J.P.Morgan Recommend Short EUR/USD

Late on Friday J.P.Morgan noted that "the ECB may not have proved the FX catalyst we hoped, but it nevertheless in our view reaffirmed the medium-term direction of travel for the central bank; additional accommodation is of course intuitive in the context of a 1.4% long-term core inflation forecast coupled with a more difficult-to-achieve framework revision we expect later this year. The FOMC, by contrast, finally signaled that it is indeed quite unlike the ECB and could well be more proactive in coming years, particularly as risks to inflation are now recognized to be growing. This finally provided the spark for USD directionality that we had been patiently waiting for. We accordingly take off our EUR/USD vol swap (initiated to capture the mix of event risk through the first half of June) and instead lean into the policy divergence between the two by selling EUR/USD outright. This may be supported as well by a diversification from the market away from its heavy concentration in JPY funding to include other low-yielders like EUR. Tactically, we are cautiously watching the degree of momentum stemming from Europe's ongoing reopening as a potential cyclical boost to EUR, but this has not as yet translated to forecast revisions above and beyond what our team had already envisioned, which keeps our EUR/USD forecast trajectory pointed lower with a negative risk bias."

• As such, they recommended going short EUR/USD at $1.1875 with a stop-loss at $1.2113.