JPM G10 FX Daily Report - 4th of January 2024 G10 FX EUR London Fx What has surprised me thus far this year has been the ease in which the dollar has retraced December's moves, the market felt very determined at the back ‘end of last year despite a lot being priced into rate markets already and ignoring red flags like mixed global data outside the US, That price action has completely fipped despite not much changing and whilst | would have thought people would have loved the opportunity to sell the rally in the dollar the ‘evidence has been to the contrary with flows continuing the other way, maybe positioning had built litle more than I thought, note though that volumes stil haven't quite got up to speed yet overall. Yesterdays data was supportive of the soft landing view in the US with headlines king of in ine and prices paid ‘component of the ISM lower yat failed to tum markets around, funnily enough then that the Fed minutes really gave no hint on timing of cuts coming closer to What's priced in the market yet that was when yields turned back lower. Feels like a tricky narrative to start the year overall | personaly feel understanding moves thus far this year has not been straightforward beyond “too much priced’ so haven't fully re-engaged in risk yet. The price action in usdjpy post last weok’s low on a 140 handle has been persistent and thus have taken off the small core | had sold on the rally on “Tuesday for now, trying to nurse positions in eurchf and eurnok and building into piinczk longs again. Dollar wise just don't fuly have a handle just yet, having bbeen short dollars at the back end of last year happy to have not been caught with too much positioning overhang but also wondering if am missing things on the other side given the price action. Hopefully payrolls tomorrow will provide more of a pointer, ‘The euro continued to sag yesterday and the first German State inflation print this morning coming in slightly lower than the national forecasts, stil feels if anyone isto cut rates in March would be the ECB rather than the Fed despite their protestations. But at 1.09 now versus 1.11 in December things feel rather inline in a world where people generally feel a bit bearish the dollar and abit bearish the euro, our strats have fair value right now a smidge below these levels. Revisions to the Dec services PMI and the remainder of inflation prints culminating in the Eurozone number tomorrow morning will have some focus but ‘overall feels like a dollar driven environment right here right now with payrolls looming. As outlined earlier in the week 1.0850 looks ike the key pivot on the downside now,uPY CHF Data yesterday from the States drifted in the direction of a softer landing and there were no surprises from the Fed Minutes which only offered limited back up to the super dovish tone from the December meeting — itis all going the right way but there is not enough to satisfy the level of pricing that the market has. achieved in recent weeks. SIil plenty of data to get through over the next week with NEP tomorrow and CPI on Thursday kely fo set the tone of the rest of the ‘month — for now it remains hard to have a strong bias in the USD. Sterling was a strong outperformer yesterday and while | had mentioned what could form the bull case for the pound - growth remains stubborn (if unexciting) while inflation comes aff - this move happened along-side a drift stronger in rate differential for GBP, the more notable of which is against the EUR. This led the cross lower losing through the 50, 200, 100DMAs but itis hard to get too excited avout ‘momentum in a cross who's range is less than 3% for the past 8 month. In terms of flow it was no surprise to see GBP at the top of thelist for systematic purchases given the rate moves but this was offset by RM supply from our franchise to leave overall net flows as very marginal ~ DMP and final PMs today but have to wait a few weeks before we get the important employment data along with CPI. More broadly the big questions going forward for stering will be how the wage round atthe start ofthe year behaves and the timing of the election which could well be Spring (Budget announced for 6th March). Stilno risk in this space for now. Cable testing initial resistance here at 1.2690/05, next level is 1.2785/95 (EURGBP 0,8645/50, 0.870010) while good support remains at 1,2810/15 and 1.2500/05 (EURGBP 0.8600, 0.8550). The squeeze of one of the '24 favourites continued yesterday with JPY trading very poor especially compared to fixed income and this was laminated by a soft “Tokyo session for the currency with Japan back from holidays. The extent of the tragic earthquake is certainly calling into question the chance of Bod action in January and indeed Ueda was on the wires overnight claiming the BoJ will be ‘supportive of financial markets in the aftermath — problem then is they will probably need to wait unti the next forecast round which is April. RM and systematics were heavy sollers of JPY yesterday