Accessible version FX Viewpoint USD: Maintaining a bearish bias amid growing 2-way risks Key takeaways Home, home in the range Despite steady market-relevant news flow and growing two-way risks, the DXY remains within its tightest range in more than a decade. FX positioning has moderated and conviction in the "short USD trade" has waned. The shutdown-induced data void is not helping. Global developments take FX market's eye off the Fed French and Japanese developments captivated the FX market for about a we ...

J P M O R G A N Global FX Strategy 11 July 2025 Key Currency Views Why the bearish dollar view still holds Figure 1: Various systematic/technical indicators have turned less USD-bearish; while this could lead to consolidation in the near term, we are downplaying the significance on the medium-term view Source: J.P. Morgan See page 49 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be ...

Investment 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].

Summary of Key Points from the Conference Call Industry Overview - The discussion revolves around the **Foreign Exchange (FX) market** and the implications of recent U.S. tariff rulings on the **U.S. Dollar (USD)** and related currency pairs, particularly **USDCHF**. Core Insights and Arguments 1. **Market Reaction to Tariff Ruling**: The FX markets quickly reversed the overnight USD rally following the court's decision to strike down President Trump's IEEPA tariffs, indicating a belief that the ruling will be appealed and that alternative tariff tools are available to the administration [1][3]. 2. **Uncertainty in U.S. Policy**: The main takeaway is that U.S. policy will remain uncertain, with traders recognizing that the court ruling could be appealed or replaced by other tariff mechanisms, such as Section 122, which allows for broad tariffs for a limited time [3][4]. 3. **Extended Tariff Timeline Risks**: The court ruling has likely prolonged the tariff uncertainty, which may affect expectations regarding trade deals and tariff rates, particularly before the July 9 deadline [4]. 4. **Bearish Outlook on USD**: The firm maintains a bearish outlook on the USD for the coming months due to concerns over lower tariff revenue and deteriorating hard data, which could lead to more dovish Federal Reserve pricing [5][10]. 5. **Labor Market Indicators**: An increase in Continuing Claims to post-COVID highs is viewed as a negative sign for the labor market, suggesting a potential rise in the unemployment rate [5][6]. 6. **USDCHF Positioning**: The recommendation to short USDCHF is emphasized, with a specific price point of 0.8245 being critical for confirming a bearish trend. A close below this level could lead to further declines towards 0.80 over time [11][12]. Additional Important Points - **Geopolitical Risks**: Increasing geopolitical risks, particularly related to the Russia/Ukraine conflict, are noted as factors influencing currency positioning and market sentiment [11]. - **Market Dynamics**: The price action reflects a broader market sentiment where the USD could not maintain gains after the tariff news, indicating potential selling pressure as month-end approaches [10][12]. - **Analyst Disclosures**: The report includes disclaimers regarding potential conflicts of interest and the nature of the research, emphasizing that investors should consider this report as one of many factors in their investment decisions [2][14][17]. This summary encapsulates the critical insights and implications discussed in the conference call, focusing on the FX market's response to U.S. tariff policies and the outlook for the USD and related currency pairs.