Global FX Strategy
27 February 2023
Correction (first published 24 February 2023) (See disclosures for details)
FX Markets Weekly
2023 is not 2022, yet
Outlook:
A re-pricing of central banks is making 2023 feel like 2022, but there are key
differences—global growth momentum is still positive and central bank hikes
are slower—which have enabled the dollar to decouple from rates in recent
months. The dollar still weakens if US rates rise so long as growth momentum
stays positive, but in smaller magnitudes. Keep USD exposure light preFOMC; focus on carry, RV, longer term growth hedges.
Macro Trade Recommendations:
US rates vol has short-circuited well-subscribed themes from January. This
requires a tactical approach and more focus on r.v. With the rerating of tactical
USD / NorthAm prospects, we trim CAD shorts. Close AUD/CAD at a loss.
Stay long JPY in options (vs CAD, NZD, CHF). Short GBP vs USD, AUD.
Long AUD/NZD. Central bank re-pricing isn’t just about the Fed; EUR
should outperform on crosses ahead of the March ECB meeting.
Emerging Markets FX:
We stay MW EM FX. In EMEA EM, we remain MW with UW HUF, ZAR
vs. RON, CZK. In EM Asia, we recommend being short KRW, which should
weaken on late-cycle conditions. In Latam, the idiosyncratic stories warrant
differentiated views. Stay OW MXN and OW UYU vs. UW COP.
FX Derivatives:
Owning FX Vols outright as a replacement for risky assets hedges is now less
attractive. Proxy hedges via FX baskets can bring value against illiquid assets
(RUB) or select Equity Indices (S&P 500 and HSCEI). We see value in long
USD/NOK vs. short S&P 500 vol RVs. Tactical long Eurostoxx 50 vol can be
sourced by selling EUR/USD vol. Short USD/TWD put vs. long EUR/USD
call constructs deliver positive carry without left-tail exposure.
Global FX Strategy
Meera Chandan AC
(44-20) 7134-2924
meera.chandan@jpmorgan.com
J.P. Morgan Securities plc
Arindam Sandilya AC
(65) 6882-7759
arindam.x.sandilya@jpmorgan.com
JPMorgan Chase Bank, N.A., Singapore
Branch
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
J.P. Morgan Securities LLC
Lorenzo Ravagli, PhD
(44-20) 7742-7947
lorenzo.ravagli@jpmorgan.com
J.P. Morgan Securities plc
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
J.P. Morgan Securities plc
Anezka Christovova
(44-20) 7742-2630
anezka.christovova@jpmorgan.com
J.P. Morgan Securities plc
Abbas Keshvani
(65) 6801-3723
abbas.keshvani@jpmorgan.com
JPMorgan Chase Bank, N.A., Singapore
Branch
The dollar has decoupled from rates in recent months as global growth has improved
Tania Escobedo Jacob
USD broad index vs. US yield spreads to ROW (bp)
(1-212) 622-4128
tania.escobedojacob@jpmorgan.com
J.P. Morgan Securities LLC
Jason Hunter
(1-212) 270-0034
jason.x.hunter@jpmorgan.com
J.P. Morgan Securities LLC
Contents
Outlook
Macro Trade Recommendations
Emerging Markets FX
FX Derivatives
Market movers
Event risk calendar
Central bank meetings in 2023
J.P. Morgan Forecasts
FX vs forwards & consensus
Global FX Strategy contact page
2
7
18
23
28
30
32
33
39
Source: J.P. Morgan
See page 34 for analyst certification and important disclosures, including non-US analyst disclosures.
www.jpmm.com/Research/GlobalFXStrategy
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
Outlook: 2023 is not 2022, yet
 Tightening labor markets, firm inflation and a repricing of central banks is making 2023 feel like 2022,
but there are key differences—global growth
momentum is still positive and the pace of central
bank hikes slower…
 …which is why USD is 5% below its peak even though
US terminal rates are making new highs. To revert
more fully to 2022 style USD strength, we need to see
another vol shock or a re-escalation of geopolitical
risks.
 Historically, when growth outside the US is getting
upgraded, the dollar still weakens even if US rates
rise, but in smaller magnitudes and with lower hit
rates. We think it is prudent to keep overall USD
exposure light pre-FOMC…
 ...and instead, recommend focusing on carry (higher
US yields should be supportive), idiosyncratic RV/
China re-opening and longer term growth hedges
(short cross/JPY in options).
 Next week: Euro area & Tokyo CPI, global PMIs;
ECB minutes
Global FX Strategy
27 February 2023
2022 which was able to deliver double digit appreciation in
the broad dollar index. To revert more fully to 2022, we
need to see another vol shock or a re-escalation of
geopolitical risks.
Exhibit 1: A re-repricing in front-end rates wasn’t just limited to the
US, but was prevalent for most of DM
MTD change in 2Yx3M OIS/swap rates; bp
80
60
40
20
0
-20
AUD
NZD
GBP
CAD
EUR
CHF
JPY
NOK
SEK
USD
Source: J.P. Morgan
Exhibit 2: Carry strategies are once again outperforming, like in 2022
Ytd returns of FX single signal cross-sectional strategies with trading costs (top
5/bottom 5)
Wake me up when March ends
February has been a transformational month, but has
provided more questions than answers. The dual combo of a
stonking payrolls and firm inflation led to a 50bp increase
in the Fed’s terminal rate of 5.43% at the time of writing.
The recent weeks haven’t been just about the US though,
even though that has been the FX market focus. For
instance, higher yields were not just an US only phenomena
as most other DM central banks have been repriced as well
(exhibit 1). Meanwhile, global growth momentum remains
on an upward trajectory as indicated by the flash PMIs
which were stronger than expected in the US, Eurozone and
the UK. And also not to be overlooked, core inflation was
firmer than expected in the EU, with our economists’ noting
that it would have been even higher were it not for the
weight/ methodology changes prompting them to pencil in
one more hikev for the ECB.
With another payrolls and CPI print that could be
potentially pivotal ahead of the March 22nd FOMC
meeting, we think it is prudent to keep overall USD
exposure light. If these events deliver outcomes that result
in stabilization of US terminal rates, that would then be the
green light for the USD to resume weakening barring other
vol shocks. On the other hand, another very strong payrolls
in March would push the USD higher, although as we argue
below, the current macro landscape is not yet like the one in
2
Source: J.P. Morgan
In our view, focus of FX investors in the interim instead
should be on: (1) earning FX carry, with a preference for
beta neutrality and using G10 cyclical currencies as funders;
further increases in US yields would be supportive of
returns from carry (FX ponderings following a pivotal
week); (2) idiosyncratic RV/ China reopening, and (3)
JPY longs on crosses in longer dated options (BoJ is still in
play and its longer term merits as a recession hedge haven’t
changed). There is a bias that EUR should outperform on
crosses within the euro bloc heading into the March ECB
meeting as firm EU growth/ inflation could improve rate
support for the euro as well.
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
2023: Feeling a bit like 2022…
Several developments in recent weeks are starting to make
2023 feel like we are heading back into a 2022-like regime.
Labor markets have been tighter than expected, inflation
stickier/ surprising to the upside and core DM rates markets,
including the Fed, have re-priced higher across the board
(exhibit 1). As a result, the FX markets price action is also
playing out in similar fashion—for instance, USD has
strengthened broadly and FX carry is once again
outperforming and is the best performing signal month-todate (exhibit 2). As we had expected, measures of nominal
carry have been better signals of FX returns than real yields
as global inflation is still on a downward trajectory (even
despite recent firm prints).
Global FX Strategy
27 February 2023
Exhibit 3: 39% of countries in our global universe show upward
momentum in growth vs 4% downward
Percentage of countries (among 28 tradable currencies) with significant J.P.
Morgan FRI growth upgrade/downgrade (1 year Z-score of J.P. Morgan FRI 3
months change > -/+1 sigma)
…but with important differences
However, looking purely at these developments and
likening 2023 to ’22 overlooks two most important
differences between the two years—(1) that growth
momentum remains positive this year, and (2) Fed / core
DM central banks are hiking but at a substantially
slower pace than last year.
In detail, positive growth momentum continues to be
broad-based, global in nature and now encompasses the
US as well. This is indicated by our economists’ growth
forecast revisions which have now been upgraded
substantially for nearly 40% of the economies we cover
(exhibit 4). One part of our view that is getting challenged
in the near-term is the regional rotational narrative, which
looked for an upturn in China due to the reopening and an
ongoing softening in the US; the view on the China leg is
unchanged but US leg is being challenged given the more
resilient data in the near-term, even if the longer term odds
of a hard landing as Fed moves further into restrictive
territory has become a greater concern for FX participants.
Meanwhile, the pace of Fed tightening is expected to be
slower as well. Real yields are already highly positive in
the US, even if tracking below real growth and 70bp below
2006-07 levels (exhibit 4). So while there is admittedly
scope for an adjustment higher, the bulk of the re-pricing
from when US real yields were at -230bp in 2021 has
already occurred. Our economists baseline is for hikes in
25bp increments, with the upcoming payrolls key.
Source: J.P. Morgan
Exhibit 4: Bulk of the US real yield adjustment has occurred already,
with any future increases expected to occur at a slower pace
1Y x 1Y US real yields (based on OIS-inflation swap curve); %
5
US 1Yx1Y real rates
4
3
2
1
0
-1
-2
-3
2007
2011
2015
2019
2023
Source: J.P. Morgan
Exhibit 5: The dollar has decoupled from rates in recent months…
USD broad index vs. US yield spreads to ROW (bp)
It is against this backdrop that the dollar has been able
to decouple from rate differentials. The latter are now
back at cycle highs, but the dollar is nonetheless
substantially weaker (exhibit 5). This growing disconnect is
explained by an improving global growth (exhibit 6) and
explains why we will continue to focus on this to inform
when to eventually re-engage in USD directionally.
Source: J.P. Morgan
3
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
Exhibit 6: …as global growth has improved
USD broad index vs. US yield spreads to ROW (bp)
Source: J.P. Morgan
What have past periods of strong global
growth and higher US yields taught us?
We are nonetheless left with the practical problem of
navigating this pre-FOMC macro environment. As noted
earlier, FX carry remains the highest conviction theme
heading in March, but what about the dollar?
Historically, we have noted that an improving global
growth regime is usually associated with USD
weakening 70% of the times (FX ponderings following a
pivotal week). But it is also worth taking a more granular
look at those regimes to further assess if there is a
difference in the way the dollar reacts conditional on what
US rates are doing, i.e. if US rates are going up or down.
Our analysis shows that when growth outside the US is
getting upgraded, the dollar still weakens even if US
rates rise, but in smaller magnitudes and with lower hit
rates (exhibit 7). As a general rule of thumb, US yields are
more likely to go up when growth is getting revised up
(75% of the times). In such high growth-higher US rates
combination, USD weakens by 0.6% in 60% of the times
on average per quarter. These statistics are not bad but less
impressive when the improving growth environment is
accompanied by falling US yields: USD weakens by 1.4%
in 86% of quarters examined in those scenarios.
Given these less improved statistics, it would be prudent for
clients wishing to engage in USD-bearish trades to do so
once we get further clarity on terminal US rates in March.
The latest episode of high growth-higher US rates
combination occurred in 1Q 2021. The key learning from
that experience was that the dollar uptrended till US rates
peaked, and resumed weakening only after they stabilized.
Global FX Strategy
27 February 2023
EUR/USD screens cheap, but we advocate
patience
EUR/USD has given up back its gains partially in the last
two weeks as rate differentials have moved against it, but it
would be premature to focus only on the Fed and ignore the
ECB. EUR/USD fair value on short term models ranges
between 1.07-1.09 depending on the variables used (exhibit
8). Both central banks have meetings in March and it’s not
just the Fed terminal pricing that is being re-assessed; the
ECB is in play as well with data continuing to beat
expectations, inflation also firmer than expected, peripheral
spreads tight and gas prices low. Investors looking to
position for EUR strength pre-ECB are better off doing it
vs. currencies within the euro bloc where the central bank is
not in play in the near term, rather than vs. USD with the
Fed in play as well.
Exhibit 7: The dollar usually weakens when growth outside the US is
getting upgraded even if US rates rise, but in smaller magnitudes
and with lower hit rates
USD broad index vs. US yield spreads to ROW (bp)
Average Change in USD TWI; %
Down
Up
Down
0.4
0.9
0.6
Up
-1.4
-0.6
-0.8
Total
0.1
0.2
0.1
Total
% of times USD weakened during the quarter:
Down
Up
Down
47%
32%
Up
86%
60%
Source: J.P. Morgan
Exhibit 8: EUR/USD is starting to undershoot and the ECB is also in
play; euro crosses offer better value for the more bullish investors
than EUR/USD heading into March meetings
EUR/USD: actual vs. fair value based on 5y rate spreads and peripheral spreads
1.25
EUR/USD
Model
1.20
1.15
1.10
1.05
1.00
0.95
Aug 21
Source: J.P. Morgan
4
US 5y yields
ROW gr forecast chg (%pt
over qtr)
Feb 22
Aug 22
Feb 23
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
Global FX Strategy
27 February 2023
Next week: Euro area & Tokyo CPI, global
PMIs; ECB minutes
The upcoming week will see a wave of key economic
releases and central bank officials speaking about inflation
and economic outlook. Starting with the next BOJ governor
candidate Ueda facing the House of Councilors (Mon),
some of the Fed, ECB, BOE (including Governor Bailey,
Wed) and RBA officials will make comments next week.