but DHFS started to fade — ‘maybe there is more to go? We were certainly a litle suspicious of the classic starting gun turnaround as the year gol going and coupled with; the earthquake, pretty benign US data and close above the 200d, we have moved to the sidelines for now in JPY. Next level on the topside through 143.95/05 is 1144.75195 while 142.80/90 now turns supportive, ADP and claims later. ‘The dollar initially eked out further gains amidst mixed data out ofthe US before retracing into the close following a relatively balanced set of Fed minutes. The ‘minutes didn't offer too much but did shed some light on the reasoning behind the dovish revision ofthe dot plot back in December, with some participants voicing policy rate is Ikely ator near its peak, although the market seemed to take its dovish cue from the notes around QT after several suggested it would bbe appropriate to begin discussing the technical factors about slowing the balance sheet run-off as both US yields and the dollar stepped off from the highs. USDCHF ultimately walked back from ils peak where we now settle bbelow 0.8500, while EURCHF meanders sub 0.9300 having run int traffic around the 0.9340 area once again ~ sticking with EURCHF longs where 2 break above aforementioned resistance would be encouraging and would be happy to re-assess on the approach towards 0.9400. Euro area inflation figures have started to fter in (France largely in-line) and will be the focus throughout the day, before ADP and IJC later this afternoon, Good luck.CAD i+] SEK Nok Not much to move the needle from yesterday's US data and FED minutes, but with yields off the highs and equities opening firmer, both AUD and NZD are tentatively trying to rally this morning. | am stil trying to decipher, whether the early NY moves are a sign of things fo come or just some froth being removed from a market that was clearly overextended. With that in mind, yesterday's US data and FED minutes delivered very litle, so the focus now tums to ADP and Claims ahead of the more important Payroll print tomorrow. OIN in Australi, ‘Services PMI dropped fram 47.6 to 47.1, although encouragingly, employment rose from 51.7 to 52.5, While | remain on the sidelines against the USD, | remain long the cross. Initial support is at 1.0750, but only a move below 1.085070 (long term trendline support) would call for a complete reassessment. Dollar buying was the name of the game again yesterday, that is before US. yields started to selloff post the London close despite pretty benign FOMC. ‘minutes. That said, not quite sure where my dollar bias rests right now so happy to be tactical fr the time being. My CAD view on the other hand is bearish and has been for quite some time on the back of weak domestic fundamentals which | believe will ultimately force the BOC to take a dovish stance. In addition, as the ‘massive sellof in US yields comes to an end, US v CA rate spreads should begin to move back in favour ofthe dollar which should see USDCAD appreciate further especially now that positioning is much cleaner, The next ‘couple of days will the quite interesting data wise, first with Services PMMI data ‘out of Canada today, followed by labour data from both CA and the US tomorrow. In my first commentary of the year, | suggested that we would need to see some early follow through for NOK from the FX purchase reduction to feel comfortable if we ever can! For most of the first 2 days, the currency certainly didn't give us any encouragement, but EURNOK finally topped out around 11.3650, in response to a 3% rally in Oil on the back of increased Middle East tensions, supply disruption in Libya, the US announcing another purchase of 3m barrels to replenish its SPR and finaly a statement from OPEC stressing its commitment to stabilizing prices. NOKSEK was the main beneficiary, rallying 1% fon the day, bringing the 0.9995/7.0010 area into view where we find the 50 and 400 DMA's. While welcome, we are not out of the woods just yet, but ifa lot of these early NY moves have been in response to higher yields and lower equities, then with yields off the highs and equities opening firmer, then risk ‘should’ be poised for a positive opening. With regards to Sweden, Services PMI rose from 48.5 to 50.0 which also took the composite to just 0.3bps from doing the same, which should be supportive for Sek this morning, although a small pullback in Employment, while stil above 50, warrants some caution and | would like to see a move below short term trendline support at 11.1800 to suggest that this recent sollotis starting to abato. Yesterday's US data and minutes didn't challenge the soft landing narrative, but there was litle reaction as the market, likely awaits further data prints over the next 2 days. Stl trying to decipher the early NY moves, but the bias remains to sellladd EURNOK on rallies back towards 11.37/40 and EURSEK towards 11.30/33, while a move above the aforementioned 1.00/10 in NOKSEK should further encourage a move higher.