JPM G10 FX Daily

EUR / USD: Soft CPI, But War Fog Limits USD Follow-Through

Headline inflation readings were all negative yesterday.

However, the degree of surprise was a little less cool in the PCE estimates.

Trump also rowed back the Strait of Hormuz passage charge plan.

But the attacks continue, and the market remains nervous that its underlying TACO belief may need to be revisited.

I guess the next stage would be civilian infrastructure — bridges, power and so on — so this needs watching.

Otherwise, we roll into the next PCE contributor this afternoon: PPI.

Price action was pretty disappointing on the face of it, especially given Warsh continues to point to the data being in charge.

But the fact is the fog of war is back, and markets will stay uneasy.

I paid some spreads in USD yesterday, along with everyone else I am sure.

But I am still refraining from going outright short USD given the environment.

Preference for carry has increased at the margin.

EUR/USD: Still Compressed Around 1.14

EUR/USD looks like more of the same.

We remain compressed around 1.1400.

Levels to watch:

  • Support: 1.1340

  • Resistance: 1.1470/80

Flow-wise, the SHF EUR selling streak has extended to 15 sessions.

That is notable and argues against aggressively chasing EUR downside here.

Trade bias: Neutral/range, with bearish bias only on rallies.
Support: 1.1340.
Resistance: 1.1470/80.
Catalyst: US PPI today.
Risk: Middle East escalation keeps USD bid despite softer data.

GBP: Miliband Odds Collapse, But GBP Still Looks Stretched

There was an interesting update from the Burnham camp overnight.

The Times reports significant pushback against Red Ed Miliband as Chancellor.

His odds have plummeted on Polymarket from around 70% to 20%.

Cooper and Mahmood have now overtaken him.

Many will paint this as good news.

But I would say the market had become comfortable with Miliband.

Cooper is still associated with being quite expansionary, especially on defence.

Gilts have not done much at the open.

I still think GBP has done too much.

But the risk/reward is less negative after this development.

So I am keeping some EUR/GBP length, but I will not make a project out of it.

Flows Still GBP-Supportive

Flows remain supportive:

  • SHF GBP buy streak: 14 sessions

  • RM bought GBP in 6 of the last 7 sessions

  • DHF were GBP buyers for the first time in 8 sessions, buying around 1z

Key levels remain familiar:

  • EUR/GBP: 0.8470/0.8600

  • Cable: 1.3325/1.3500

Trade bias: Keep some EUR/GBP length, but size modest.
EUR/GBP range: 0.8470/0.8600.
Cable range: 1.3325/1.3500.
Risk: GBP flow momentum continues and Miliband pushback supports sentiment.

JPY: MoF Silence Does Not Change the Bigger Signal

MoF did not come in and take advantage of softer US data.

That will disappoint JPY bulls.

But for me, it is not inconsistent with the idea that authorities have changed gears.

They have moved from short-term levers to trying to shift the tectonic plates of the underlying structural flow picture.

I reduced the extra cash JPY I sold on the data.

I maintain:

  • CHF/JPY cash

  • JPY option structures

The timing of this move may be more difficult.

But in my opinion, you simply cannot and should not be short JPY here.

The signal is too great.

Authorities may be taking comfort in the JGB move.

But if USD/JPY breaks the highs again and 163, I think they may feel they need to act to reinforce the signal.

Flows yesterday were mixed across sectors.

Still no sign of locals.

Trade bias: Long JPY.
Preferred expression: CHF/JPY cash plus options.
USD/JPY trigger: Break of highs and 163 may force official reinforcement.
Risk: No local flow and USD resilience delay the JPY turn.

CHF: Added USD/CHF on the CPI Dip

USD/CHF moved back below 0.8100 on the soft CPI print.

But it came back quite bid after the initial knee-jerk.

That is encouraging for CHF bears like us.

We added some USD/CHF on the move lower yesterday.

I remain a little surprised by the lack of USD follow-through elsewhere.

But with Warsh sounding hawkish in his testimony — stating that the inflation fight is far from won — USD should still outperform low yielders.