On Tuesday, the NBH will make a rate announcement
(JPM: no change). Manufacturing PMI data will be released
in China, Sweden, Norway, Switzerland, Hungary, South
Africa, Brazil and Mexico (Wed), and ISM manufacturing
index in the US (Wed). French, Spanish (Tue) and German
(Wed) February CPI will be released, followed by the
Eurozone-wide figure (Thu). Tokyo CPI (Thu) will be
relevant for BoJ officials, and ECB minutes (Thu) could
inform terminal rate priced into markets. In the world of
politics, President Biden and German chancellor Scholz will
meet (Fri) to discuss efforts to bolster support for Ukraine,
marking one year since the Russian invasion.
For more details and the full calendar of data releases, see
FX Market Movers on page 28.
5
Global FX Strategy
27 February 2023
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
Main trade recommendations
Trade type
Macro portfolio
Currency
Trade
P/L
Cash (new trades)
─
-
Cash (existing)
─
-
Options (new)
─
-
Options (existing)
CAD/JPY
CHF/JPY
GBP/AUD
-0.85%
-0.45%
-0.19%
GBP/USD
NZD/JPY
AUD/NZD
─ Buy 3m CAD/JPY put spread. Spot ref 96.7. K=95/91. Cost 125bps
─ Buy 4m CHF/JPY put spread. Spot ref 141. K = 136/131. Cost 75bps
─ Buy 3m GBP/AUD seagull. Long put spread (k=1.74/1.69), short 25d call (1.81). Spot ref
1.7596. Cost 14bps.
─ Buy 4m GBP/USD 1.16/1.12 put spread (spot ref 1.1794, cost 89bps)
─ Buy 6m NZD/JPY 78.0 digital put (spot ref 86.50, cost 16.6% )
─ Buy 6m AUD/NZD 1.15 digital call (spot ref 1.0817, cost 12.3%)
GBP/USD
AUD/CAD
─ Buy 3m GBP/USD put spread. Spot ref 1.1183. K = 1.10/1.0750. Cost 67bps.
─ Buy AUD/CAD
-0.67%
-1.71%
RV (new trades)
USD/TWD-EUR/USD
─ Sell 1Y 5% OTMS strike USD/TWD puts vs. buy 0.6x notional of 1Y 5% OTMS EUR/USD calls
RV (existing)
EUR/SGD-USD/SGD
XAU/USD
USD/BRL-USD/CAD
USD/HUF-USD/PLN
USD/INR
GBP/USD-USD/JPY
USD/MXN-AUD/USD
USD/NOK-EUR/NOK
EUR/USD
USD/ZAR
USD/KRW-USD/PHP
─
─
─
─
─
─
─
─
─
─
─
Closed
-0.71%
-1.86%
-5.38%
Derivatives
RV (closed)
Source: J.P. Morgan
6
─
Open long EUR/SGD 6M ATM straddle vs.USD/SGD 6M ATM straddle, equal vega
Short delta-hedged 6M XAU/USD 25d call
6M short USD/BRL vol swap vs long USD/CAD vols swap
Short 1Y USD/HUF vol swap with 34vol cap vs long USD/PLN vol swap
Long USD/INR 6M6M forward vol (FVA)
Selling 6M USD/GBP – USD/JPY corr swap
Long USD/MXN 6M6M FVA vs. Short AUD/USD 6M6M FVA
6M long USD/NOK vol vs. EUR/NOK vol
Buy a 6M EUR/USD Var swap, sell 6M Vol swap
Buy a 9M USD/ZAR digital call, strike 21.2
Short USD/KRW 6M ATM straddle vs long USD/PHP 6M ATM straddle, delta-hedged
0 bp
-0.2 vol
1.3 vol
-0.5 vol
-0.1 vol
-0.4 vol
-7 corr pts
-0.8 vol
-0.3 vol
-0.5 vol
2.5 %
1.0 vol
-
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Macro Trade
Recommendations
 February has proven challenging for the portfolio as
renewed US rates volatility has short-circuited several
well-subscribed positions and themes from January.
 Growing macro cross-currents in G10 require more
tactical approaches to trading, and more focus on r.v.
Carry is a preferred strategy in these conditions.
Global FX Strategy
27 February 2023
opportunities in the G10 space. We therefore find
ourselves looking elsewhere for alpha beyond the dollar; we
do not add any trades this week but look for intra-regional
EUR long opportunities, while keeping an open mind about
EM/G10 long-carry combinations.
Exhibit 1: USD has benefited both from a slight downshift in risk
assets, as well as less-aggressive regional rotation lately
USD TWI = 0.002 + 0.21*(SPX-MSCI World) – 0.22*(MSCI World). 3m chgs.
 We hold limited USD exposure at this juncture,
consistent with the rerating of tactical dollar prospects
on the back of strong data and higher yields.
 Our CAD trades have come under some pressure with
the move in USD though. We retain CAD/JPY
downside optionality for the March BoJ, while we
trim our AUD/CAD length but look to reengage.
 European momentum continues. We are on the
lookout for Euro-region r.v. opportunities to go long
EUR ahead of the ECB in March. UK momentum
challenges our GBP shorts but we hold.
 Global momentum remains impressive.
 New trades: None.
 Existing trades: long AUD/NZD, short CAD/JPY,
short CHF/JPY, short NZD/JPY, short GBP/AUD,
and short GBP/USD in options.
 Closed trades: Long AUD/CAD in cash.
February has proven challenging for the portfolio as
renewed US rates volatility has short-circuited several
well-subscribed positions and themes from January. Our
portfolio orientation to begin the month reflected a mix that
bridged China-led global growth improvement, US
disinflation / Fed pause, and a BoJ pivot, among others.
While none of these are definitively exhausted, some of the
impulses appear to be deferred or tiring, while the shock
move higher in US data and yields has given renewed life to
the dollar leg of these trades. Not surprisingly, CAD shorts
have come under particular pressure as these themes are
reevaluated given CAD’s ongoing close linkage to USD
performance; we close AUD/CAD for risk management
(but look to reengage). The bottom line is that the twosided convergence across these macro themes (less
aggressive global growth momentum, higher level reset in
US yields; Exhibit 1) means the scope for near-term
dollar downside has been reduced, and by extension
requires both 1) an increasingly-tactical approach to
trading and 2) a greater reliance on G10 r.v. trades for
Source: J.P. Morgan
We expect USD to generally remain range-bound in the
near term and are minded to stay patient with our
limited USD exposure. We trim some CAD shorts for
risk management. The recent combination of revisedhigher core inflation, on top of the stunning US payrolls
report, represents “a material change in the inflation
narrative” per our economists (see Global Data Watch, 17
Feb). The yield support is material for USD, and so too is
the jump in US rates’ volatility and the market’s lower
conviction around the path of the Fed and US data
(expectations for rate cuts in 2023 have been slashed Exhibit 2). This jump in volatility undercuts one key
narrative of USD weakness from 4Q (visibility on a Fed
pause), and Exhibit 3 suggests that USD TWI might be
sticky around current levels without a concurrent shift lower
in rates vol. This presents issues for our USD proxy trades
like CAD/JPY as well, which profited nicely as a USD/JPY
alternative in 4Q but which has since seen a
commensurately-large jump in yields alongside the US
(Exhibit 4) even despite nascent BoC-Fed policy
divergence. We are inclined to keep the trade for now,
though this is more a reflection of the trade structure than
conviction (limited downside put spread) which allows
optionality around the March BoJ meeting, while also
leaving one foot in the medium-term expectation that yields
do ultimately resume lower later this cycle (at which point
we’ll also revisit USD/JPY downside). Nevertheless, we
recognize that the tactical viability of this trade is
meaningfully reduced given North American data /
monetary policy developments and so trim our AUD/CAD
short, though we prefer to wait for more information on the
7
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
US cyclical story in March before more meaningfully
engaging (or re-engaging) USD trades directly.
Exhibit 2: Not only is US terminal higher, but expectations of cuts for
this year have also been pared back
US terminal less end-23 OIS pricing
Source: J.P. Morgan
Exhibit 3: USD TWI remains well-anchored by rates vol
USD TWI = 104.4 + 0.21*(3Mx10Y Swaptions Vol). Rsq = 0.92
Global FX Strategy
27 February 2023
On the other hand, recent indicators of global growth
are still generally trending positively. Continued strong
data out of Europe presents a tactical opportunity for
intra-regional EUR length. The internals of the flash PMIs
were generally constructive this week, with implications for
both EU and UK growth forecasts (see here). Trading solid
European data against the dollar however is not our
preferred strategy in the wake of US developments. We are
instead on the lookout, however, to pre-position ahead of
the March ECB meeting that risks being more hawkish than
expected (European currencies like SEK and NOK have a
clear beta to EUR developments but we think the ECB is
the clear standout on the calendar now in terms of central
bank repricing), though for now the conditions are not quite
there. Relatedly, long EUR crosses ahead of a potentiallyvery hawkish ECB is also consistent with G10
demonstrating a more direct responsiveness to relative rates
repricing of late (Exhibit 5). Given the assumed near end of
tightening cycles in different regions, relative growth and
relative inflation have become more relevant, and so
relative rates is a more important gauge in that world (and is
a very different dynamic to last year where policy
tightening was seen as growth negative for currencies).
Exhibit 5: Nominal rates are once again driving G10 FX
Rolling rsq of G10 FX vs 2Y OIS. 5d chgs. 1mma.
Source: J.P. Morgan
Exhibit 4: Even though the BoC has conditionally signaled a pause,
short-end repricing has closely traced US in recent months
2y yld. (X): Chg from 01-Nov-22 to Dec US CPI (17-Jan-23), Y: Since Dec US CPI
Source: J.P. Morgan
Source: J.P. Morgan
8
Where the PMI momentum is at odds with our portfolio
is the UK’s recent resurgence. We’re reluctant to
abandon our shorts predicated on unique structural
headwinds but acknowledge that cyclical momentum
has frustrated that view of relative underperformance.
Cable can at least serve as a risk hedge to the extent
equities remain under pressure. UK PMIs were especially
strong this month, and have bounced significantly relative
to peers since November, while the outlook for gas prices
and EU relations have improved (Exhibit 6). While we look
to harness EU momentum in a tactical EUR long, we are
still skeptical about the durability of GBP’s outperformance
despite a similar rerating of current growth momentum, and
therefore stick with medium-term structural shorts for now
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
(GBP/AUD bearish seagull and cable put spread) despite
cyclical conditions dominating the tactical narrative for
sterling. Austerity measures and Brexit constraints on
investment / trade / labor ultimately remain unique
headwinds for GBP’s long-term prospects, in our view.
spot moves. See also FX Macro Quant and Key Currency
Views.
Exhibit 6: Significant pessimism seeped into UK business in the fall;
this has been met with a commensurate bounce back since
Vol-adjusted 1y spot of AUD/CAD, S&P 500 and China Dragon index
Exhibit 7: AUD/CAD was well-correlated with the S&P last year until
the China reopening theme emerged; since then, it has tracked
China assets more closely
3
Flash output measure in mfg PMI (X): 9m chg through November. (Y): Last 3m chg
2
1
0
-1
-2
-3
AUD/CAD
S&P
China Dragon
Source: J.P. Morgan
Source: J.P. Morgan
Solid global momentum generally is important, and the
current backdrop continues to screen positive for global
carry prospects. Our AUD trades have underperformed
somewhat of late, due in part to higher yields, risk assets
under pressure and peak China linked asset price
momentum cooling (Exhibit 7). Yet, as described above,
global growth generally continues to improve, with
forward-looking indicators like orders/inventory printing
well.This is not a wholly-unsupportive backdrop for risk
assets (and proxies like AUD/CAD) if and when US rates
repricing is tempered. Still, at this juncture, we prefer to
tactically close our AUD/CAD short with a mind to
reengage later when global growth is a more prevalent
driver and AUD/CAD doesn’t trade with high beta to
AUD/USD in a stronger-USD environment (GBP/AUD
gives us some residual beta to any improving China
prospects into March). Meanwhile, carry strategies also
continue to perform in this pro-growth upswing, with global
FX in 2023 led primarily by high-yielding EM that have
been relatively insulated from Fed repricing. While
cognizant of unideal entry levels amongst some of the more
favored carry longs (our EM team took profit on
MXN/ZAR this week), we view pairs like MXN/NOK as
potentially viable as it captures sufficiently-differentiated
macro outlooks but is not obviously geared to risk gyrations
(MXN/NOK was actually negatively correlated to equity
moves last year). Against a backdrop of increased macro
cross-currents and lower conviction on trend themes, this
strategy offers value in our view, despite already-mature
Trades
 Close AUD/CAD long
We think AUD/CAD longs have merit over the medium
term but the tactical merits have been substantially
reduced. When we entered the trade, there was a range of
pillars supporting the long – China reopening, solid
global growth, regional differentiation (Asia strong,
North America lagging) and the Fed pause supporting
risk appetite. Several of those have faded (if not
dissipated entirely) while certain local data have also
knocked the trade (AU wages, CA payrolls), which leaves
the trade languishing despite a backdrop of still-solid
global growth. That may be enough to singularly drive
the trade higher, but the risk/reward balance is less, and
so from a risk management perspective we are opting to
close the trade and consider reengaging from next month
onwards as the China narrative potentially gets back on
track around the NPC. This will also allow for the
opportunity of US rates repricing to temper the upward
impulse on USD proxies (CAD) and downward impulse
on risk (AUD/CAD is positively geared to risk
developments). In sum, the medium-term outlook for the
pair is still constructive, but the tactical justifications for
holding are much weaker now than a month ago.
