JPM G10 FX

EUR More fun and games overnight, with markets playing Guess the Whereabouts of Vance before the latest climbdown on the ceasefire deadline, this time attributed to a "split Iranian government." We are still left with the same core problem: ongoing uncertainty and very little ability to add conviction at this stage, which unfortunately makes for long days. The FX market still does not know whether it wants to play offence or defence here. Continued closure of the Strait will matter for growth the longer it persists, and the risk of re-escalation has not fully gone away, yet carry is still performing, risk assets are still holding together and current economic data — notably US retail sales and UK employment — are holding in for now alongside hope that an uneasy truce can eventually take hold.

Stepping back, the Dollar still feels generally soft. Given all the turmoil, solid US data, recent US equity outperformance and Warsh sounding more credible and independent than some feared, it is notable that the Greenback still cannot sustain much of a rally. That does not mean one can sit here with full confidence that re-escalation is not just around the corner — last night’s price action was another reminder of the risk-management challenge — so positions should remain small. I still think it makes sense to retain small acknowledgement longs in EUR and MXN, alongside some EURHUF shorts. On the euro specifically, the main flow takeaway from yesterday was a continued drip-feed of buying from European real money, which appears to be cushioning sell-offs. Levels remain unchanged and I am still only left with tiny longs, mostly via options.

GBP The Iran story continues to take all the oxygen, with Tehran refusing talks and Trump extending the ceasefire indefinitely, which remains broadly consistent with a robust TACO dynamic — but the question is still whether Iran allows it to hold. The next logical step in the TACO sequence would be some concession around the naval blockade, because from the Iranian side it is hard to see much constructive response beyond possible escalation, potentially through the Houthis. There are still a lot of question marks, and elevated energy markets continue to exact a price on broader sentiment. Unsurprisingly, conviction in USD shorts has dwindled, not that it was especially high to begin with.

I still do not like sterling. Admittedly it has traded better, largely because there is still no smoking gun that forces Starmer out immediately, but I do not think the political issue can be ignored. Robbins yesterday described intense pressure from No.10 to force through the Mandy appointment, and the picture looks increasingly clear: Starmer took a major risk that has proved wholly unacceptable in light of the Epstein file disclosures. Today’s inflation report was headline in line and services a touch firmer, but I still struggle to find a compelling reason to buy GBP beyond the possibility of tactical position reduction if Starmer continues to hold the line. EURGBP 0.8680/0.8750, Cable 1.3475/1.3600. Flash PMIs tomorrow will be watched closely.

JPY Little to add here. The usual BoJ hold source stories were everywhere yesterday, which should surprise no one, and USDJPY continues to grind around the same brutal 158/160 range it settled into at the outbreak of Operation Epic Fury — remarkable really that outright war managed to kill USDJPY vol so effectively. It remains a difficult pair to trade, with net flows still very muted and the only recurring theme being persistent offshore real-money selling.

CHF Plenty of back and forth overnight over whether JD Vance was travelling for peace talks, which made for a choppy session, but we eventually settled on the ceasefire extension. Outside of a somewhat firmer USDCHF, the franc was more insulated than the higher-beta pairs from the noise. My only real takeaway is that I am still surprised the Dollar is not a bit higher. CHFJPY made fresh all-time highs yesterday at 204.48; I remain tactically short, though I would reduce through 205. Flow in CHF was again limited and, aside from tactical CHFJPY shorts, I still struggle to form a strong medium-term franc view.

AUD / NZD / SEK / NOK I was hoping to have something more insightful to write after the ceasefire expired, but sadly not. Despite no further talks emerging between the US and Iran, Trump — in his latest climbdown — extended the ceasefire indefinitely, even as the US blockade continues. Risk was initially hit when it became clear Vance was not in Islamabad, before recovering on the ceasefire extension. Once again we are in a holding pattern, waiting for the next headline to fade as the saga drags on. While the ceasefire extension was taken as a modest positive, the Strait of Hormuz remains closed and early airline cancellations are another reminder that the longer this conflict drags on, the more likely it is to create meaningful growth headwinds.

This still leaves me comfortable being long AUD and NOK, as you know my broader views there, while NOKSEK still has room to move higher following soft Swedish employment data this morning. The number is volatile, admittedly, but for a country whose central bank started cutting almost two years ago, the failure to generate a more consistent hard-data improvement is concerning. There was some hedge fund buying in NZD yesterday, although volumes were light, but after the break through several moving averages I will be watching closely for any follow-through demand.

CAD It was an extremely quiet session for the loonie yesterday, with the currency trading mostly sideways as better demand from systematic accounts was largely offset by hedge fund supply. As regular readers know, I still think it makes sense to run short CAD against the higher-beta, pro-risk commodity currencies, but with the US-Iran situation dragging on this trade may simply take longer to play out than initially hoped.