JP Morgan

EUR:

Continued deleveraging across markets, led by oil and rates and spilling over into FX, despite overall stability in equities. Trying to figure out the narrative here, I guess with worries around supply issues and the delta variant, maybe that summer boom people expect from growth is dampened or delayed. Equities can hold in for now if the conclusion is policy normalisation is also delayed and the Fed stays very patient, but that doesn’t help heavy positions in US fixed income, nor in FX for countries where a lot is priced into their respective rates markets and the currencies are well owned. Hence that is where we are seeing the pain for now. That’s my stab at an explanation for current price action at the very least, right or wrong!

Nothing really notable from the Fed minutes, not that the market was really watching!! And a new risk event today in the form of the conclusion of the ECB strategic review, somewhat earlier than expected. Early headlines suggest a 2% inflation target with some tolerance for overshoot, what matters more for the euro itself is how we get to that target. Potentially with a helping hand of including housing costs but surely that won’t be enough, but whether we get any further detail on policy is unlikely at this point I would say. Nevertheless, I remain short euros as pressure remains to the downside and we held first resistance level well this week, looking for a retest of the year’s lows around 1.17. Where positioning has changed is in the jpy where I flipped to short usds yesterday, the inability of usdjpy to rally when the euro and usdchf were moving was notable, and in this environment where yields are collapsing and people are deleveraging I don’t think usdjpy can hold up. We have broken notable support overnight. Elsewhere eurczk could not escape the position pain across the rest of EM and have moved to a very social position whilst this plays out.

GBP:

Fed Minutes seemed a to be a marginal dove last night although if I am honest I could not see much in them not least because the signal was a little dicey in the stadium, the backdrop remains challenging in market as recent deleveraging trends continue. While there is likely some positioning left in sterling it is actually holding up pretty well for now over the last few sessions (only the JPY, USD and CHF are higher), again explanations range from high spirits from the football or maybe that we could be the epicenter for breaking the link between infections and hospitalization as Boris places full faith in vaccinations although this is increasingly starting to feel like a high risk strategy). Leaving sterling alone for now, have sold some USDJPY given the bid in fixed income and potential for further washout of stubborn positioning in that space while USDJPY specifically looks to have set a classic bulls trap over quarter end and is breaking uptrend support from the ~102.50 2021 lows. 1.3760/70 remains short term support in cable with 1.3650/70 the big level below (0.8530/40, 0.8470 EURGBP) while 1.3815/20 is interim resistance with 1.3925/35 above (0.8625/30, 0.8670 EURGBP). ECB will steal the show today as the market will examine the potential overshoot tolerance / make up aspirations.