 Close AUD/CAD cash long at a loss. Marked at
-1.71%.
 Hold CAD/JPY short
When we initially entered into our CAD/JPY short in
November (and restruck last month), we did so with
expectations of a BoJ pivot and market repricing of
9
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
CAD/CA rates similarly to the Fed on the back of some
disinflationary traction. However, a resurgence higher in
inflation expectations and resultant higher yields (despite
the late ’22 rates rally) always poised a risk to the trade.
This has somewhat played out in recent weeks, as global
core inflation surprised to the upside last month with much
of that surprise coming from the US. Taken together with
further labor market tightness (blowout Jan NFPs), resilient
growth (Jan ISM, Feb PMIs), and hawkish Fedspeak,
markets have subsequently repriced a higher Fed terminal
rate. These developments have generated headwinds for
CAD/JPY shorts via both legs: higher US yields are
straightforwardly JPY-negative on carry, while CA rates are
still going to be significantly influenced by the US in a way
that is inconsistent with holding CAD/JPY tactically.
Indeed, CA short-term rates have followed the recent move
higher in US rates since mid-January (Exhibit 4). It is
therefore unsurprising that CAD/JPY has jumped nearly 2%
since we last published. Given that the trade is held in
options and we have limited additional downside left, we
are opting to hold the position at least until the March BoJ
meeting to give ourselves some optionality around a policy
surprise. During his remarks to lawmakers this week, BoJ
Governor nominee Ueda said the BoJ will normalize policy
if it determines that the 2% inflation target is being met and
sustained. Our Japan economists expect the core inflation
rate to fall gradually after peaking in 1Q’23, and still see
medium-term momentum towards BoJ policy
normalization.
Global FX Strategy
27 February 2023
peripheral spreads and VIX, which it had been tracking
until November (exhibit X). Although the level implied by
the model (EUR/CHF at 1.03) is unlikely for now as long as
the SNB is still concerned about inflation and ready to
intervene, it does suggest there is still some room for CHF
underperformance given benign European growth
dynamics. Last week’s sticky Swiss inflation figure (3.3%
vs 3.1% cons, 2.8% prior) may ring alarm bells for the
SNB, and another hot print and/or an incrementally hawkish
SNB are the main risks to our trade on the Swiss side.
Given that JPY volatility has been dominating the CHF/JPY
price action, the risks going forward are clearly payrolls,
CPI and the Fed meeting. We remain patient with CHF/JPY
in the meantime however as there is somewhat of a vacuum
on the economic calendar until those events. While higher
US rates weigh on JPY, higher Euro area rates - which are
perhaps likely to reprice higher given stickier inflation than
in the US and a potentially more hawkish ECB - would
weigh on CHF. In fact, our economists added another 25bp
hike to their ECB forecast today. Ultimately, we are
skeptical that markets can reprice US long-end yields rate
much higher than current levels and so this should cap
CHF/JPY upside.
 Hold short CHF/JPY via 4m put spread
(K=136,131). Cost 75bps. Marked at 30bps.
Exhibit 8: Peripheral spreads would imply lower CHF
EUR/CHF vs model of 5y peripheral spreads and VIX. Rsq = 0.74
 Hold 3m CAD/JPY put spread (K = 95/91). Cost
125bps. Marked at 40bps.
 Stay short CHF vs JPY
Given that carry strategies are performing (FX Macro
Quant: FX carry delivers again, A. Delair) and also
according to our models, the repricing to higher US
terminal rates seen of late is in theory both CHF and JPYnegative, all else equal. However CHF has shown a lower
sensitivity to US yields in the past year as poor global
growth dynamics overshadowed the former channel, while
JPY has remained geared to US yields, and so the repricing
higher in rates has thus recently squeezed our CHF/JPY
short. First US payrolls and then US CPI drove fixed
income and JPY weaker, which dominated the price action
for CHF/JPY. On the growth front, improving global,
Eurozone and US prospects seen in PMI data this week
would tend to weigh on the franc, but we haven’t seen much
sign of that just yet on CHF crosses including CHF/JPY. As
we have been flagging, the CHF NEER has been wellcaptured by cumulative global growth FRIs in the past 20
years. Currently, growth forecasts have been significantly
upgraded in 39% of economies, the highest number since
spring 2021 when countries emerged from lockdowns. At
the same time, CHF screens rich on a fair value model of
10
Source: J.P. Morgan
 Hold GBP shorts in options
While we acknowledge some better growth data in the UK
of late, there are still reasons to see GBP as an
underperformer versus other high beta currencies in our
view. The UK service sector PMI for February surprised
consensus expectations to the upside this week. Companies
noted signs of inflation peaking and less supply chain
pressure. However, we can see that this is also a global
phenomenon, with the inflation and supply chain outlooks
improving in many developed economies. So that doesn’t
necessarily mean UK growth is outperforming (Australian
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
and European PMIs also rose in February). The main GBP
trade we have been advocating is GBP/AUD, so we feel
more comfortable that given the better global growth
outlook and more synchronised recovery, AUD can more
than keep up with GBP in rallies. GBP/USD on the other
hand is more sensitive to risk markets, and we can perhaps
see the recent surge in DM terminal rate pricing starting to
manifest in risk markets such as the S&P 500, so we remain
patient there.
Exhibit 9: UK consumer confidence data has bounced but retail
sales remains far below trend UK retail sales index versus trend line
UK retail sales index
115
110
 Hold GBP/AUD 3m seagull. Long put spread
(k=1.74/1.69), short 25d call (1.81). Spot ref
1.7596. Cost 14bps. Marked at -5bps.
14%
below
trend
105
year fixed and the ones that were struck when rates were
near zero in 2021 will be resetting this year). That brings us
to the housing market where the RICS housing survey
printed a new low in January, diverging from the services
PMI as shown in Exhibit 10. We are yet to receive the RICS
print for February however, where we will watch if the data
catches up to the services PMI. Given the repricing higher
of UK market yields by 60bps from trough to peak in
February, we are cautious about whether the housing market
(and therefore GBP) is out of the woods just yet. The
Rightmove national asking price has only been declining
since October and is only marginally off the all-time high
thus far.
 Hold 4m GBP/USD put spread. Spot ref 1.1794.
K=1.16/1.12. Cost 89bps. Marked at 18bps.
100
95
 Stay short NZD vs AUD, JPY
90
85
80
2013
2015
2017
2019
2021
2023
2025
Source: J.P. Morgan, Bloomberg Financial L.P
Exhibit 10: The RICS housing survey for February will be much
watched in the context of the higher services PMI
RICS housing survey versus UK service sector PMI
UK RICS housing survey - price balance
UK services PMI (RHS)
80
60
50
55
20
-10
50
-40
45
-70
-100
40
2006
2009
2012
2015
2018
2021
Source: J.P. Morgan, Bloomberg Financial L.P
For the UK service sector to accelerate meaningfully further
and outperform, the consumer and housing market need to
come to life. That’s important for Sterling. Exhibit 9 shows
UK retail sales running 14% below its pre-covid trend.
Despite the jump in consumer confidence this week, we are
sceptical that the UK consumer is going to follow through
and embrace lower gas prices to embark on a spending
spree, especially given mortgage resets that are going to
come through (a reasonable share of UK mortgages are 2-
We maintain our NZD-bearish bias given renewed riskoff sentiment in markets and a lagging idiosyncratic
outlook within G10. The RBNZ delivered on expectations
this week with a 50bp hike to 4.75%, a downshift from
November’s 75bp hike. Our economists look for the OCR
to be hiked a further 25bp in April but with low
conviction, given that the policy rate has extended this far
mostly on the need to visibly act on inflation, which has
come down in recent readings (both core inflation and
inflation expectations). After having started the hiking
cycle within G10, the RBNZ could also be among the
first to take a pause. The housing market remains a key
risk to NZD prospects as previous hikes are feeding
through to mortgage rates with a lag, which will weigh
further on consumption that has already slowed
materially since the pandemic lockdowns. Devastating
natural disasters have added an extra, unexpected
downside risk to growth forecasts and the fallout is likely
to hit NZ business confidence too, which NZD is
typically responsive to.
Taken together, we do not view the macro backdrop as
particularly constructive for NZD, and are comfortable
holding our shorts vs AUD and JPY. While AUD has
faced similar tactical headwinds to NZD from its highbeta status, we retain strategic conviction (albeit
somewhat less than before) in the China reopening theme,
which asymmetrically supports the AUD leg of the
AUD/NZD pair. To be certain, soft Australian wage data
also contributed to recent AUD weakness, though we
view this at as a short-term hit that is not derailing. Our
rates strategists are expecting AUD-NZD 1Yx1Y spreads
to compress, and given that AUD/NZD has closely
11
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
tracked this differential, this could suggest room for
AUD/NZD upside. Meanwhile, our NZD/JPY shorts
serve as a strategic US recession hedge. While the trade
has been hurt in recent weeks by higher global yields and
falling US recession odds, there exists a scenario in which
strong US data rolls over into lagging growth as the Fed
reaches restrictive territory. In this case, the JPY beta to
US rates should dominate and drive NZD/JPY lower.
 Hold 6m AUD/NZD digital call. K = 1.15. Cost
12.3%. Marked at 6.92%
 Hold 6m NZD/JPY digital put. K=78. Cost 16.6%.
Marked at 14.74%.
12
Global FX Strategy
27 February 2023
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
Table 1. Current FX spot recommendations and P&L
Long
Short
Entry date
Entry level
Current level
Stop loss
P&L since entry
Comments
AUD
CAD
20 Jan 23
0.9343
0.9189
0.9156
-1.71%
Take loss
Table 2. Current FX derivatives (directional/non-RV) recommendations and P&L
Description
Entry date
Expiry date
Days to
expiry
Entry
level
Current level
P&L since
entry**
Comments
Buy 3m GBP/USD put spread. Spot ref 1.1183. K=1.10/1.0750. Cost 67bps.
03 Nov 22
06 Feb 23
-18
0.67%
0.00%
-0.67%
Expired at a loss
Buy 4m CHF/JPY put spread. Spot ref 141. K = 136/131. Cost 75bps
20 Jan 23
22 May 23
87
0.75%
0.30%
-0.45%
Hold
Buy 3m CAD/JPY put spread. Spot ref 96.7. K=95/91. Cost 125bps (restrike of previous 4m
CAD/JPY K=102/98 put spread)
20 Jan 23
20 Apr 23
55
1.25%
0.40%
-0.85%
Hold
Buy 3m GBP/AUD seagull. Long put spread (K=1.74/1.69), short 25d call (1.81). Spot ref
1.7596. Cost 14bps.
06 Jan 23
05 Apr 23
40
0.14%
-0.05%
-0.19%
Hold
Buy 4m GBP/USD put spread. Spot ref 1.1794. K=1.16/1.12. Cost 89bps.
22 Nov 22
21 Mar 23
25
0.89%
0.18%
-0.71%
Hold
Buy 6m NZD/JPY digital put. K=78. Cost 16.6%.
22 Nov 22
23 May 23
88
16.60%
14.74%
-1.86%
Hold
Buy 6m AUD/NZD digital call. K=1.15. Cost 12.3%.
