUD/CAD.

Macro driver: Weak Canadian labour market versus resilient US data.

Medium-term view: CAD remains an underperformer, especially versus high yielders.