JPM G10 FX Daily

## EUR: Deal Done, Details Deferred, Carry Can Breathe

We have a deal, with a grand signing set for Friday.

But the details will not be revealed until then, so it is hard to handicap the state of play, particularly around the reopening of the Strait. It also seems obvious that the two sides remain far apart on anything beyond this can-kick.

That said, this is probably something to worry about toward the end of the 60-day ceasefire extension, not today.

If the Fed meeting is not seen as outright hawkish, we could be in for a few weeks of low-vol carry, where outright dollar directionality is harder to come by. US exceptionalism still offsets the more optimistic global growth outlook.

It is a big central bank week, and it is likely too early for most policymakers to relax on positive inflation effects from a deal that has not even been signed yet.

Until Wednesday at least, and maybe beyond, crosses look like the cleaner way to go.

Running:

- Short CHF/ZAR — CHF shorts were reduced last week, but still make sense in a carry environment. I was not really expecting the Swiss population-cap vote to pass. ZAR feels under-owned given recent gold price action.

- Short EUR/MXN — added this morning.

I do not think the dollar is a slam dunk one way or the other yet.

The risk is that Warsh offers little, given his apparent distaste for forward guidance.

Potentially hawkish Fed elements would include:

- Dots showing no cuts next year either.

- A meaningful number of voters pencilling in hikes.

On the other side, if Warsh sounds dismissive of inflation, then it is probably more “game on” than described above, and the view will need recalibration.

### EUR/USD: Rally Still Looks Sellable

EUR was boosted by the deal news. This was always the risk that stopped me chasing last week’s move lower.

Although the prevailing view is bearish and positioning is already short, I still think people are lined up to sell this rally. That explains why this morning’s recovery lacks real momentum.

It may be worth holding fire until the Fed is out of the way, but I do think you can start scaling into shorts here.

The 1.1600/1.1630 gap from payrolls is the first zone.

The trade leans against the tightly clustered 50, 100 and 200-day moving averages around 1.1680. Use a stop just north of 1.1700 to protect against daily closes above that cluster.

Trade bias: Sell EUR/USD rallies; prefer crosses until Fed.

**EUR/USD short zone:** 1.1600/1.1630.

Resistance cluster: 50/100/200dma around 1.1680.

Stop: Just north of 1.1700.

Preferred crosses: Short CHF/ZAR, short EUR/MXN.

Risk: Warsh dismisses inflation and triggers broader carry/USD selloff.

---

## GBP: Packed UK Week, Stay Short Sterling

The deal is done — though not really a surprise at this stage.

It is still only an MOU spanning 60 days until further negotiations continue. So it is hard to get overly excited with oil back at $80. But it does mean the market can focus on other things, for now.

Enter Warsh and the Fed.

Wednesday’s meeting is huge, with attention focused on the press conference and how he balances what should be a hawkish SEP shift. We have been longer USD on the exceptionalism angle, and that bias remains, but enthusiasm is tempered by uncertainty over how credible or orthodox the new Chair sounds.

### BoE: No Hike, But Vote Split Matters

What is more certain is that the BoE will not hike this week.

Expected vote: 7-2, with Pill and Greene dissenting. There is an outside chance Mann joins them.

Markets have pushed out a full hike to December, with around a 50% chance of another.

There is no press conference or MPR, so the minutes will matter. The key is how centrist internal members sound.

Recent softness in CPI, employment and energy retracement will face off against:

- Higher-than-expected growth

- Stubborn inflation expectations

To keep a July hike forecast alive, we would need signs that Mann, Lombardelli and Ramsden are at least edging toward supporting a hike, with Bailey also putting up less resistance.

### Politics: Makerfield and Leadership Risk

The Makerfield by-election is Thursday, with results early Friday.

Burnham’s victory remains likely, as Reform has lost ground to Restore. Kalshi pricing for Labour victory reached the mid-90s last week but has since been pared back to around 75%.

A lot of political risk premium appears to have been removed from GBP, given the sharp rebuild of length by SHF.

What matters next is the leadership election:

- Will Starmer even run, given last week’s damaging defence resignations?

- How will Burnham campaign to the left after Makerfield?

I still like being short GBP because:

- EASI continues to fall sharply and is now negative.

- Political risk premium looks light.

- SHF recently chased GBP length.

I am keeping EUR/GBP length into this week.

Levels:

- EUR/GBP: 0.8600/0.8700

- Cable: 1.3300/1.3480

Data/events:

- CPI Wednesday

- LFS and BoE Thursday

- Retail sales and Makerfield result Friday

Trade bias: Short GBP / long EUR/GBP.

**EUR/GBP range:** 0.8600/0.8700.

**Cable range:** 1.3300/1.3480.

BoE: Expected hold, likely 7-2.

Politics: Makerfield Thursday; Burnham likely winner.

Risk: Hawkish BoE minutes revive GBP.

---

## JPY: BoJ First, Warsh Next, MoF Watching

BoJ kicks off a busy central bank week tonight.

A 25bp hike is fully priced. The bigger issue is how Uchida comes across at the press conference, especially if he needs to sound hawkish enough to offset a more dovish QT development, as Nikkei reported earlier in the week.

Our strategists view Uchida as somewhat more dovish.

No need to set an alarm. The press conference begins at 07:30 BST tomorrow.

Baseline expectation is that JPY follows the usual BoJ playbook and sells off when the “press conference ends” headline appears.

But with the Middle East MOU, could MoF be in a higher state of alert?