22 Nov 22
19 May 23
84
12.30%
6.92%
-5.38%
Hold
** P&L in % of asset unless otherwise specified. Marked at 2.35 pm GMT.
Source: J.P. Morgan
13
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
I. Performance statistics
2008-2023
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
3
33%
39
67%
37
43%
44
43%
27
48%
30
60%
46
43%
38
55%
51
51%
55
56%
54
56%
28
61%
42
57%
89
53%
63
65%
85
59%
46
55%
-1.47%
1.00%
-0.35%
0.29%
0.22%
-0.01%
-0.52%
0.37%
0.19%
-0.09%
0.47%
0.25%
0.03%
0.02%
0.97%
1.96%
0.41%
52
41
41
34
37
32
51
37
20
28
20
25
25
24
20
31
30
avg
I. Macro Trade Recommendations portfolio
Cash
# of trades
Success rate
Av erage return per trade (%)
Av erage holding period (calendar day s)
Derivatives (non-digital)
# of trades
Success rate
Av erage return per trade (%)
Av erage holding period (calendar day s)
6
17
9
5
17
13
16
26
27
30
32
33
27
27
21
3
19
50%
53%
33%
80%
41%
31%
44%
54%
48%
50%
31%
61%
74%
62%
62%
0.0%
51%
0.27%
0.25%
-0.01%
0.34%
0.06%
-0.26%
-0.17%
0.40%
0.93%
0.02%
-0.13%
0.13%
0.94%
0.34%
0.55%
-0.57%
0.27%
16
51
42
62
51
47
62
52
66
46
65
58
71
54
59
66
56
Derivatives (Digital)
# of trades
Success rate
Av erage return per trade (%)
Av erage holding period (calendar day s)
1
7
1
3
2
2
2
11
3
2
3
5
10
4
21
5
5
0%
43%
0%
25%
0%
50%
0%
45%
33%
100%
67%
80%
50%
25%
38%
20%
41%
-14%
-1%
-11%
-4%
-8%
-4%
-23%
-1%
5%
49%
25%
12%
-1%
-7%
5%
-4%
2%
124
85
93
68
112
87
67
36
56
86
60
38
87
60
55
54
63
II. FX Derivatives portfolio (relative value)
Vol r.v
# of trades
2
30
26
27
16
25
34
52
58
51
36
41
37
45
32
13
33
100%
60%
62%
67%
38%
48%
59%
67%
60%
57%
58%
54%
62%
69%
63%
77%
61%
Av erage return per trade (%)*
1.4
0.0
0.8
0.4
-0.5
-0.5
-0.1
0.1
0.2
0.0
0.3
0.1
0.1
0.7
0.1
0.3
0.2
Av erage holding period (calendar day s)
60
50
58
65
69
81
63
62
56
80
73
81
47
99
73
53
68
Success rate
Vol plus directional r.v
# of trades
1
5
3
6
13
7
15
6
15
9
3
11
14
4
-
-
8
100%
60%
67%
67%
54%
43%
60%
50%
60%
67%
33%
91%
79%
50%
-
-
63%
Av erage return per trade (bp)
33
29
70
-7
6
-24
-13
-18
25
55
-182
37
16
-8
-
-
8
Av erage holding period (calendar day s)
21
69
82
36
85
108
69
50
73
92
138
81
27
50
-
-
70
Success rate
Digital
# of trades
Success rate
Av erage return per trade (%)
Av erage holding period (calendar day s)
2
1
4
3
2
1
1
10
2
2
6
6
2
-
-
3
3
0%
0%
50%
0%
50%
100%
0%
40%
0%
50%
33%
50%
50%
-
-
33%
36%
-16%
-10%
20%
-18%
15%
9%
-7%
11%
-14%
-6%
-7%
-7%
-13%
-
-
8%
0%
26
29
47
75
34
49
157
37
94
59
92
51
25
-
-
33
54
III. Technical Strategy portfolio
# of trades
0
0
3
34
34
53
79
72
89
75
34
20
33
47
47
87
44
Success rate
NA
NA
100%
32%
41%
58%
42%
51%
56%
52%
56%
40%
58%
47%
55%
43%
49%
Av erage return per trade (%)
NA
NA
1.79%
-0.87%
0.09%
0.59%
-0.25%
0.16%
0.42%
0.91%
0.65%
0.39%
0.07%
-0.01%
0.09%
0.16%
0.22%
Av erage holding period (calendar day s)
NA
NA
8
50
56
51
43
53
31
83
148
114
54
36
12
9
49
*P&L in v ol points. Source: J.P. Morgan
14
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
Performance summary: Average returns per trade
Performance summary: Success rate by type of trade
15
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
II. Trades closed over the past 12 months
Derivatives (non-digital)
Macro Trade Recommendations portfolio
Non-Digital Options
Entry date
Entry level
Exit date
Exit level
P&L (%)
16 Dec 22
0.29%
18 Jan 23
0.00%
-0.3%
11 Nov 22
1.15%
20 Jan 23
3.15%
2.0%
22 Nov 22
1.05%
20 Jan 23
0.90%
-0.1%
16 Dec 22
0.60%
02 Feb 23
1.09%
0.5%
06 Jan 23
0.71%
03 Feb 23
0.95%
0.2%
03 Nov 22
0.67%
06 Feb 23
0.00%
-0.7%
Buy 1m EUR/NOK call. Spot ref 10.51. K=10.80.
Cash
Cost 29bps.
Buy 4m CAD/JPY put spread. Spot ref 105.2.
Long
Short
Entry date
Entry level
Exit date
Exit level
P&L
CHF
EUR
11 Nov 22
0.97720
11 Jan 23
1.00000
-2.7%
CHF
SEK
22 Nov 22
11.1800
20 Jan 23
11.2167
0.0%
AUD
CAD
20 Jan 23
0.9343
24 Feb 23
0.9189
-1.7%
Buy 4m EUR/SEK call spread. Spot ref 11.0280.
K=11.20/11.50. Cost 60bps.
Buy 3m AUD/CAD call spread. Spot ref 0.9217.
K=102/98. Cost 115bps.
Buy 6m USD/CAD call spread. K=1.36/1.42. Cost
105bps.
Long
Short
Entry date
Entry level
Exit date
Exit level
P&L
USD
JPY
29 Oct 21
113.75000
21 Jan 22
113.85000
0.2%
SEK
EUR
13 Jan 22
10.2200
24 Jan 22
9.9931
-2.2%
AUD
NZD
24 Oct 21
1.04
28 Jan 22
1.07
1.8%
CHF
EUR
29 Oct 21
1.062
04 Feb 22
113.850
0.4%
USD
EUR
27 Jan 22
1.12
03 Feb 22
1.14
-2.0%
USD
NZD
08 Jan 22
0.68
04 Feb 22
0.66
2.0%
USD, SEK
NZD
04 Feb 22
0.00
17 Feb 22
113.85
-2.3%
USD
JPY
28 Jan 22
115.24
24 Feb 22
114.45
-0.6%
CHF
GBP
24 Feb 22
1.24
04 Mar 22
114.4500
1.6%
JPY
EUR
24 Feb 22
128.23
04 Mar 22
125.96
1.8%
CHF
EUR
04 Mar 22
1.00480
15 Mar 22
1.03100
-2.6%
USD
SEK
24 Feb 22
9.6102
15 Mar 22
9.4170
-1.9%
NOK
EUR
18 Mar 22
9.673
25 Mar 22
9.489
1.9%
NOK
GBP
18 Mar 22
11.53
25 Mar 22
11.38
1.3%
Buy 2m AUD/NZD call spread (strikes 1.075/1.091,
USD
GBP
04 Mar 22
1.325
01 Apr 22
1.310
1.1%
spot ref.1.0688)
NOK
EUR,JPY
25 Mar 22
9.4892 / 14.1477
21 Apr 22
9.580 / 14.600
1.2%
K=0.929/0.947. Cost 71bps.
Buy 3m GBP/USD put spread. Spot ref 1.1183.
K=1.10/1.0750. Cost 67bps.
Non-Digital Options
financed by selling 4M 7.42 EUR calls/CNH puts liv e 22 Nov 21
Buy 3m 25d USD/ZAR call (k=16.75) (spot ref
15.6262, 18 Nov )
GBP
21 Apr 22
12.2543 / 1.3103
29 Apr 22
12.273 / 1.2553
2.0%
Buy 3m 9.95/9.75 EUR/NOK put spread, financed by
13 Apr 22
1.4562 / 1.0941
29 Apr 22
1.4708 / 1.0970
-0.3%
selling 3m EUR/NOK 10.65 call. The financing call
USD
JPY
15 Mar 22
118.160
12 May 22
127.900
8.6%
NZD
29 Apr 22
0.8320
23 May 22
0.8260
0.7%
USD
EUR
04 Mar 22
1.0920
23 May 22
1.0650
3.0%
Buy 3m 94.75/97.35 CAD/JPY call spread, financed
by selling 3m CAD/JPY 89.87 put. Net zero-cost.
USD
NZD
13 Apr 22
0.6801
27 May 22
0.6528
3.9%
Buy 3m EUR/CAD put spread (strikes 1.4044/1.3610,
CAD
EUR, USD
06 Jun 22
1.2594 / 1.3501
14 Jun 22
1.2927 / 1.3513
-1.4%
CAD
NZD, EUR
14 Jun 22
0.8074 / 1.3513
08 Jul 22
0.8000 / 1.32019
1.8%
spot ref.1.4014)
USD
GBP
29 Apr 22
1.2553
08 Jul 22
1.1995
4.6%
Buy 2M CAD/JPY 98.5/101 call spread. Cost 85bps.
USD
EUR
09 Jun 22
1.0630
10 Aug 22
1.0350
3.1%
Spot ref 97.70.
NZD
JPY, USD, CHF
27 May 22 82.904 / 0.6528 / 0.625 12 Aug 22 86.047 / 0.644 / 0.6066
-0.4%
Buy a 3m GBP/CHF 20d put. Cost 55bps. Spot ref
G10 High-Beta
14 Jun 22
-2.0%
1.2195. K=1.1645.
USD, CHF
GBP
08 Jul 22
1.2000 / 1.1719
17 Aug 22
1.0350
0.8%
AUD
NZD
29 Apr 22
1.097
02 Sep 22
1.1169
1.5%
CHF
GBP
17 Aug 22
1.149
30 Sep 22
1.0893
4.7%
spread. Spot ref 10.2876.
USD
GBP
16 Sep 22
1.143
30 Sep 22
1.1116
2.7%
Buy a 2m EUR/SEK 10.40 / 10.10 1*2 put ratio
CHF
EUR
20 May 22
1.02891
17 Oct 22
0.98000
4.2%
USD, CHF
GBP
30 Sep 22
1.1116 / 1.0893
03 Oct 22
1.1323 / 1.1246
-2.7%
spread. Spot ref 10.4990.
Take loss on 3m EUR/JPY put spread. Spot ref
USD
NZD
02 Sep 22
0.6132
26 Oct 22
0.5800
5.5%
USD
EUR
17 Aug 22
1.0190
26 Oct 22
1.0000
2.4%
136.23. K = 134, 129.
Hold a 3m GBP/USD put spread. K = 1.20/1.16
USD
GBP
11 Oct 22
1.1083
26 Oct 22
1.1500
-3.7%
(~40d/~20d) (spot ref. 1.2045).
USD
JPY
23 Sep 22
143.130
11 Nov 22
142.500
0.24%
Buy 2m USD/CAD call spread. Spot ref 1.3280.
AUD
NZD
28 Oct 22
1.10460
22 Nov 22
1.08200
-2.2%
K=1.33,1.38. Cost 95bps.
USD
10 Aug 22
Buy a 2m EUR/NOK 10.10 / 9.70 1*2 put ratio
Buy 3m USD/JPY call spread. Spot ref 143.13.
K=146/151. Cost 75bps.
Buy 3m USD/CAD call spread. Spot ref 1.3539.
K=1.36/1.40. Cost 79bps.
Buy 6w USD/NOK call spread. Spot ref 10.5730.
K=10.75/11.25. Cost 105bps.
16
level
Exit date
Exit
P&L
level
(%)
0.00%
28 Jan 22
1.30%
1.3%
18 Nov 21
1.57%
04 Feb 22
0.04%
-1.5%
28 Jan 22
0.48%
18 Mar 22
0.28%
-0.2%
07 Jan 22
0.61%
18 Mar 22
1.67%
1.1%
18 Mar 22
0.00%
31 Mar 22
1.34%
1.3%
04 Mar 22
1.06%
31 Mar 22
1.19%
0.1%
30 Mar 22
0.85% 13 May 22
1.41%
0.6%
29 Apr 22
0.55%
08 Jul 22
0.80%
0.2%
20 May 22
0.62%
21 Jul 22
0.00%
-0.6%
20 May 22
0.53%
21 Jul 22
0.00%
-0.5%
29 Jul 22
0.98%
02 Sep 22
0.37%
-0.6%
17 Aug 22
0.98%
30 Sep 22
2.98%
2.0%
16 Sep 22
0.95%
04 Nov 22
2.60%
1.7%
16 Sep 22
0.75%
04 Nov 22
0.40%
-0.3%
04 Nov 22
0.79%
22 Nov 22
0.69%
-0.1%
03 Nov 22
1.05%
16 Dec 22
0.00%
-1.1%
(not delta-hedged) for zero cost. Spot ref 7.2005
EUR,NZD
CAD
Entry
Buy a 4M 7.25/7.10 EUR put/CNH call put spreads
AUD
SEK,USD
Entry date
Patrick R Locke
(1-212) 834-4254
patrick.r.locke@jpmchase.com
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
James Nelligan
(44-20) 3493-6829
james.nelligan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
Trade
Entry date
Entry level
Exit date
Exit level
P&L (vol)
Buy EUR/BRL 3M ATM straddle vs. sell 3M 25D USD/BRL
call, equal vega, delta-hedged
22 Nov 21
-1.6
07 Jan 22
0.4
2.0
Buy CHF/JPY 2M ATM vs sell USD/JPY 2M ATM straddle,
equal vega, delta hedged
04 Jan 22
0.5
18 Feb 22
0.3
-0.2
Buy 2M AUD/CHF straddle vs USD/CHF 25d put, deltahedged, equal vega notionals
27 Jan 22
2.7
18 Feb 22
3.4
0.7
Short 4M 25D Gold call, delta-hedged
21 Jan 22
14.8
25 Feb 22
14.9
-0.1
Long 6M ATM vs short 6M 25D USD call / SEK put spread
in 1 to 1.5 notional ratio, delta-hedging
21 Jan 22
-1.3
04 Mar 22
-4.7
-3.4
Buy NZD/USD 2M ATM straddle vs. sell 4M 25D
NZD/USD put, in 1:0.5 USD notionals, delta-hedged
03 Mar 22
4.9
25 Mar 22
3.9
-1.0
Long eq vega weighted 2M USD/NOK and USD/ZAR
straddle basket vs short eq vega weighted USD/MXN and
USD/BRL straddle basket, delta-hedged
03 Mar 22
0.5
22 Mar 22
-1.6
-2.1
Sell 2M USD/BRL 25 call vs buy 4M 25d atm, equal vega,
delta-hedged
18 Feb 22
1.1
01 Apr 22
-0.4
1.5
Buy USD/MXN 1Y6M forward volatility FVA
22 Nov 21
12.3
01 Apr 22
12.6
0.4
Long EUR/MXN 3M ATM vol vs. short 3M 25D EUR
call/MXN put in 1:0.5 vega ratios, delta-hedging
07 Apr 22
4.9
06 May 22
5.4
0.5
Long 3M EUR/NOK atm vs short 3M EUR/USD atm, delta
hedged
06 May 22
1.9
20 May 22
3.0
1.1
Long EUR/KRW 2M ATM vol vs. short USD/KRW 2M 35D
USD calls/KRW puts, delta-hedging
08 Apr 22
-0.3
20 May 22
1.2
1.4
Sell delta-hedged 2M EUR/PLN straddle vs buy 6M
straddle, equal vega
19 May 22
-0.1
10 Jun 22
-1.2
1.1
Long 6M USD/MXN vol swap vs short 6M USD/BRL vol
swap, equal vega
06 May 22
-8.7
10 Jun 22
-8.2
0.4
Short USD/TWD 3M ATM straddles, delta-hedged
20 May 22
6.7
17 Jun 22
6.4
-0.2
FX Derivatives portfolio (relative value)
On GBP/USD buy 6M straddle, sell 10delta strangle,
equal notionals, keep delta-hedged, restriked on March
3rd
20 May 22
5.8
17 Jun 22
7.0
1.2
Vol r.v.
