Institutional FX Insights: JPMorgan Trading Desk Views 27/5/26
JPM G10 FX Daily
EUR: Paralysis, Push/Pull, and a Dollar That Refuses To Trend Cleanly
The paralysis continues.
Maybe FX wants to see an actual Middle East deal before believing it. Or maybe there are simply too many push/pull factors keeping the dollar contained: a deal and risk uplift on one side, Warsh uncertainty and the re-emergence of US exceptionalism on the other.
Either way, it makes for long days.
A resilient US economy and any sort of kick-the-can-down-the-road Middle East agreement should restore some confidence in global growth. That leaves the USD picture complicated rather than clean.
In G10, preferred dollar longs remain against:
CHF
GBP
It was encouraging to see EUR/GBP bounce from support yesterday.
USD shorts look more attractive in EM. ZAR looks like a good candidate from current levels. I took HUF shorts back, but will look to supply any bounce. In G10, I still like AUD, but would prefer a bigger washout on the crosses before re-engaging.
Our strategists are becoming more bearish on EUR, driven by widening growth and rate differentials in favour of the US. That said, they are wary that any Middle East deal could spark a short-term knee-jerk rally.
I wonder whether that bounce could be larger than many expect, given how popular EUR shorts are on the crosses. But I cannot really argue with the broader bearish narrative.
So, after being short EUR a week or so ago, I am happy to sit more neutral here and wait for the red headline — then watch the price action.
Trade bias: Neutral EUR/USD for now.
Strategic view: Bearish EUR on widening US-Europe growth/rate differentials.
Risk: Middle East deal sparks larger short-covering rally than expected.
G10 USD longs preferred versus: CHF and GBP.
EM USD longs: ZAR looks attractive; resupply EUR/HUF on bounces.
GBP: EUR/GBP Dip Buy Working
There is little to be gained by talking endlessly about Iran. It feels like some version of a ceasefire deal is in the post. If and when it arrives, the market seems inclined to fade the USD selloff anyway, because US exceptionalism is rising regardless.
Of course, Warsh’s first Fed meeting remains a huge question mark for the USD. Ahead of that we still have month-end, which looks like a small USD sell, plus an important NFP and CPI round.
USD-positive bias remains, but better levels to add should appear in coming sessions.
For sterling, the OFGEM price cap rise came in at 13% this morning. That is still nowhere near the levels seen in 2022, but it is not a great headline. After a washout in GBP positioning, it is helping push GBP lower this morning.
Buying the EUR/GBP dip worked well yesterday. I plan to keep longs and look for 0.8700 over the next few sessions to trim some. I would not like to see a move below 0.8600.
Month-end value date today brings the usual USD-buy expectations, but recently these signals have tended to produce the opposite result in the London afternoon.
Flows:
SHF extended their GBP buying streak to four days with a 2z purchase.
RM sold 1z.
DHF sold 0.75z.
Trade bias: Long EUR/GBP.
EUR/GBP target: 0.8700, trim some there.
EUR/GBP support / stop concern: 0.8600.
Cable support: 200dma at 1.34235.
Cable resistance: 1.3540/50.
Risk: Continued GBP short-covering if politics stays quiet and gilts remain calm.
JPY: MoF Footprints Should Be Close
USD/JPY progress remains glacial despite broader USD gyrations.
We have now touched levels last seen before the MoF took bold action. I would be very surprised if we do not see their footprint — either rate checks or actual action — in the next 50 points.
I am keeping short CHF/JPY here. This is a patience trade, and we might as well earn some carry while waiting.
Ueda was on the wires overnight but did very little for June pricing, which remains around 19bp.
The flow footprint remains consistent:
DHF and SHF continue selling JPY.
JPY shorts are being reinstated cautiously.
Very little from onshore or offshore real money.
Trade bias: Modest long JPY via short CHF/JPY.
USD/JPY: Near pre-intervention levels.
MoF risk: Expect checks/action within the next 50 points.
Why CHF/JPY: Cleaner than fighting USD strength directly and earns carry.
CHF: Fundamentals Say Short, Flows Say Be Patient
CHF was softer yesterday against both USD and on the crosses, but frustratingly it has started to reverse again this morning.
Fundamentally, being short CHF still makes sense:
Low carry.
SNB discomfort with CHF strength.
If risk stabilises, CHF should be a preferred funder.
USD/CHF remains supported by the broader US exceptionalism narrative.
But price action is frustrating, and flows continue to argue for patience:
Real money has bought CHF in six of the last seven days.
Systematics are on a five-day CHF buying streak.
Month-end is also a factor, and recent month-ends have tended to see CHF strength.
I remain short CHF largely against AUD, but this is a range-trading environment for now rather than a clean trend.
Trade bias: Short CHF, mainly versus AUD.
Conviction: Moderate/low due to flows and price action.
Tactical approach: Trade the range.
Flow warning: RM and systematic CHF demand persistent.
Risk: Month-end CHF strength extends.
AUD / NZD: RBNZ Delivers the Hawkish Risk
Yesterday I argued that the RBNZ decision was much closer than markets were pricing, and that risk/reward favoured a small NZD long into the meeting.
That was the right skew.
The RBNZ held rates at 2.25%, but the 3-3 vote split, with Breman carrying the deciding vote, shows just how close they were to hiking.
More importantly, the Board did exactly what was expected if they stayed on hold: they pushed the market toward July.
They raised the 3Q average OCR forecast from 2.28% to 2.51%, prompting JPM economists to bring forward their first rate hike call from September to July.
The statement was unambiguously hawkish:
“The OCR will most likely need to increase sooner and by more than envisaged in the February Monetary Policy Statement.”
That repriced the short end and sent NZD higher overnight.
The biggest move has been AUD/NZD, which also came under pressure after Australian April inflation printed softer than expected. Yes, the RBA’s preferred measure is the quarterly print, but long AUD/NZD had become a market favourite. The combination of hawkish RBNZ and softer Australian inflation has triggered profit-taking.
Technically, if AUD/NZD closes below 1.2209, which now looks very likely, it will print a key day reversal and suggest further downside.
The NZD longs taken into the meeting have now been tactically rotated into short AUD/NZD.
Trade bias: Short AUD/NZD tactically.
Key technical: Close below 1.2209 confirms key day reversal.
RBNZ: Hawkish hold; July hike strongly signalled.
AUD drag: Softer April inflation.
Risk: AUD/NZD dip buyers re-emerge if risk sentiment improves.
CAD: Short CAD Still Works
USD/CAD closed near the 200dma yesterday, and I expect the pair to continue moving higher as oil pulls back from recent highs.
Flows yesterday:
Systematic accounts supplied CAD.
Real money supplied CAD.
Hedge funds were better CAD buyers.
No change in view.
I remain short CAD, primarily on the crosses.
Trade bias: Short CAD.
USD/CAD: Biased higher after close near 200dma.
Driver: Lower oil and subdued domestic backdrop.
Preferred expression: Short CAD on crosses.
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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!