JP MORGAN CHASE(US:JPM)2025-06-30 01:02Investment Rating - The report maintains a bearish outlook on the USD, indicating a potential for further weakness due to various macroeconomic factors [1][17][42]. Core Insights - The quality of USD carry has deteriorated, influenced by softer growth, lower real yields, and rising term premiums, which historically correlate with negative outcomes for the USD [17][42]. - FX hedge rebalancing from under-hedged sectors in Europe and APAC is expected to continue acting as a depressant on the dollar [17][42]. - The report emphasizes thematic differentiation across FX, favoring mid- to low-yielding currencies and highlighting the outperformance of current account surplus currencies [17][43]. Summary by Sections FX Outlook - The report suggests staying bearish on the USD, with valuation undershooting compared to rates and equities, and a lack of discrete catalysts for strength [1][17]. - Historical data indicates that significant CNY strength is not a prerequisite for USD weakness, and constructing carry-efficient short dollar proxies is recommended [1][17]. Macro Trade Recommendations - The report recommends being overweight in JPY, EUR, Scandi, and Antipodeans while underweighting USD and GBP [2][43]. - It suggests re-selling CAD/NOK as a carry-efficient EUR/USD proxy and buying 6m USD/CAD put spreads [2]. Emerging Markets FX - The report is optimistic about emerging markets FX heading into H2, supported by diminishing US exceptionalism, with a preference for EM Asia 'creditor' currencies and CEE euro-proxies [3][43]. - It advises staying selective in commodity and frontier markets [3]. FX Derivatives - FX volatility is expected to remain neutral into Q3, with a potential pickup later on, and positioning for USD skew underperformance is recommended [4][43]. - The bearish USD trend may see some pause in the summer, but it is too early to suggest a lasting bottom for the dollar [4]. Technical Strategy - The report indicates that the bearish trend for the USD is likely to continue, with key targets set for various currency pairs against the USD [42][43]. - It highlights the importance of monitoring macroeconomic indicators and central bank policies that could influence currency movements [42][43].