Sell 1Y 25D USD/CNH call vs buy 3Y ATM USD/CNH call,
equal notionals, delta-hedged
20 May 22
0.7
17 Jun 22
1.2
-0.5
Derivatives (digital)
Digital Options
Buy 4m EUR/USD digital put. Spot ref 1.0152. K=0.95. Cost
13.60%.
Digital Options
Sell a 6m EUR/CHF digital call K=1.0620 (close call of zero cost
bearish digital risk-rev ersal).
Roll 4m EUR/USD digital put to ex tend expiry . Cost 10.89%. Spot ref
1.0152. K=0.95.
Unw ind 6m AED JPY call/KRW put at a loss. Cost 19.75%. Sport ref
9.50. K=10.45.
Entry
Entry
date
level
Exit date
Exit
level
02 Sep 22 13.6% 04 Jan 23
0.0%
P&L (%)
-13.6%
Entry date
Entry level
Exit date
Exit level
P&L (%)
17 Jun 22
15.9%
12 Aug 22
1.6%
14.3%
08 Jul 22
10.9%
02 Sep 22
9.9%
-1.0%
27 Jun 22
19.8%
09 Sep 22
18.2%
-1.5%
12 Aug 22
0.50%
13 Oct 22
2.13%
2.63%
Hold 2M 2% OTMS AUD call/USD put at ex piry digital vs. sell 2M 2%
OTMS EUR call/USD put at ex piry digital (equal USD pay outs) at a
loss
Hold a 6m EUR/CHF digital put K=0.9700 (hold put of zero cost
bearish digital risk-rev ersal).
Buy 9m NZD/JPY digital put. Spot ref 84.95. K=75.00. Cost 17.35%.
Buy 9 Jan 2023 GBP/USD at ex piry digital put. Spot ref 1.1116.
K=1.000. Cost 13.3%.
17 Jun 22
15.5%
28 Oct 22
17.9%
2.4%
17 Jun 22
17.35%
22 Nov 22
5.15%
-12.20%
30 Sep 22
13.3%
22 Nov 22
0.4%
-12.9%
Trade
Entry date
Entry level
Exit date
Exit level
P&L (vol)
Buy 3M USD/NOK ATM vs 6M 25d call, delta-hedged,
equal vega notionals
17 Jun 22
1.2
29 Jul 22
0.8
-0.3
Short 6M 35D USD puts/CNH calls, delta-hedged
22 Nov 22
8.1
06 Jan 23
6.8
1.4
On USD/JPY buy a 3M Vol swap, sell a 3M Var swap in
equal Vega notionals
27 Apr 22
0.0
29 Jul 22
0.5
0.5
1.4
Short 6-week expiry USD/KRW straddle indicatively, Deltahedging
22 Jul 22
10.2
12 Aug 22
8.0
2.2
Long 2M 35D AUD call/USD put vs. short USD/KRW 2M
35D strangle, vega-neutral, delta-hedged
12 Aug 22
1.6
02 Sep 22
1.6
0.0
On AUD/USD buy a 3M Vol swap, sell a 3M Var swap in
equal Vega notionals
26 May 22
0.0
02 Sep 22
0.7
0.7
Short 6-week expiry USD/JPY straddle indicatively, Deltahedging
22 Jul 22
10.4
02 Sep 22
17.6
-7.2
Buy 1 vega of 2M USD/SEK vol swap vs sell 1 vega of 2M
LatAm vols (USD/MXN, USD/BRL vol swaps)
09 Sep 22
2.6
23 Sep 22
4.0
1.4
Short 6Mx6M FVA on BRL
25 Mar 22
20.0
30 Sep 22
20.0
-0.1
Buy 1y vols swap on EUR/GBP
17 Jun 22
8.6
30 Sep 22
9.4
0.8
Buy 1Y USD/CAD straddle vs sell 10d strangle, equal
notionals
17 Jun 22
5.4
30 Sep 22
5.6
0.2
Short 2M AUD/USD 25d strangle, delta-hedged
28 Jul 22
12.7
30 Sep 22
14.4
-1.7
Buy 6M6M FVA on USD/SGD
21 Sep 22
5.5
28 Oct 22
6.5
1.0
Buy 6M6M FVA on USD/SGD
22 Nov 22
6.3
16 Dec 22
5.4
-0.9
Buy a 6m vol sw ap in USD/ZAR and sell a 6m v ol swap in
USD/BRL
23 Oct 22
3.5
06 Jan 23
2.1
Vol plus directional r.v.
Trade
Long 3M 1% OTMS USD call/TWD put v s. short 3M
5.1% OTMS USD call/KRW put. No delta-hedging
Trade
Buy a 4M EUR/CNH put spreads financed by selling 4M
EUR/CNH call live (not delta-hedged) zero cost
Buy 3M GBP/CHF OTMS put spread, financed by selling
Entry date
Entry level
Exit date
Exit level
P&L
16 Dec 22
-4
06 Jan 23
29
33
Units
bps
Entry date
Entry level
Exit date
Exit level
P&L
22 Nov 21
0
28 Jan 22
130
130
bps
Units
23 Nov 21
0
18 Feb 22
-4
-4
bp CHF
Buy 6M GBP/EUR – GBP/JPY correlation swap
18 Feb 22
36
06 May 22
37
1
corr pts
Long 2M 4.65x4.55 EUR put/PLN call 1x2 ratio spreads liv e
18 Mar 22
40
20 May 22
15
-25
bps
29 Apr 22
0
17 Jun 22
44
44
bps
USD/CHF OTMS put spread zero cost
Buy 3M GBP/CHF 1.20/1.17 put spread, financed by selling
USD/CHF 0.9620/0.9400 OTMS put spread
Digital r.v.
Digital Options
Entry date
Entry level
Exit date
Exit level
P&L (%)
Buy -3M/+9M USD/JPY 130 put one-touch calendar
22 Nov 22
26
06 Jan 23
0
-26
Buy 6M EURUSD - USDJPY dual digital
22 Nov 22
12
20 Jan 23
6
Digital Options
Buy 4M dual digital [EUR/USD<2% OTMS, S&P 500>4% OTMS]
Entry date
23/11/21
Entry level
10
Exit date
18 Mar 22
-6
Exit level
P&L (%)
0
-10
17
Anezka Christovova
(44-20) 7742-2630
anezka.christovova@jpmorgan.com
Global Emerging Markets Research
Tania Escobedo Jacob
(1-212) 622-4128
27 February 2023
tania.escobedojacob@jpmorgan.com
Abbas Keshvani
(65) 6801-3723
abbas.keshvani@jpmorgan.com
Sean T Kelly
(44-20) 7134-7390
sean.t.kelly@jpmorgan.com
Feb-23
Oct-22
Dec-22
Aug-22
Apr-22
Jun-22
Feb-22
Oct-21
Dec-21
Aug-21
Apr-21
Jun-21
Feb-21
105
Oct-20
65
Dec-20
110
Source: J.P. Morgan
Exhibit 2: However, ZAR does not screen as cheap on our BEER FV model
Deviation from FV estimate, %
+/- SE
10%
5%
0%
-5%
-10%
Source: J.P. Morgan
Energy crisis is likely to remain a key drag, combined
with too low carry buffer vs. the USD. There are several
channels through which energy shortages should affect FX:
1) lower capacity to produce/export, underperforming
versus any ToT level; 2) lower interest rate differentials
versus the US than otherwise (while the SARB judges much
of the energy crisis to lower also potential growth, we
would still argue the economic fallout limits appetite to be
hawkish); and 3) lower portfolio/FDI flows as lower growth
weighs on the equity sector (our equity analysts are UW)
and challenges the fiscal outlook (an input into our bond
valuation models).
The budget announcement this week was on the
optimistic side, in our view (see here). First, our
economist projects the fiscal deficit to be 5.5% in the
2023/2024 fiscal year, vs. governments assumptions at
5.3% (including below the line Eskom support). The key
differences are the authorities’ somewhat optimistic
assumptions on wage growth which is again presumed to
remain broadly steady, but current wage negotiations reflect
18
Jun-22
Sep-22
Mar-22
Dec-21
Jun-21
Sep-21
Mar-21
Dec-20
Jun-20
Sep-20
Mar-20
Dec-19
Jun-19
Sep-19
Mar-19
Dec-18
Jun-18
Sep-18
Mar-18
Dec-17
Jun-17
-15%
Sep-17
We remain UW ZAR in a portfolio context, even though
following the sharp move already, we expect more
moderate pace of sell-off from here. A simple comparison
to South Africa’s commodity ToT would suggest ZAR
already contains meaningful risk premia. However, our
BEER FV model provides a richer assessment including
additional variables (real rate differentials, SA’s current
account and SA’s debt/GDP). On this model, ZAR is
currently 4.2% cheap vs. a standard deviation of the model
at 8.7%. Our economist projections for the key variables
suggest ZAR’s fair value should decline by over 10%
through the year, mainly due to higher US real yields, and
some deterioration in the current account and debt metrics.
70
Mar-17
We remain MW FX in the EMEA EM region, but with a
cautious beta bias. We are UW in ZAR and HUF, vs. OW
in traditionally lower beta RON and CZK, where FX
interventions can also support currency stability if needed.
A period of sharp EM FX correction from overly bullish
conditions, as signaled by the ‘overbought’ signal from our
EM FX risk appetite index on January 20, has now likely
passed. Our EM FX risk appetite index has now corrected to
a more neutral level at -0.29. But we continue to perceive
downside risks for the complex, especially for
idiosyncratically challenged currencies. On the other hand,
pressures from here should be more moderate for currencies
with stronger fundamentals and FX intervention supports.
115
Dec-16
EMEA EM FX: We maintain a cautious
portfolio
75
Aug-20
 Latin America FX: The idiosyncratic stories warrant
differentiated views. Stay OW MXN and OW UYU vs.
UW COP.
120
Sep-16
 EM Asia FX: We recommend being short KRW, which
should weaken on late-cycle conditions.
Terms of Trade (RHS)125
80
Jun-20
 EMEA FX: Remain MW overall, with UW HUF against
OW RON and an OW CZK against UW ZAR.
ZAR Real Effective Exchange Rate
85
Jun-16
 MW EM FX in the GBI-EM Model Portfolio.
Exhibit 1: ZAR has significantly overshot the move in ToT
Mar-16
Emerging Markets FX
Anezka Christovova
(44-20) 7742-2630
anezka.christovova@jpmorgan.com
Global Emerging Markets Research
Tania Escobedo Jacob
(1-212) 622-4128
27 February 2023
tania.escobedojacob@jpmorgan.com
Abbas Keshvani
(65) 6801-3723
abbas.keshvani@jpmorgan.com
Sean T Kelly
(44-20) 7134-7390
sean.t.kelly@jpmorgan.com
an inflation-like offer from government. Second, the budget
counts on drawing down cash buffers reducing the scope to
absorb any additional negative shocks other than through
increased local markets issuance.
The greylisting risk has now materialized, but geopolitical risks remain heightened. We expected the
greylisting risk to contribute to pressures on ZAR and we
believe the risk has now mostly been fully priced in.
However, other idiosyncratic political risks remain on the
agenda, including recently heightened geopolitical tensions
around SA’s relationship with Russia. In general, in a preelection year we would expect more left-leaning policies.
Meanwhile, our conviction on our UW in HUF is
somewhat lower, and much will hinge on the central
bank’s stance. Following the collapse of natural gas prices,
Hungary’s fundamentals now appear much less challenged.
The last current account print showed the deficit narrowing
sharply to 4.9% GDP in December (saar) from 14.2% GDP
in November (saar). However, we would caution that
partially the improvement could include volatile items and
further evidence is needed. Meanwhile, core inflation
remains sticky. In fact, the HICP core measure (excluding
fuel, food, tobacco and alcohol) ticked higher in January. So
while fundamentals have certainly benefited from lower
energy prices, a high level of carry is probably needed for
continued HUF stability, in our view.