Very possible.

Still, with Warsh speaking the following day, intervention could be risky and expensive. They may prefer to wait. Worth noting, however, that MoF has intervened after a Fed press conference before, in May 2024.

No position for now.

Levels:

- 160.725

- 162

Trade bias: No position.

**BoJ:** 25bp hike fully priced.

Key risk: Uchida fails to sound hawkish enough.

**USD/JPY levels:** 160.725, then 162.

MoF: Alert, but may wait for Fed.

Risk: Warsh hawkishness pushes USD/JPY toward intervention zone.

---

## CHF: Firmer on De-Escalation and Vote Rejection, Still Medium-Term Bearish

Major Middle East de-escalation, with the US and Iran reaching an interim agreement, has pushed USD/CHF lower this morning.

CHF was also supported by the rejection of the proposal to cap Switzerland’s population at 10 million.

That proposal could have weighed on medium-term growth and strained EU ties, potentially ending freedom of movement and triggering guillotine clauses that terminate other bilateral agreements.

The rejection removes that immediate CHF-negative tail risk.

Overall, CHF opened firmer, but focus now shifts to Warsh’s first Fed meeting on Wednesday.

We reduced CHF shorts last week, but still see CHF as a medium-term underperformer.

Trade bias: Medium-term bearish CHF, but reduced.

Near-term: CHF firmer after MOU and vote rejection.

Removed risk: Population cap proposal rejected.

Preferred setup: Short CHF in low-vol carry environment.

Risk: Fed disappointment triggers further USD/CHF downside.

---

## AUD / NZD: Bias Long AUD, But Respect RBA and Fed Risk

A US-Iran deal has apparently been reached, though details are still pending.

The positive development has lifted risk and, with it, AUD and NZD.

The short-term reaction should remain positive. If the Strait reopens, the feedthrough is:

- Lower rates

- Better growth outlook

- Lower inflation pressure

- Support for high-beta carry

AUD should benefit in that environment.

There are still plenty of hurdles, but we should be entering a period where risk trades okay, provided Warsh does not derail the argument on Wednesday.

### RBA: Hold Expected

The RBA meets tomorrow and is expected to leave rates unchanged at 4.35%.

At the last meeting, Governor Bullock said the Board had “space” to monitor developments. That message should be retained, making tomorrow’s outcome relatively uneventful.

For those looking for a dovish tilt, remember that both Bullock and Harper recently stressed that inflation remains too high. Data since then has not done much to ease those concerns.

The bias is to be long AUD, while keeping flexibility around the RBA and Fed.

Technically, a close back above the 100dma near 0.7084 would further support the view.

Trade bias: Long AUD bias.

RBA: Hold expected at 4.35%.

Technical trigger: AUD/USD close above 100dma near 0.7084.

Macro support: Risk rally, carry, lower inflation pressure.

Risk: Warsh hawkishness or RBA dovish surprise.

---

## CAD: De-Escalation Is Not CAD-Positive if Oil Falls

The US and Iran reached an agreement over the weekend, helping risk open on the front foot.

But oil has moved lower, with WTI back below $80/bbl.

De-escalation is broadly supportive for risk, but not necessarily for CAD. CAD has been a notable underperformer, mainly on the crosses, and has largely tracked the move in oil.

As written on Friday, I did not want to chase last week’s headlines. I preferred higher-conviction positions, particularly short CAD versus higher-beta EM FX such as MXN and ZAR.

Those trades are working today.

Focus is shifting to Warsh’s first Fed meeting on Wednesday. I am not sure which way he will lean, but CAD/EM shorts should continue to work for now.

Trade bias: Short CAD versus MXN/ZAR.

Oil: WTI below $80/bbl weighs on CAD.

Risk backdrop: Better for EM carry than CAD.

Catalyst: Fed/Warsh Wednesday.

Risk: Oil stabilises or Warsh hurts EM carry.

---

## SEK / NOK: NOK Hit by Oil, But Looking for Re-Entry Later

The US and Iran are due to sign a ceasefire agreement in Switzerland on Friday, followed by reopening of the Strait.

The Scandinavian reaction is as expected: NOK is underperforming as energy prices fall.

Timing is everything. After re-engaging NOK longs last week, I reassessed on the close below the 50dma in NOK/SEK around 0.9959.

So where does that leave the view?

The Strait reopening is clearly positive, but many hurdles remain over the next 60 days:

- Iran’s nuclear programme

- Sanctions relief

- Control of the Strait itself

- Israel’s response

Any one of these could derail the fragile agreement, assuming it is signed on Friday.

Still, the short-term sentiment boost should not be underestimated.

So far, the market reaction is logical. The feedthrough is:

- Lower rates

- Better growth outlook

- Less inflation pressure

- Positive backdrop for high-beta carry

That includes Norway, eventually.

Full disclosure: I am not advocating everyone should be long NOK today. NOK will likely remain under pressure near term.

But traffic through the Strait will take far longer than 60 days to normalise, and the ceasefire is fragile at best. Energy prices should retain some premium despite the obvious fall.

I am already thinking about when the right time is to buy NOK again.

Probably not today.

Trade bias: Not long NOK today, but looking for re-entry later.

NOK/SEK: Reassessed after close below 50dma near 0.9959.

Near-term driver: Lower oil weighs on NOK.

Medium-term: Fragile ceasefire should keep some energy premium.

Risk: Oil keeps falling as Strait reopening confidence builds.