Institutional FX Insights: JPMorgan Trading Desk Views 21/5/26
JPM G10 FX Daily
EUR / AUD / NZD / SEK / NOK: USD Bulls Run Into Headline Landmines
The USD looked poised to extend recent highs before another headline-driven reversal knocked it roughly 0.5% lower.
The early Middle East headlines were not exactly encouraging, with Iran saying it would retaliate beyond the region if attacked again. But then came an Al Arabiya “sources” headline claiming that work was underway to put the finishing touches on a draft agreement between Washington and Tehran.
That was enough to turn the dollar.
Newly minted USD longs started to run for cover, and the selloff accelerated after a Bloomberg headline said: “Trump says US in final stages of talks with Iran.”
The issue is that the Trump headline was old and, once again, poorly framed. The full quote was far less clean:
“Economic numbers are phenomenal. We’re in final stages of talks with Iran. We’ll see what happens. Either have a deal or we’re going to do some things that are a little bit nasty, but hopefully that won’t happen.”
So yes, one of these articles will eventually be right. As they say, two hundred and twenty-one times a charm.
This is a tough environment to trade. Inaccurate and conflicting headlines are forcing sharp position adjustments, so the better approach is to step back and focus on what still makes sense.
I have been trading defensively recently, which has meant USD longs primarily against EUR and GBP. That remains the bias for now, with some caveats.
For EUR/USD, I still prefer the short side while below 1.1700.
For GBP/USD, the close above the 200dma is worth monitoring. But I would like to see a two-day close before becoming more concerned, especially as last night’s Fed minutes leaned hawkish.
On AUD, moving to the sidelines yesterday was the right decision. The overnight employment report and PMI data were weak. I have not completely given up on AUD relative-value longs, but with a higher-USD bias and softer local data, it seems prudent to wait for better levels before re-engaging.
NOK is weaker this morning in a delayed reaction to the oil move after yesterday’s supposedly positive Middle East headlines, although it is rebounding well. As noted before, NOK should underperform on any actual Middle East resolution. But energy prices are likely to remain elevated, and inflation should stay persistent for months, so terms of trade and carry still support the broader NOK view.
Encouragingly, the NOK selloff after the headlines was well contained. Any weakness on a real resolution should give better levels to buy or add to NOK longs.
Trade bias: Still tactically long USD, but lighter and headline-aware.
EUR/USD: Prefer short while below 1.1700.
GBP/USD: Watch two-day close above 1.3425/50 resistance.
AUD: Sidelines for now; wait for better levels to re-enter RV longs.
NOK: Buy/add on resolution-driven weakness.
Key risk: Another positive Middle East headline squeezes USD longs again.
GBP: Cable Back at the Frustration Zone
Al Arabiya reported that the US and Iran were putting the final touches on a deal, triggering a broad relief rally across asset classes.
The reaction looked overdone. There is still no real theme emerging from the constant back-and-forth in headlines. Short-term positioning mattered too, as investors who had lifted high USD offers were forced to unwind.
Cable is now straddling the 1.3425/50 resistance zone, while EUR/GBP is sitting near the lower end of the YTD range. It is hard not to feel disheartened if you are short sterling.
The BoE spoke with the Treasury Committee yesterday, and the tone was relatively benign after recent data. PMIs are next. Given the French numbers were much weaker than expected, there is a risk that other surveys follow suit. If they do, we could see a decent reversal in risk and renewed USD support.
Flows showed a pause in the GBP selling trend:
Real money and hedge funds were decent GBP buyers.
Systematics were suppliers of pounds.
The short GBP thesis is not dead, but it needs help. Either politics needs to heat up again, UK data needs to soften further, or the USD needs to regain momentum.
Trade bias: Still short GBP versus USD and EUR, but patience is being tested.
Cable resistance: 1.3425/50.
Confirmation risk: Two-day close above the 200dma would be more concerning.
EUR/GBP: Near lower end of YTD range.
Catalyst: UK PMIs; renewed political headlines; broader USD recovery.
Risk: Middle East relief headlines keep squeezing USD shorts and supporting cable.
JPY: Near 160, The Risk-Reward Changes
Positive Middle East headlines triggered a sharp risk reversal yesterday, leading to aggressive afternoon selling in the dollar.
Despite that, USD/JPY ended only slightly lower.
Fundamentally, it is difficult to be outright short USD/JPY. US yields are high, the dollar still has macro support, and carry remains powerful. But as we approach 160, the likelihood of intervention rises.
I am not especially bullish JPY, but the risk-reward shifts near 160. It makes sense to start building USD shorts there or consider buying downside in USD/JPY.
Flows were two-way:
Systematics and hedge funds were notable JPY buyers.
Real money and corporates were JPY sellers.
Trade bias: Do not chase USD/JPY longs near 160.
Preferred action: Build USD shorts near 160 or buy downside.
Reason: Intervention risk rises materially.
Risk: If authorities do not act, USD/JPY could overshoot quickly.
CHF: Still Short, But Less Conviction
I am happy to remain short CHF via AUD and USD, but conviction has moderated.
The core CHF bearish thesis remains:
Lack of carry.
Long CHF positioning.
SNB firmly against CHF strength.
Higher global yields favour using CHF as a funder.
That said, there are reasons to be lighter:
USD/CHF is struggling to break above the 200dma.
The AUD leg took a hit from weak employment data.
Real money is back buying CHF and is now on a three-day streak.
Systematics also bought CHF yesterday after a period of selling.
So the trade still makes sense, but with less size.
Trade bias: Still short CHF via USD and AUD.
Conviction: Reduced.
USD/CHF issue: Struggling at the 200dma.
AUD/CHF issue: AUD hit by weaker local data.
Flow warning: RM and systematics buying CHF.
Risk: Positive Middle East headlines plus lower yields revive CHF demand.
CAD: Still Short CAD Medium Term
No change in view.
I still expect CAD to underperform in the medium term and do not expect the Bank of Canada to hike rates anytime soon.
For that reason, I prefer to stay short CAD, mainly against AUD longs.
The macro logic is unchanged:
Canadian inflation has cooled.
Growth is subdued.
BoC hike pricing looks too aggressive.
CAD remains vulnerable on crosses.
AUD/CAD remains the preferred expression, even if AUD timing needs care after weak local data.
Flows were mixed:
Real money showed solid CAD demand yesterday.
Hedge funds were notable CAD sellers.
For FX overall, the focus remains squarely on Middle East developments.
Trade bias: Short CAD medium term.
Preferred expression: Long AUD/CAD, but be tactical on AUD entry.
Risk: Real Middle East resolution lowers oil risk premia and creates messy CAD/AUD price action.
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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!