Against this backdrop, a continued cautious stance from
the NBH is needed, in our view. The central bank has so
far signaled that it intends to maintain the high emergency
O/N policy rate level until a sustained improvement in risk
perceptions and the BoP is achieved. Yet, we suspect
domestic pressures to ease are likely building, especially
given the high fiscal costs of the policy. An early
commencement of the cutting cycle at the meeting next
week is less likely, in our view, but we would expect the
NBH to already signal that cuts are likely in March. The
pace of easing would be even more crucial. We believe the
market could digest well rate cuts of 100bps or less per
month, while a cutting pace of more than 150bps per month
would likely trigger currency weakness amid the extended
long positioning.
Exhibit 3: Hungary's current account deficit narrowed sharply in
December
7%
2%
HUF, monthly CA/GDP
3mma (quarterly pre 2014)
12mma (4Q ma pre 2014)
-3%
-8%
-13%
-18%
Jan-00
Dec-03
Nov-07
Oct-11
Sep-15
Aug-19
Source: J.P. Morgan, Haver
Exhibit 4: Hungary’s core inflation remains rather sticky
HICP core inflation excluding food, fuel, tobacco and alcohol
18%
13%
%yoy
%3m/3m ann.
3mma ann.
8%
3%
-2%
Jan-14
Jul-15
Jan-17
Jul-18
Jan-20
Jul-21
Jan-23
Source: J.P. Morgan, Haver
Latin America FX: Data dependent
This week we took profits in our short ZAR/MXN
position (entry: 1.12, target: 1.00, P/L: +15%) while
holding on to our OW MXN in the GBI-EM Model
Portfolio. We entered short ZAR/MXN back in November
on the view that RV expressions that removed the layer of
USD uncertainty offered better opportunities to express our
bullish view on the Peso. The short ZAR/MXN also had net
positive carry and was well aligned with our structural
negative view on ZAR. Since then, MXN outperformed
ZAR by around 11% and, while the longer-term thematic
views on both countries remain valid (our EMEA team
remains UW ZAR as well), after the significant
outperformance of MXN, the relative value trade is less
compelling.
19
Anezka Christovova
(44-20) 7742-2630
anezka.christovova@jpmorgan.com
Global Emerging Markets Research
Tania Escobedo Jacob
(1-212) 622-4128
27 February 2023
tania.escobedojacob@jpmorgan.com
Abbas Keshvani
(65) 6801-3723
abbas.keshvani@jpmorgan.com
Sean T Kelly
(44-20) 7134-7390
sean.t.kelly@jpmorgan.com
MXN continues to benefit from its robust carry. The
bigger-than-expected hike and the decisively hawkish tone
of Banxico’s message in its January meeting (see here) gave
an additional impulse to MXN, taking it to 18.30/USD, its
strongest level since February 2018. MXN is the second
best performing currency YTD in EM as it still offers one of
the highest carry returns in the space and its volatility
remains lower than most comparable EM currencies. Both
of these factors are durable and should support MXN
outperformance over the medium term (see here).
MXN has seen inflows but overall positioning is not yet a
reason for concern. Positioning in MXN is still relatively
light despite its strong performance, according to CME
data. In our client survey, MXN exposure has seen an
increase into 2023, but it remains below the historical
average. In terms of valuations, MXN does not currently
look expensive nor cheap when compared to its long-term
average.
Renewed doubts around the pace of global disinflation,
however, might lead to episodes of heightened risk
aversion, granting caution at current levels for MXN.
With USD/MXN at a five-year low, the space for the MXN
rally to run much further might be limited in the short term.
The increased uncertainty around the Fed terminal rate has
already triggered losses in EM assets and, while MXN has
been somewhat insulated from the deterioration in risk
appetite, another set of strong prints for the US economy or
inflation could prompt a quick correction higher, especially
as momentum indicators (RSI) approach USD/MXN
oversold levels.
At the other side of the spectrum, ZAR is the worst
performer so far in 2023 as its low carry and higher
idiosyncratic risks have prevented it from benefiting
from the China re-opening optimism. We still have some
risk events in the pipeline this month (e.g. risk of
greylisting) but a lot of bad news seem to already be priced
in, and the momentum in USD/ZAR will likely be difficult
to sustain absent fresh catalysts. Positioning in ZAR is
fairly neutral at the moment.
Elsewhere, we remain UW COP even ahead of dividend
season, as the fundamental vulnerabilities remain intact.
Historically, COP has outperformed during the month of
April on the back of flows related to tax season and the
EcoPetrol dividend. This year, the dividend from EcoPetrol
is expected to be large, potentially around USD 6bn,
according to the government estimates, twice the amount of
last year. This could lead to tactical strength during the
month of April, when the dividend is expected to be paid.
However, besides this technical consideration, the negative
structural story of Colombia has not changed, in our view.
20
The wide CA deficit will remain a major source of pressure.
A fragile political balance along with ex-post real rates in
negative territory and a central bank reluctant to intervene
in the FX market continue to validate our UW COP in the
Model Portfolio.
We stay tactically long USD/CLP (entry level: 793;
target: 830; review point: 765). CLP remains the main
beneficiary of the China reopening story but at current
levels, it is looking stretched, offering good entry points for
tactical shorts.
Exhibit 5: MXN’s relatively low vol increases its carry appeal
Carry adjusted by implied volatility
Source: J.P. Morgan, Bloomberg Finance L.P.
Anezka Christovova
(44-20) 7742-2630
anezka.christovova@jpmorgan.com
Global Emerging Markets Research
Tania Escobedo Jacob
(1-212) 622-4128
27 February 2023
tania.escobedojacob@jpmorgan.com
Abbas Keshvani
(65) 6801-3723
abbas.keshvani@jpmorgan.com
Sean T Kelly
(44-20) 7134-7390
sean.t.kelly@jpmorgan.com
Asia FX: Short KRW
Asia: We continue to see USD/Asia as generally too low.
Four out of six USD/Asia pairs (THB, KRW, PHP, MYR)
are trading lower than implied by our modified balance
models. The degree of richness has reduced recently, but it
remains historically high enough to advise against a short
USD bias. On a fundamentals basis, we continue to see late
cycle conditions to be challenging for Asia FX: weaker
external demand is hurting exports, while oil prices remain
high, and a combination of weak growth and tight monetary
conditions should continue inflicting pain via financial
accounts.
Exhibit 6: USD/Asia is too low
Deviations between spot and levels implied by modified balances (s.d.)
PHP: Our simulation of CTA signals has flipped to
recommending being long USD/PHP, due to a bottoming
out in USD/PHP. Now, two out of four models recommend
being long USD/PHP, and a third model is close to flipping
being long. This could result in exacerbated upside price
action for the pair. We have noted in the past that CTA
flows tend to be highly influential for USD/PHP. Indeed,
the turnaround in the dollar since November likely tilted
momentum signals to be short USD/PHP – our own
simulation of CTA trend models had progressively shifted
from recommending being long USD/PHP for most of
2H22, to flat in November, to short dollars in December.
We noted around 54.50 that risks for the pair were
asymmetrically to the upside and we continue to hold this
view. See note for details on CTA models.
2.0
Exhibit 7: USD/PHP versus simulated CTA signal
1.5
Positive number means the simulation recommends being long USD/PHP
1.0
0.5
1.50
60.00
0.0
1.00
58.00
-0.5
56.00
0.50
-1.0
-1.5
USD-Asia lower than model-implied
-2.0
13
14
INR
MYR
15
16
17
18
KRW
PHP
19
20
IDR
Total
21
22
54.00
0.00
23
THB
Source: Haver, Bloomberg Finance L.P., J.P. Morgan
KRW: We are short KRW vs USD, JPY, THB, IDR
equally weighted. Korea is caught between a rock and a
hard place, with late-cycle conditions depressing external
demand for electronics, but energy prices remaining
burdensome – the trade deficit printed at a whopping
$12.7bn in January, but the market was focused on China’s
reopening. Local dollar demand should remain high,
between outbound FDI and retail buying of foreign equities.
Finally, we expect NPS to mollify sharp price action rather
than secularly sell dollars.
52.00
-0.50
50.00
-1.00
48.00
-1.50
46.00
18
19
20
21
Signal
Spot
22
Source: Bloomberg Finance L.P., J.P. Morgan
THB: We estimate that Thai mutual saw their foreign assets
lose around 1.9% or around $800mn this month, as of 24
February. This would require them to decrease FX hedging
for their smaller portfolio (i.e. buy USDTHB) and implies
around 0.25% USDTHB upside at month end – a weak
signal. Since we first started publishing this model, 11 out
of 16 signals have produced profitable month-end signals
for USD/THB, returning 6.4% in total. See note for details.
Pullback in the pair has diminished baht richness, with the
tourism recovery now 54% priced in, from 85% at the time
that we took profit in end-January.
21
Anezka Christovova
(44-20) 7742-2630
anezka.christovova@jpmorgan.com
Global Emerging Markets Research
Tania Escobedo Jacob
(1-212) 622-4128
27 February 2023
tania.escobedojacob@jpmorgan.com
Abbas Keshvani
(65) 6801-3723
abbas.keshvani@jpmorgan.com
Sean T Kelly
(44-20) 7134-7390
sean.t.kelly@jpmorgan.com
CNY: USD/CNH broke above 200dma for the first time
since last April. Part of its recent weakness was driven by a
higher DXY as the repricing of Fed-terminal rates is
underway. Flows have been working against CNY FX of
late as well. Foreign equity inflows retreated after a strong
start in January with international investors taking profit
after last month’s rally. As the China reopening rally is on
pause now, investors broadly await further clarity on the
macro and policy outlook at the upcoming NPC meeting.
Bond outflows look to have accelerated as well. Not only
did we see the resumption of foreign selling of Chinese
bonds last month, our high frequency tracking of retail bond
fund flows also points to an acceleration in outflows from
China-focused funds in the past week, likely motivated by
the renewed upward pressure in CNY rates. Portfolio flows
overall have become a headwind for CNY performance
while corporates largely stay on the sidelines, not selling
dollars at scale (note). Additionally, PBoC’s neutral fixings
bold well for CNY shorts as policy makers don’t seem to be
in a rush to cap CNY weakness with the CNY basket
staying above 99.
USD/CNY at 6.95 also doesn’t look alarmingly too high:
the implied fair value based on nominal CN-US yield
differentials is between 6.8-7.05. Against this backdrop, the
latest upward momentum in USD/CNY could still have legs
but global factors rather than China idiosyncratic risks
should be the primary drivers for the next leg higher in spot.
Although we have been holding a medium-term bearish
view on the CNY based on our BoP forecast, and it now
looks tempting to chase CNY weakness accounting for the
momentum, we are mindful of the potential event risk from
the upcoming NPC which could revive the residual
reopening optimism should policy surprises on the strong
side. Unlike last year when macro and policy risks in China
warranted a durable currency weakness/underperformance,
the post-reopening recovery and more growth supportive
policies this year should at least help to limit runaway
currency depreciation risks despite lingering BoP pressure.
Emerging Markets FX
Exhibit 8: GBI-EM Model Portfolio
Bond View
GBI-EM
OW
EM Asia
OW
EMEA EM
OW
Latin America
OW
China
MW
Indonesia
MW
Malaysia
OW
Philippines
MW
Thailand
MW
Czech Republic
OW
Egypt
MW
Hungary
UW
Poland
MW
Romania
MW
Turkey
MW
Serbia
MW
South Africa
OW
Brazil
OW
Chile
UW
Colombia
MW
Dominican Republic
MW
Mexico
OW
Peru
MW
Uruguay
MW
Source: J.P. Morgan
Exhibit 9: Outright EM FX trade recommendations
EM Asia
Entry Target Stop
Short INR/IDR via 12m NDF
Long S$NEER spot basket
Entry
188.87
100
101.50
99.50
EMEA EM
Entry
Target
Stop
Entry
Short USD/KZT via 12m NDFs
Long USD/TRY 6m forward
23-May-23 USD/ZAR call (19.00),
spot ref: 17.36
Long USD/NGN via 9M NDFs
Long USD/KES via 6m NDFs
505.65
21.11
440
23.5
535
-
30-Jan-23
12-Jan-23
1.93%
-
-
21-Nov-22
486.00
113.55
520.00
126.00
478.00
108.00
28-Jul-22
24-Jan-22
Latin America
Entry
Target
Stop
Entry
Long USD/CLP
793
830
765
09-Feb-22
Source: J.P. Morgan.
22
FX View
MW
MW
MW
OW
MW
OW
MW
UW
MW
OW
OW
UW
MW
OW
MW
MW
UW
MW
MW
UW
MW
OW
MW
OW
16-Dec-22
07-Mar-22
Lorenzo Ravagli, PhD
(44-20) 7742-7947
lorenzo.ravagli@jpmorgan.com
Ladislav Jankovic
(1-212) 834-9618
ladislav.jankovic@jpmchase.com
Arindam Sandilya
(65) 6882-7759
arindam.x.sandilya@jpmorgan.com
Juan Duran-Vara
(44-20) 3493-7685
juan.duran-vara@jpmorgan.com
FX Derivatives
 The theme of owning FX Vols as a cheap replacement
for risky assets protection has lost momentum on the
narrowing of Equity vol premium.
