J.P.Morgan Revert To Relative Value Plays In G10

J.P.Morgan note that "August was a challenging month for both the USD and our portfolio. Pro-reflationary forces and some late-summer trading conditions frustrated our structurally-motivated shorts in NZD and GBP, leaving our lone portfolio exposure to USD/JPY. The large moves seen this summer in G10 are not without justification we think. Most G10 FX performed proportionally with historical growth betas over the last three months. EM FX, by contrast, seems less coupled to its cyclical drivers. The disconnect between G10 and EM FX is notable. This suggests that G10 is currently priced for further improvements in the global cycle. We estimate that EM FX, by contrast, is priced at levels consistent with industry contraction. This mismatch is indicative that the global cyclical conditions are still not entirely conducive to broad-USD selling. We are wary of the extent to which market technicals amplified FX moves through August, underscoring our expectation for some USD consolidation. NOK and GBP screen as potentially overbought, particularly when considering the considerable macro headwinds in the latter. In anticipation of a more sideways USD range, we turn our focus back to relative value. We tactically sell a basket of EUR & GBP versus CAD, to capture near-term risks (ECB, COVID-19) and structural concerns (Brexit, fiscal cliff) while CAD screens as a buy in our growth framework and is relatively underweight. Stay short USD/JPY."