That remains true even if price action is disappointing elsewhere.

Flow-wise yesterday:

  • HFs faded the move and sold CHF

  • RM and systematics were CHF buyers

Trade bias: Long USD/CHF / bearish CHF.
Add: Bought the post-CPI dip.
Key level: Around 0.8100.
Driver: Warsh hawkishness supports USD versus low yielders.
Risk: Softer PPI triggers broader USD downside.

AUD / NZD: Holding AUD/NZD; Would Add AUD/USD on Soft PPI

US CPI printed a decent miss yesterday.

That took a July hike off the table and weighed on USD.

Follow-through was watered down by Warsh’s House testimony, where he made clear his resolve to deliver price stability.

I generally think the market was premature to fade the USD sell-off.

Reasons:

  • Magnitude of the CPI miss

  • Recent softening in labour data

  • Two hikes still priced for the Fed

  • Trump backtracking on the 20% Strait of Hormuz cargo surcharge

  • Short-term positioning screening long USD

  • US has largely refrained from striking energy infrastructure

A soft PPI number this afternoon would solidify that view, even with elevated geopolitical concerns.

AUD/NZD: Support Holding

We are currently holding AUD/NZD longs.

The view is supported by:

  • Soft NZ card spending data

  • AUD/NZD 1.1940/00 support holding neatly

I would look to add AUD/USD back to the mix on a soft PPI number this afternoon.

Flow-wise:

  • FM were AUD buyers

  • Systematics continued to buy NZD, now 7 of the last 8 sessions

  • HFs sold NZD for a third day

Trade bias: Long AUD/NZD; add AUD/USD on soft PPI.
AUD/NZD support: 1.1940/00.
Catalyst: US PPI today.
Risk: Hot PPI revives USD and hurts AUD/USD.

CAD: Waiting for PPI and BoC; Buy USD/CAD Closer to 1.40

There are a few moving parts for CAD right now.

CAD has found a bid on stronger oil.

USD/CAD is under further pressure, getting closer to 1.4000, after soft US CPI.

I bought some USD/CAD yesterday ahead of CPI, but admittedly bailed pretty quickly on the print.

Now I am waiting for:

  • US PPI

  • BoC today

BoC: Hold Expected

I expect the BoC to remain on hold.

Macklem said earlier this month that they are comfortable with where rates are.

Data has generally improved.

Inflation eased after the MoU, reducing pressure from the BoC’s dilemma of weaker growth but higher inflation.

However, with revived Middle East tensions, there will be focus on oil moving higher again and the Bank’s interpretation of its inflation impact.

Overall, with data slightly better, we expect the BoC to stay on hold with no major outlook changes.

More broadly, we remain bearish CAD.

Data has improved, but from a low base.

So I am looking to buy USD/CAD closer to 1.4000, though I want to see today’s outcomes and respect the strength in oil.

Trade bias: Bearish CAD medium term; waiting to buy USD/CAD near 1.4000.
Catalysts: US PPI and BoC today.
Risk: Oil rally and cautious BoC keep CAD supported.

SEK / NOK: Oil Should Dominate Softer Norway CPI

Scandies traded quite well yesterday, helped by soft US CPI.

NOK was the better performer given the tailwind from higher oil.

Today, we received the delayed core Norway CPI print.

It came in below expectations:

  • Core CPI: 2.7%

  • Expected: 3.3%

EUR/NOK moved up to 11.10 on the release.

But with further US strikes overnight, Trump sounding escalatory, and Iran worryingly extending strikes to other oil routes, I expect oil to remain bid.

That should be the driver for NOK, rather than today’s inflation number.

So I re-sold a little EUR/NOK on this spike this morning.

I am leaving room to add up to 11.16/17.

There is not much to add in Sweden.

I expect SEK to gyrate around broader risk sentiment.

Trade bias: Re-sold small EUR/NOK on spike.
Add zone: 11.16/17.
Norway core CPI: 2.7% vs 3.3% expected.
Driver: Oil over inflation for NOK now.
Risk: Oil reversal or softer Norges pricing weighs on NOK.