 Proxy hedges via FX baskets can still provide value if
applied against illiquid assets (like for instance RUB)
or select Equity Indices (like S&P 500 and HSCEI).
 Long high-beta FX vol vs. short Equity Index vol has
delivered a solid performance over the past couple of
years. We favor long USD/NOK vs. short S&P 500 vol
RVs. Long Eurostoxx 50 trades can be sourced by
selling EUR/USD vol.
 A construct short USD/TWD puts, long EUR/USD
calls can pay a premium upfront, banking on the
elevated vol and wide fwd pts. of the TWD leg while
being insulated from the risk of a drop in the USD.
Global Quantitative & Derivatives Strategy
27 February 2023
Exhibit 1. FX Vols still screen as cheap relative to rates vols and
correlations, and marginally so relative to Equity vols.
25
20
15
10
5
0
USD-pairs 1y vol G10 average (market)
USD-pairs 1y vol G10 average (rates model)
USD-pairs 1y vol G10 average (VIX model)
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan
11 12 13 14 15 16 17 18 19 20 21 22 23
Source: J.P. Morgan
The current setup suggests some creative use of FX Vols for
cross-asset purposes, such as proxy hedges via (options on)
FX baskets and RV vol trades, see the following sections.
FX Vols for cross-asset themes
Proxy hedges via FX baskets
Equity markets have enjoyed a significant rally since the
start of the year, with markets attributing a higher
probability to the soft-landing scenario and banking on the
support to the global economy due to the China reopening
theme. Markets have corrected lower since mid-February on
the expectation of a higher terminal rate in the US, with
10yr US yields moving up by around 40bps over the month.
USD-pivoted FX correlations have started to come off
recent highs, marking better value for long correlation
trades. As such, we look at the wider space of FX baskets,
as introduced earlier (see for instance here), with the
purpose of screening for appealing candidates for crossasset proxy hedges. We allow both long and short weights
in the FX baskets, aimed at offering a decent reproduction
of 3M spot returns of the asset to be proxy-hedged, and then
some significant discount in terms of implied vol.
Short-vol flows via short-dated options in Equities might
have contributed to keeping realized vols contained, on the
feedback loop induced by market-makers’ Gamma
exposure, but the same flows would expose markets to
larger fluctuations in the case of more significant moves
(see Market and Volatility Commentary – Rates-Equity
Disconnect, Geopolitics and Volmageddon 2.0, Kolanovic,
15 Feb). J.P. Morgan’s Equity Strategy team do not expect
there will be a fundamental justification of a next leg
higher, given key monetary warning signals (see here).
Pricing of Equity vols are on average near the lowest since
the start of the pandemic, indicating some possible
complacency on the assessment of downside risk for
markets. After the spikes induced by Covid-19 (in 20-21)
and by the war in Ukraine (last year), FX Vols are no longer
dramatically undervalued relative to Equity vols, as had
been the case for the past ~3yrs (Exhibit 1, see this earlier
note). We still find FX vols ~2.5 vols undervalued on
average vs. proxies of rates vols and correlations (see for
instance page 5 of this weekly document). With the
relaxation of ultra-loose monetary policies by major Central
Banks, markets are now pricing in higher uncertainty/
expected moves for the macro space than Equities.
In the following, we focus on a few case studies, where
current market conditions highlight value in the FX basket
proxy hedge approach. For RUB, illiquidity of the
underlying market, in particular via options, calls for a
replication via tradeable assets, whereas for Equities, the
added value of the replication stems from the possibility of
cheapening the hedges’ implied volatility.
RUB has become illiquid since the start of the war in
Ukraine and, in particular, in the options market where
bid/ask spreads in vol terms are up to 5-10 vols wide. The
currency has fallen by ~25% in the spot market since
November, as the impact of sanctions, and the drop in
natural gas prices, is weighing more on the Russian
economy. The possibility of buying optionality on
USD/RUB can be useful to be played as a geo-political
hedge. The highlighted basket (long 164% of USD/CAD
and 203% of USD/PLN vs. short 217% USD/HUF) tracks
reasonably well (R2 of 33%) the changes in USD/RUB and
manages to achieve around 10% of savings relative to the
implied vol level. Given the opposite exposure to PLN and
HUF of the basket, the elevated PLN/HUF via-USD
23
Lorenzo Ravagli, PhD
(44-20) 7742-7947
lorenzo.ravagli@jpmorgan.com
Ladislav Jankovic
(1-212) 834-9618
ladislav.jankovic@jpmchase.com
Arindam Sandilya
(65) 6882-7759
arindam.x.sandilya@jpmorgan.com
Juan Duran-Vara
(44-20) 3493-7685
juan.duran-vara@jpmorgan.com
correlation manages to provide some discounts in vol terms.
The positive correlation to USD/CAD accounts for the two
currencies exposure to Oil prices.
Chinese Equities received a massive boost at the end of
2022, thanks to the gradual pricing in of China reopening
and upward revisions in Chinese growth projections (see a
recent note by the Equity Strategy team). The ~10% decline
since the late January high level, and the still elevated
implied vol relative to before the start of the war in Ukraine,
open the way for cheaper alternatives involving FX vols. As
for the USD/RUB case, a basket long 68% USD/JPY and
short 198% USD/KRW and 85% USD/CNH proxies well
(R2 of 53%) changes in the HSCEI Index. Interestingly, the
selected basket (which has the highest R2 across all possible
combinations involving liquid vols) is entirely composed of
Asian vols, and the appreciation in Chinese Equities is
typically accompanied with a stronger CNH and KRW and
with a weaker JPY. The reduction in implied vol levels is
also of the order of 10% in relative terms.
Exhibit 2. Proxy replication for SPX via the basket, for the 3M %
returns and the 3M vols.
Proxy regression for SPX
3M % change in S&P 500
40%
20%
Global Quantitative & Derivatives Strategy
27 February 2023
tightened up significantly in recent months, and Equity vol
premia are, in a few cases, extremely compressed (3M
ATM Implied vol on the FTSE 100 Index as below 13%),
the latest rise in the VIX, at around 23. opens up
opportunities for hedging moves in US Equity Indices.
The replication basket (long 55% USD/JPY and short 61%
USD/NOK and 63% USD/KRW) offers a decent (42% R2)
replication of the 3M returns in the S&P 500 Index (Exhibit
2, top) and manages a ~45% reduction in implied vol terms
(bottom). The significantly cheaper cost of the hedges
should support the use of the basket despite the replication
error. Consider:
- Buy a 3M, 5% OTMS put on the basket: +55% * return of
USD/JPY-61% * return of USD/NOK-63% * return of
USD/KRW for USD 1.15%.
Equity vs. FX RV vol trades
We have flagged on a few occasions the strategic appeal of
long high-beta FX vs. short Equity vol RVs that were
exploiting the pricing mismatches that emerged since the
start of the pandemic (see for instance here) and were vocal
in favoring FX over Equity vols a few weeks after the start
of the war in Ukraine (see here). The entry point for such
cross-asset trades is now less striking than last year, with
the compression of Equity vol premium (Exhibit 3).
Exhibit 3. Ratio between Equity and FX vols now in line with the
~20yrs average.
0%
Ratio between VIX and JPM VXY G7
7
-20%
y = 1.0049x - 0.0003
R² = 0.4179
-40%
-20%
-10%
0%
10%
3M % change in the basket
20%
6
5
4
3
S&P 500 3M vol
FX proxy basket 3M vol
60
1
50
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
Jan 21
Jan 22
Jan 23
0
40
Source: J.P. Morgan
30
20
10
0
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Source: J.P. Morgan
The approach can find applications towards DM Equity
Indices as well. While Equity/FX Vol ratios have generally
24
2
Below, we show proxy backtests for short Equity/long highbeta FX vol trades. Proxy backtests are performed via vol
swap trades, assuming a relative scaling of Vega notionals,
which is inversely proportional to the implied vol. We do
not account for mark-to-market effects and assume no
transaction costs, so that the charts are displayed just for
illustrative purposes. Still, the long high-beta FX vols have
generally protected well the short Equity vol positions over
the past few years, benefiting from the decline in the latter.
Ladislav Jankovic
(1-212) 834-9618
ladislav.jankovic@jpmchase.com
Arindam Sandilya
(65) 6882-7759
arindam.x.sandilya@jpmorgan.com
Juan Duran-Vara
(44-20) 3493-7685
juan.duran-vara@jpmorgan.com
The case study on S&P 500 shows (Exhibit 4) that the vol
RV constructs involving the long FX vol leg offer smoother
profiles compared to the Equity short vol leg. The added
value has been evident over the pandemic and in 2022.
Exhibit 4. Long high-beta 3M FX vol / short S&P 500 3M vol RVs offer
smoother profiles than the short-Equity vol leg alone.
8000
Short S&P 500 vol
S&P 500 vs. USD/NOK
S&P 500 vs. AUD/USD
S&P 500 vs. NZD/USD
4000
40%
30%
20%
10%
0%
-60%
Jan-23
-50%
Source: J.P. Morgan
A very similar pattern is at play on the FTSE 100 case
Exhibit 5). Here, we point out that the drawdown suffered
by the Equity vol leg last year has been much milder, given
the contained retracement by the Index and the sharp drop
in the corresponding implied vol.
Exhibit 5. Long high-beta 3M FX vol/short FTSE 100 3M vol RVs offer
smoother profiles than the short-Equity vol leg alone.
-40%
-30%
-20%
3M % change in S&P 500
6000
Jan-23
Jan-22
Jan-21
Jan-20
Jan-19
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
-3000
Source: J.P. Morgan
The sharp decline in the FTSE 100 implied vol makes it a
less appealing candidate, from a purely tactical angle, for
the RV constructs, favoring the S&P 500 case from this
respect. For FX, we favor the use of the long USD/NOK leg
on the back of the well-known sensitivity to Oil, which
might counter to some extent the risk of a hawkish for
longer Fed. The FX strategy team keeps a neutral stance on
the currency (see the latest KCV note).
Jan-23
Jan-22
Jan-21
Jan-20
Jan-19
-2000
Jan-18
0
0
Jan-17
1000
Jan-16
2000
2000
Jan-15
3000
Jan-14
4000
4000
Jan-13
5000
Jan-12
FTSE 100 vs. NZD/USD
Jan-11
FTSE 100 vs. AUD/USD
Long Euro STOXX 50 vol
Long Euro STOXX 50 vs. short EUR/USD vol RV
Long Euro STOXX 50 vs. short USD/JPY vol RV
8000
Jan-10
FTSE 100 vs. USD/NOK
0%
Exhibit 7. Long 3M Eurostoxx 50 vol vs. short 3M EUR/USD vol is
associated with a positive long-term PnL before costs.
Cumulative PnL (vol pts.)
6000
Short FTSE 100 vol
-10%
The solid negative correlation between S&P 500 and
USD/NOK during market sell-offs can open the way for a
directional implementation that banks on the spread in
implied vols. A switch implementation via puts on S&P and
calls on USD/NOK, setting the USD/NOK strike that
corresponds to the regression above for a 10% drop in S&P
500, is roughly premium neutral and therefore does not
justify any discounts over owning the S&P put outright.
Jan-09
7000
-2000
-20%
Source: J.P. Morgan
Jan-08
Jan-22
Jan-21
Jan-20
Jan-19
Jan-18
Jan-17
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
-4000
-1000
-10%
y = -0.6212x - 0.0119
R² = 0.4753
0
-2000
Cumulative PnL (vol pts.)
Exhibit 6. S&P 500 and USD/NOK are well correlated during markets
selloffs.
-30%
2000
Jan-08
Cumulative PnL (vol pts.)
6000
Global Quantitative & Derivatives Strategy
27 February 2023
3M % change in USD/NOK
Lorenzo Ravagli, PhD
(44-20) 7742-7947
lorenzo.ravagli@jpmorgan.com
-4000
Source: J.P. Morgan
Long Equity vs. FX Vols are harder to justify from a
strategic angle than they could be tactically, although there
are a few relevant exceptions. Long Eurostoxx 50 vol vs.
short EUR/USD and USD/JPY vol RV are two such cases
(Exhibit 7), with EUR/USD and USD/JPY among the best
generators within FX of vol Carry via short-Gamma
strategies. These trades did deliver a solid PnL over the
decade following GFC, but suffered last year on the sharp
compression of Equity volatilities.
25
Lorenzo Ravagli, PhD
(44-20) 7742-7947
lorenzo.ravagli@jpmorgan.com
Ladislav Jankovic
(1-212) 834-9618
ladislav.jankovic@jpmchase.com
Arindam Sandilya
(65) 6882-7759
arindam.x.sandilya@jpmorgan.com
Juan Duran-Vara
(44-20) 3493-7685
juan.duran-vara@jpmorgan.com
The RV against EUR/USD appears sounder from a macro
standpoint, neutralizing European/ECB risk, and avoiding
an unnecessary exposure to monetary policy risk in Japan.
For a directional implementation via outright puts, where
one was trying to contain the premium paid upfront, relative
level of the vols would typically require unfavorable
locations of the Equity vs. FX strikes. Consider:
Global Quantitative & Derivatives Strategy
27 February 2023
are much closer to home today after the 8%+ decline in the
pair since 4Q22, and pose less of a threat of outsized TWD
strength from here.
