Institutional FX Insights: JPMorgan Trading Desk Views 20/5/26
JPM G10 FX Daily
EUR / AUD / NZD / SEK / NOK: Long USD Narrative Deserves More Time
On Monday, the question was whether recent US inflation indicators — which pushed long-end yields higher and equities lower — would spill over into broader risk sentiment.
That question is still live.
I had already taken a more defensive stance, running long USD exposure against EUR and GBP. Regular readers will know I retained some AUD longs on crosses, but yesterday I moved to the sidelines as I wait for the current narrative to play out.
Stepping back, the macro mix looks increasingly risk-off:
Long-end yields remain under pressure.
There is still no Middle East resolution.
Equities are falling again.
Inflation concerns are resurfacing.
The USD is bid.
The VIX remains subdued on an 18 handle, so this is not full panic. But the long-dollar narrative deserves more airtime.
The key question is whether this move can endure.
A little fact-finding yesterday was interesting: since the start of the Middle East conflict, the S&P has exceeded two consecutive down days only twice. On both occasions, it fell for four consecutive sessions. Yesterday was the third consecutive negative day for the S&P.
That makes the next 48 hours important. We have:
FOMC minutes
NVIDIA results
Global PMIs tomorrow
I have largely ignored PMIs for roughly 18 months, but this time the supply-chain indicators will be worth watching given the inflation/stagflation narrative.
Price action yesterday was confusing. With the USD stronger, high beta under pressure and equities lower, SEK still strengthened on the day. NOK also traded like a risk-off currency at one point, despite Brent holding above $110 and no Middle East resolution.
It is not obvious what that means, but we know that if a true risk-off move develops, NOK will not be immune. Price action in NOK and SEK needs close attention from here.
Trade bias: Keep defensive USD longs for now.
EUR/USD key level: 200dma around 1.1683.
GBP/USD key level: 200dma around 1.3424.
AUD: Sidelines on crosses for now after trimming longs.
NOK: Watch closely; true risk-off would hurt despite oil support.
Catalysts: FOMC minutes, NVIDIA, global PMIs.
GBP: Sterling Bears Need More Follow-Through
The dollar bid yesterday moved cable away from the moving averages, but EUR/GBP continued to consolidate.
The issue is that there have been few meaningful updates on the upcoming Makerfield by-election, which has watered down sterling’s downward momentum. Price action has been disappointing.
Burnham has tried to extinguish fears of excessive borrowing if he becomes PM, especially after recent interviews where he said he would reject changes to the fiscal rules. Still, it is difficult to be optimistic on UK assets when the ruling party appears to be shifting decisively left.
This morning’s UK CPI was soft across the board versus both consensus and BoE forecasts. That saw year-end rate hike expectations fall by around 8bp to +52.5bp.
Carry remains the thorn in the side of sterling bears, but this week’s data does temper the case for more aggressive BoE action.
I remain short GBP versus EUR and USD, although patience is starting to wear thin.
Flows remain supportive of the short GBP view, with continued supply from real-money and hedge-fund accounts.
Trade bias: Short GBP versus USD and EUR.
Patience: Waning, given underwhelming downside follow-through.
Cable key level: 200dma around 1.3424.
EUR/GBP: Still consolidating; needs fresh political fuel.
Bearish drivers: Leftward Labour shift, soft CPI, reduced BoE hike pricing.
Bullish risk: Politics goes quiet and carry reasserts itself.
JPY: Broad USD Bullish, But Not Here
The greenback traded with a heavy bid tone yesterday as US yields climbed to multi-year highs, despite very little new information from the Middle East.
There were several Bessent/Ueda/Katayama headlines:
Bessent said he is confident Governor Ueda will guide monetary policy successfully.
He noted Japan’s economic fundamentals are strong and that excess FX volatility is undesirable.
There were also comments that Ueda will do what he needs to do if granted sufficient independence.
Japan reiterated that it will take bold FX action when needed and that the G7 understands Japan’s FX stance.
Those headlines briefly sent USD/JPY lower, but the pair quickly settled back above 159.00, where it has mostly traded this morning.
Flows yesterday showed better demand for USD/JPY, mainly from hedge funds and corporates.
My broader view has turned more bullish USD versus G10, but intervention risk is too high to be running long USD/JPY here.
Trade bias: Mostly sidelines in USD/JPY.
Reason: Broad USD strength conflicts with intervention risk.
Key zone: Above 159 remains dangerous.
Flow note: HF and corporate USD/JPY demand yesterday.
Best approach: Express USD strength elsewhere.
CHF: USD/CHF Breakout Keeps the Funding Trade Alive
US Treasuries were heavy yesterday as investors continued to price the potential inflationary fallout from the Strait of Hormuz crisis.
That added fuel to the dollar’s recent bid and pushed USD/CHF through the 50dma. A test of the 200dma is now on the cards.
A close back below the 100dma at 0.7844 would disappoint.
Despite AUD underperformance amid the US equity drawdown, AUD/CHF avoided a close below 0.5600, which is encouraging.
Ultimately, the higher-yield environment still supports using CHF as a funder for USD and AUD longs.
Trade bias: Short CHF versus USD and AUD.
USD/CHF: Constructive while above the 100dma at 0.7844.
Next USD/CHF target: 200dma test.
AUD/CHF: Constructive while above the 50dma / 0.5600 area.
Flow note: HF and RM CHF inflows were partially absorbed by systematics, who have sold CHF in five of the last six sessions.
CAD: CPI Confirms the Short CAD Case
Canadian headline CPI rose less than expected to 2.8% y/y in April versus consensus at 3.1% and JPM at 3.2%.
Core prices cooled more than expected as well. CPI excluding gasoline rose just 2.0% y/y, down from 2.2% in March. The BoC’s preferred core measures averaged 2.1% y/y, the lowest reading in more than five years.
This strengthens the view that the BoC will remain on hold for the foreseeable future.
I still struggle to understand why the market is pricing more than two BoC hikes this year when both growth and core inflation remain subdued.
For that reason, I added further to CAD shorts yesterday, mainly against AUD longs.
Flows supported the trade, with better CAD supply yesterday, mainly from hedge funds.
Trade bias: Short CAD.
Preferred expression: Long AUD/CAD.
Macro driver: Weak Canadian growth/inflation mix versus misplaced BoC hike pricing.
Flow support: HF CAD selling.
Risk: Broader risk-off hits AUD more than CAD in the short run.
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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!