Institutional FX Insights: JPMorgan Trading Desk Views 14/5/26
JPM G10 FX Daily — Trading Desk Views
EUR: Starting to Look Like a Tactical Short
These are long days, even when you manage to escape for a few hours of client meetings.
Long ends remain under pressure, oil has been gently bid all week, but with equities at the highs the dollar has been fairly relaxed. Performance is mixed, and net USD is only marginally higher in a very grindy fashion. Not exactly thrilling, unless UK politics is your chosen spectator sport.
Carry and fiscal themes are working best, but in a broader environment of geopolitical uncertainty, it feels like most investors are running small bits and pieces and waiting for the chance to get the bigger call right.
I am starting to feel more like the dollar should rally more broadly from here.
The case is building:
US equities continue to outperform.
Warsh is confirmed at a time when US data is not really suggesting cuts.
Collins is even talking about hikes.
Global fiscal pressure is becoming a bigger theme.
Iran stasis is being normalised by the market.
If that equilibrium breaks, USD may benefit rather than suffer.
On that basis, I have gone short EUR, remain long USD/CHF, and still hold a small amount of AUD longs. I trimmed cable shorts, as Starmer looks confident enough to take on all-comers in the short term. The path becomes murkier if Burnham becomes a more feasible prospect, but for now there are still plenty of hurdles.
Net, I am small long USD overall.
In EM, the NBH move to slow HUF appreciation may give us a better level to resell EUR/HUF. It does not change the structural view in my mind.
EUR had been drifting lower until the hot PPI print arrived — typical FX behaviour: move until you finally get a reason for extension, then stall.
Still, I think several factors are starting to line up for EUR weakness beyond just the crosses:
Energy prices remain high with no clear end in sight.
Fed pricing may need to adjust the way other central bank pricing already has.
EUR looks rich on quant screens.
The currency remains structurally vulnerable if Middle East uncertainty drags on.
That makes EUR/USD worth a tactical short.
Trade bias: Short EUR/USD tactically.
Ideal stop: Above 1.1800.
Near-term cap if trade is working: 1.1740/50.
Downside target: Retest 1.1670 support.
Risk: Any genuinely positive geopolitical surprise or broad USD reversal.
GBP: Streeting, Rayner, Burnham — Pick Your Poison
Another big day in UK politics.
Multiple sources suggest Streeting is going to go for it and resign. He is due to speak as Health Secretary at some point today, so we should hear from him one way or another.
The other development is the incredibly timely clearing of Angela Rayner by HMRC. Insert your conspiracy theory of choice here. She sounds pretty non-committal on her intentions as things unfold.
This needs to be shorter than usual because the situation is moving too fast to map every permutation.
The key points:
Streeting appears to be moving.
Rayner is back in the mix.
Starmer still looks determined to fight.
Burnham remains the most important medium-term wildcard.
The NEC could become central if it tries to stretch the leadership timetable to include Burnham.
That last point feels unlikely to me, but it needs monitoring. If Streeting’s move forces Burnham to come forward with this magical seat, then the market will need to reassess quickly.
The UK GDP data this morning was actually pretty good, but it is being buried by politics. Given the uncertainty and the possible resurgence of Rayner, I tactically bought a little EUR/GBP this morning. Very non-committal — I may even be out by the time this is read, given the speed of the headlines.
Flows: DHF took over as the protagonists yesterday with a 1z GBP sell, while SHF flows were effectively flat after Tuesday’s 2.5z sell. Real-money flows remain nowhere.
Trade bias: Tactical GBP downside, but very headline-sensitive.
Positioning: Trimmed cable shorts; small tactical EUR/GBP long.
Cable range: 1.3400/1.3650.
EUR/GBP range: 0.8600/0.8700.
Market-friendly outcome: Streeting route.
Market-negative risk: Burnham becomes realistic or Rayner/left shift gains traction.
JPY: Painful, But Stay Long JPY
Things are getting spicy in the long end of the JGB curve.
Pre-election multi-decade yield highs have been claimed overnight, which will not be welcomed by Takaichi or the MoF. I am not sure it changes the intervention calculus much, given yields are rising everywhere, but it certainly does not make intervention less likely.
We also had BoJ board member Masu on the wires overnight sounding pretty hawkish.
No change in view.
The usual ingredients are there for continued JPY weakness: higher US yields, resilient USD, carry demand and broad risk stability. But I still think the MoF is in play and will react to a pop through 158.
It is a tough watch at the moment, but I am sticking with JPY longs.
PPI was hot on the headline but did not move the core PCE read-through too much. Initial jobless claims and retail sales are due later today, and Warsh is finally in.
Trade bias: Stay long JPY / short USD/JPY tactically.
Add/trigger zone: Pop through 158.
Key risk: If MoF does not respond above 158, market may push toward 160 quickly.
Supportive factors: JGB long-end stress, hawkish BoJ comments, intervention risk.
CHF: Carry Environment Keeps CHF Offered
A mammoth PPI print saw 10yr Treasury yields extend to their highest level since July.
The inflation fallout from the US/Iran conflict is coming into focus. That has weighed on CHF this week, while USD and AUD have outperformed.
AUD/CHF traded through 0.5675 yesterday to fresh YTD highs. We had been highlighting that level as the short-term target, but given the environment remains supportive for carry and the price action is promising, we are happy to hold longs and shift sights to 0.5750.
We are also using CHF to fund USD longs, encouraged by the fact that 0.7750/75 support in USD/CHF held last week.
The CHF thesis remains straightforward:
Higher global yields punish low yielders.
The SNB remains uncomfortable with CHF strength.
CHF is not rallying enough on risk-off to justify owning it.
Carry appetite remains alive.
USD and AUD remain cleaner longs funded out of CHF.
Flows were more mixed. Hedge funds turned CHF buyers after selling for eight of the previous nine sessions, while the franchise saw real-money CHF outflows.
Trade bias: Short CHF versus AUD and USD.
AUD/CHF new target: 0.5750.
Prior breakout: 0.5675.
USD/CHF support: 0.7750/75.
Risk: Genuine Middle East escalation that finally revives CHF safe-haven demand.
AUD/NZD/CAD: AUD Still the Best Long, CAD Still the Better Short
US PPI came in higher than expected yesterday, but the USD reaction was fairly muted, consistent with recent data prints. The Middle East conflict and upcoming Trump/Xi meeting remain the dominant drivers.
AUD was again an outperformer, especially versus NZD. AUD/NZD reached fresh recent highs despite the desk seeing better real-money AUD supply yesterday.
That is a strong price signal.
USD/CAD continues to trade mostly sideways around 1.3700, but we remain bearish CAD in the medium term.
The CAD short case remains intact:
Canadian labour data was weak.
BoC is likely constrained.
CAD is vulnerable on crosses.
AUD has better carry/risk characteristics.
AUD/CAD should keep outperforming if risk holds.
We continue to like AUD/CAD, although parity should offer some resistance.
Trade bias: Long AUD/CAD.
AUD/NZD: Momentum remains constructive.
USD/CAD: Sideways near 1.3700, but CAD bearish on crosses.
AUD/CAD target zone: Parity, though expect resistance there.
Risk: Sharp oil-led CAD squeeze or broader risk-off hit to AUD.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!