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FOREX: J.P. Morgan On Bearish USD Backdrop

FOREX
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J.P. Morgan: "Outlook: It is (probably) premature to mention recession, but that US exceptionalism is moderating should be undisputed. Further moderation would be USD bearish and push us towards final stages of carry-to-value rotation. Cheap low-yielders are thus primed to benefit and equity-hedging flows should become FX-relevant. The u-turn in German fiscal policy is a game-changer and opens the prospect of Europe catching up to US growth for the first time in years. New EUR/USD forecast is 1.14-16. The near-term path is noisy with key tariff dates and German fiscal in flux, but focus on medium-term themes of US moderation and European recovery.

Macro Trade Recommendations: Turn bearish USD after neutralizing longs last week. Short DXY. Sold USD vs. EUR, SEK intra-week. Sell USD vs. AUD, NOK (cheap cyclical low-yielders). Euro bloc RV: Stay short EUR/SEK in options; sell EUR vs. NOK and SEK outright. Re-sell CHF/JPY after hitting take-profit stop. Stay long JPY vs USD, NZD , EUR as recession hedges.

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J.P. Morgan: "Outlook: It is (probably) premature to mention recession, but that US exceptionalism is moderating should be undisputed. Further moderation would be USD bearish and push us towards final stages of carry-to-value rotation. Cheap low-yielders are thus primed to benefit and equity-hedging flows should become FX-relevant. The u-turn in German fiscal policy is a game-changer and opens the prospect of Europe catching up to US growth for the first time in years. New EUR/USD forecast is 1.14-16. The near-term path is noisy with key tariff dates and German fiscal in flux, but focus on medium-term themes of US moderation and European recovery.

Macro Trade Recommendations: Turn bearish USD after neutralizing longs last week. Short DXY. Sold USD vs. EUR, SEK intra-week. Sell USD vs. AUD, NOK (cheap cyclical low-yielders). Euro bloc RV: Stay short EUR/SEK in options; sell EUR vs. NOK and SEK outright. Re-sell CHF/JPY after hitting take-profit stop. Stay long JPY vs USD, NZD , EUR as recession hedges.

Keep reading...Show less