Institutional FX Insights: JPMorgan Trading Desk Views 13/4/26
JPM G10 FX
EUR I was out for a few days at the back end of last week. After the initial post-ceasefire euphoria midweek, we are back to uncertainty following the failure of talks over the weekend and the US attempt to impose some form of blockade on the Strait of Hormuz. While price action at the open was broadly as expected, there has once again been no real follow-through in FX after the initial repricing. Either the market is increasingly reluctant to chase every geopolitical turn, or there remains a broader sense that the damage being done by Trump is also weighing on the dollar. I still see little edge in trying to forecast the eventual outcome here, so patience remains the preferred approach.
Even before last week’s brief improvement in sentiment, I felt the dollar was not trading as well as it should have been, and overnight price action reinforced that view. As a result, I am sticking with the tentative dollar shorts I initiated last week despite the deterioration in the news flow. In G10, I remain comfortable staying long EUR and short USDCAD. EUR broke key levels last week and posted a decent close on Friday before the weekend developments. USDCAD looked technically tired, and there should still be some medium-term support for CAD from higher commodity prices, despite the structural shift in the relationship with the US. We are also starting to see local names supply dollars at these levels after recent CAD underperformance.
I have also re-entered EURHUF shorts following the election result. This may look at odds with the broader geopolitical backdrop, but a significant local political regime change should support the currency, all else equal. The team has had a strong call on this theme, and we are expressing the view via options.
After Wednesday’s burst of euro buying, the market quickly settled into a holding pattern ahead of the weekend. Even so, the currency has held up reasonably well overall, without being especially impressive. The close above a cluster of moving averages is encouraging, and dips have so far been brief and shallow. Clearly, if tensions in the Middle East escalate again, it would be difficult to remain fully long EUR given Europe’s sensitivity to energy prices. Still, the price action has been somewhat encouraging. In the short term, a move back below the recent dip lows at 1.1640 from Wednesday evening and 1.1660 on the Wellington open would prompt me to trim some cash longs.
GBP US-Iran talks failed to produce an agreement over the weekend, and the US has now emerged as the latest disruptor of traffic through the Strait of Hormuz. This leaves us set up for another week dominated by headlines. While few expected a smooth path to a peace deal, the US administration’s response was probably not on many people’s radar. This erratic behaviour from the President further undermines confidence in the US, which should in turn leave the dollar as an underperformer if and when the Iran conflict concludes.
For GBP, however, the worsening energy shock pushes the UK further towards stagflation, which means sterling is unlikely to be a top pick for any asset reallocation or broader “sell America” trade. Instead, we favour EURGBP longs as a way to position for weakening UK fundamentals and more reactive FX hedging demand from European real money accounts. Thursday’s monthly GDP data will be worth monitoring, but developments in the Middle East will remain the dominant driver for FX markets.
JPY Trump appears to be taking a page from the Iranian playbook by moving to close the Strait of Hormuz after weekend diplomacy failed to deliver anything concrete. The US administration seems somewhat unclear on what its own interests are here, particularly given that higher oil prices are hardly desirable heading into the midterms. Against that backdrop, it is not entirely surprising that the dollar’s bid has been fairly muted relative to the more than 7% rise in WTI.
This supports the idea that the asset reallocation theme could regain traction once the US-Iran conflict concludes, particularly as confidence in the US continues to erode. That said, even if a peace deal is reached, global yields and energy prices are likely to remain elevated, and with no changes to the GPIF framework, JPY is not on our list of preferred longs. In terms of flows, we saw better yen supply from the franchise on Friday, led by hedge funds. In USDJPY, 158.00 and 160.50 are the key levels to watch. In EURJPY, support comes in at 183.40/75, where the 50-day and 100-day moving averages sit, while resistance is at 186.90.
CHF Talks between Iran and the US broke down over the weekend, while the recent upward momentum in EUR/CHF has stalled for now. That said, the franc has not meaningfully reacted to shifts in risk sentiment over the past few weeks. Instead, it has been driven more by SNB rhetoric around intervention. In that sense, it is acting as a partial counterweight to broader risk dynamics: an improvement in risk sentiment lowers the likelihood of SNB intervention and therefore creates a headwind for EUR/CHF rallies, while a deterioration in risk sentiment and any move lower in EUR/CHF should prompt the SNB to step up its intervention rhetoric again. As a result, I think we remain stuck in a range-bound stalemate for now, so I prefer to stay on the sidelines. Flow remains mixed.
AUD / NZD
That did not play out as hoped. Talks between the US and Iran failed to produce any form of agreement and, if anything, Trump’s post stating that from 15:00 today the US will block any naval vessel attempting to enter or leave Iranian ports is clearly escalatory. After an initial USD rally at the open, with AUD trading below 0.70, there has been very little follow-through. I am somewhat surprised by how easily the market has brushed off these latest developments, especially given that implementing such a move would presumably require some form of engagement from the US Navy.
The fact that the ceasefire remains intact is somewhat reassuring, but Iran’s response remains the key issue and, on that front, I do not have a strong edge. Encouragingly, AUD/USD is only around 30bps lower than where I left it on Friday, but it still makes sense to reduce what was already limited exposure, as we are once again relying on the headlines for direction. Confidence in the US administration continues to erode amid further erratic behavior from the President and, while we are not there yet, I expect the USD to come under more meaningful pressure once some form of resolution is reached.
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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!