Exhibit 8. USD/TWD vols have soared recently, coinciding with
increased US-China geopolitical noise
USD/TWD 1Y ATM vol
9.5
- Buy a 16 Jun vol swap on USD/NOK @13.3/14.4 (spot
ref. 10.33), sell a 16 Jun vol swap on S&P 500 @19/20
(esh3 ref 4022), in 1:0.7 Vega notionals
9.0
- Sell a 16 Jun vol swap on EUR/USD @8.2/8.55 (spot ref.
1.063), buy a 16 Jun vol swap on Eurostoxx 50
@17.85/18.85 (VGH3 ref 4280), in 1:0.5 Vega notionals
7.5
Selling USD puts/TWD calls for carry
without geopolitical tail risk
6.0
USD/TWD vols have soared recently. The timing has
coincided with rising decibel levels around US – China
geopolitics and the Russia-Ukraine conflict. Recall that
TWD was one of the major spillover casualties of the
Ukraine war last year, and the reflexive investor response
has been to reach for USD call/TWD put tail hedges. The
resulting buying of TWD vol likely adds to pre-existing
demand for carry-seeking option structures (USD call/TWD
put spreads/digitals etc.), without any offsetting corporate
vega supply typical of other North Asian pairs like CNH;
the result has been a sharp rise in TWD vol – TWD 1Y
ATM vol is now at par with EUR 1Y vol – although
absolute levels are still some ways off from 2022’s manic
highs (Exhibit 8).
An atypical carry trade: selling USD puts/TWD calls
attractive on account of high vol and negative forward
points without assuming exposure to geopolitical tail
risk. If/when EM currencies price in increased tail risk, the
standard pattern is for USD/FX spot, forward points and the
vol surface to blow out sharply in unison. The principal
oddity of the TWD vol surface is that even as spot and
especially vols have risen sharply, forward points are still
deeply negative on account of the wide US – TW policy
rate differential. As a result, OTM USD puts/TWD calls are
fairly expensively priced in premium, and selling them can
make for an attractive carry trade. But unlike run-of-themill carry trades that run into rough weather if/when tail
risks fructify (i.e. the carry on offer is really just
compensation for shorting tail risk), USD puts/TWD calls
are located opposite to the direction of any geopolitical
accident and should swiftly decay to zero if TWD were to
abruptly weaken. As a matter of fact, the key risk to selling
USD/TWD puts is excessive USD weakness, which would
have been a legitimate consideration when spot was trading
north of 32 last year and was packing in 10-12% of
geopolitical risk premium on some models. But valuations
26
8.5
8.0
7.0
6.5
5.5
5.0
Feb 21 May 21 Aug 21 Nov 21 Feb 22 May 22 Aug 22 Nov 22 Feb 23
Source: J.P. Morgan
Exhibit 9. Options price in far greater TWD strength relative to EUR
than has historically been delivered in the past few years
Scatter plot: 5-year history of USD/TWD vs. EUR/USD 30-day spot returns. The
isopremium line is a combination of zero-cost 1Y option strikes, USD calls to the
left of the zero vertical and USD puts to the right. No transaction costs.
Rolling 30-day USD/TWD spot return
8
5
2
-1
-4
-7
Isopremium line
-10
-8
-6
-4
-2
0
2
4
6
8
10
Rolling 30-day EUR/USD spot return
Source: J.P. Morgan
EUR calls a worthy hedge for the possibility of outsized
USD weakness. For a short USD put/TWD call carry trade
to weather most states of the world, it would be comforting
to hedge the possibility of outsized USD weakness without
sacrificing much of the premium collected. Exhibit 9 shows
that EUR/USD fits the bill well: (a) there is a relatively
predictable correlation between TWD and EUR (~60% R2
of monthly spot returns over the past two years); and (b) the
relative pricing of USD puts/TWD calls vs. EUR calls/USD
puts is far in excess of the historically delivered beta of the
two underlyings, implying residual risk premium in TWD
calls even after accounting for their natural beta to the Euro.
Lorenzo Ravagli, PhD
(44-20) 7742-7947
lorenzo.ravagli@jpmorgan.com
Ladislav Jankovic
(1-212) 834-9618
ladislav.jankovic@jpmchase.com
Arindam Sandilya
(65) 6882-7759
arindam.x.sandilya@jpmorgan.com
Juan Duran-Vara
(44-20) 3493-7685
juan.duran-vara@jpmorgan.com
Global Quantitative & Derivatives Strategy
27 February 2023
We take advantage of this set-up by selling 1Y 5% OTMS
USD puts/TWD calls vs. buying 0.6x notional of 1Y 5%
OTMS EUR calls/USD puts (~0.6x is the beta of TWD spot
to EUR). Such a construct still retains a substantial fraction
of the premium of a standalone USD/TWD put, while being
insulated from nearly the full gamut of broad dollar
outcomes.
Updates to the FX options portfolio
Sell 1Y 5% OTMS strike USD puts/TWD calls (off spot
ref. 30.55, indic. premium 262bp) vs. buy 0.6x notional of
1Y 5% OTMS EUR calls/USD puts (off spot ref. 1.0585,
indic. premium 172bp). Net premium collected at inception
= 159bp
Current trade recommendations and P&L
Description
New Sell 1Y 5% OTMS strike USD puts/TWD calls vs. buy 0.6x notional of 1Y 5%
Entry date
Entry
Current mid
P/L
P/L units
Remarks
Banking on the elevated vol and wide fwd pts.of the TWD leg while
being insulated from the USD risk
24-Feb-23
-159
-159
0
bps
Open long EUR/SGD 6M ATM straddle vs.USD/SGD 6M ATM straddle, equal
vega
03-Feb-23
0.1
-0.2
-0.2
vol pts
RV-efficient long Euro vol as a hedge against Ukraine war risks
Short delta-hedged 6M XAU/USD 25d call
27-Jan-23
17.1
15.8
1.3
vol pts
Surface premium harvesting
6M short USD/BRL vol swap vs long USD/CAD vols swap
27-Jan-23
-9.6
-10.1
-0.5
vol pts
BRL stuck in a range
Short 1Y USD/HUF vol swap with 34vol cap vs long USD/PLN vol swap
27-Jan-23
4.8
4.9
-0.1
vol pts
mean reversion model flagging the spread as too wide
Buy 6M6M FVA on USD/INR
16-Dec-22
6.4
6.0
-0.4
vol pts
FX vols have dropped sharply and now screen cheap on several
measures
Selling 6M USD/GBP – USD/JPY corr swap
22-Nov-22
39.0
46.0
-7.0
corr pts Short USD corr
Long USD/MXN 6M6M FVA vs. Short AUD/USD 6M6M FVA
22-Nov-22
0.8
0.0
-0.8
vol pts
EM – DM vol gap is at multi-year lows
6M long USD/NOK vol vs. EUR/NOK vol
22-Nov-22
4.6
4.3
-0.3
vol pts
Larger decoupling on USD/NOK then on EUR/NOK
Buy a 6M EUR/USD Var swap, sell 6M Vol swap
22-Nov-22
0.0
-0.5
-0.5
vol pts
Tail-hedges for a recession year
Buy a 9M USD/ZAR digital call, strike 21.2
22-Nov-22
11.4
13.9
2.5
%
Tail-hedges for a recession year
Short USD/KRW 6M ATM straddle vs long USD/PHP 6M ATM straddle, deltahedged
06-Jan-23
3.4
2.4
1.0
vol pts
OTMS EUR calls/USD puts
Short vol re-shuffling out of CNH into KRW
Trades marked to market at 2:00pm BST Friday.
For delta-hedged straddles and vol products, P/L is in vol points; for directional trades, bp of notional; negative entry price indicates a net credit at inception
Source: J.P. Morgan
27
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
Ikue Saito
(81-3) 6736-8628
ikue.saito@jpmorgan.com
Global FX Strategy
27 February 2023
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Market movers
(all times GMT; +11hrs for Sydney, +9hrs for Tokyo, -5hrs for New York)
Date
Country
Time
Data/Event
JPM
Feb 25 (Sat)
Feb 26 (Sun)
Feb 27 (Mon)
Mexico
New Zealand
Japan
00:00
21:45
05:00
05:00
23:50
23:50
Euro area
Sweden
Turkey
US
Feb 28 (Tue)
Mexico
UK
Japan
Australia
New Zealand
Euro area
Switzerland
Hungary
Poland
South Africa
Sweden
US
Canada
UK
Mar 1 (Wed)
Japan
China
Australia
South Korea
Indonesia
Euro area
28
09:00
15:45
17:00
16:00
07:00
13:30
15:00
15:30
15:30
12:00
09:00
05:00
00:30
00:30
00:30
22:30
00:00
21:45
07:45
12:30
08:00
17:00
13:00
09:00
12:00
07:00
07:00
16:00
13:30
14:00
15:00
19:30
23:00
13:30
13:30
12:15
12:30
00:30
01:30
23:50
01:30
01:45
00:30
00:00
23:00
08:30
08:45
08:50
08:55
08:55
08:55
Current account ($ mn)
Retail sales ex. inflation (%q/q sa)
Coincident index (CI)
Leading index (CI)
IP (%m/m, sa)
Retail sales (%m/m, sa)
Germany retail sales (%m/m, sa)
M3 (%oya)
ECB's De Cos Speaks
ECB's Lane Speaks
Retail sales (%m/m, sa)
Trade balance ($bn)
Durable goods orders (%m/m, sa)
Pending home sales (%m/m, sa)
Dallas Fed survey (index)
Fed’s Jefferson Discusses Inflation and the Dual Mandate
Trade balance ($ mn)
BOE's Broadbent speaks
Housing starts (%oya)
Current account (A$ bn, sa)
Private sector credit (%m/m, sa)
Retail sales (%m/m, sa)
RBA's Jones-Remarks
NBNZ business confidence (index)
Building permits (%m/m, sa)
France GDP (%q/q, sa)
ECB's Vujcic Speaks
GDP (%q/q, sa)
KOF leading indicator (index, sa)
NBH rate announcement
GDP (%y/y)
Trade balance (ZAR bn)
GDP (%q/q, sa)
Trade balance (SEK bn)
PPI (%oya)
Wholesale inventories (%m/m)
S&P/CS HPI (%oya)
Consumer confidence (index, sa)
Fed's Goolsbee Speaks at Community College
FHFA house price index (%m/m)
GDP (%m/m, sa)
GDP (%q/q, saar)
BOE's Huw Pill speaks
BOE's Catherine Mann speaks
PMI mfg. (index, sa)
BOJ Board Nakagawa Speech in Fukushima
Monetary base (%oya)
PMI mfg. (index, sa)
Caixin PMI mfg. (index, sa)
GDP (%q/q, sa)
Trade balance (USD mn)
IP (%oya)
CPI (%y/y)
ECB's Villeroy speaks in Paris
Italy PMI mfg (index, sa)
France PMI mfg (index, sa)
Germany PMI mfg. (index, sa)
Germany unemployment change (000s)
Germany unemployment rate (%, sa)
Forecast
Consensus
Previous
4Q
4Q
Dec F
Dec F
Jan P
Jan
Jan
Jan
na
na
na
na
-0.5
-0.9
na
na
3450.0
0.2
na
na
-2.9
0.7
na
na
(3Q)
(3Q)
(Dec P)
(Dec P)
(Dec F)
(Dec)
(Dec)
(Dec)
-5505.0
0.4
98.9
97.2
0.3
1.1
-4.9
4.1
Jan
Jan
Jan P
Jan
Feb
na
na
na
na
na
na
na
-3.9
0.9
-9.5
(Dec)
(Dec)
(Dec F)
(Dec)
(Jan)
1.5
-9.7
5.6
2.5
-8.4
Jan
na
na
(Dec)
984.0
Jan
4Q
Jan
Jan
-0.3
na
na
na
1.2
5.0
0.3
1.5
(Dec)
(3Q)
(Dec)
(Dec)
-1.7
-2278.0
0.3
-3.9
Feb
Jan
4Q F
na
na
na
na
na
na
(Jan)
(Dec)
(4Q P)
-52.0
-7.2
0.1
4Q
Feb
na
4Q F
Jan
4Q
Jan
Jan
Jan P
Dec
Feb
na
na
13.00
na
na
na
na
na
na
na
na
0.2
98.0
13.00
na
na
-0.6
na
na
0.1
na
108.4
(3Q)
(Jan)
na
(4Q P)
(Dec)
(3Q)
(Dec)
(Dec)
(Dec F)
(Nov)
(Jan)
0.2
97.2
13.00
2.0
5.4
0.6
-1.2
18.7
0.1
6.8
107.1
Dec
Dec
4Q
na
na
na
-0.2
na
na
(Nov)
(Nov)
(3Q)
-0.1
0.1
2.9
Feb F
na
na
(Feb P)
47.4
Feb
Feb
Feb
4Q
Feb
Jan
Feb
na
na
na
na
na
na
na
na
50.7
na
0.7
-5019.0
-8.9
na
(Jan)
(Jan)
(Jan)
(3Q)
(Jan)
(Dec)
(Jan)
-3.8
50.1
49.2
0.6
-12651.0
-7.3
5.3
Feb
Feb F
Feb F
Feb
Feb
na
na
na
na
na
na
na
na
na
5.4
(Jan)
(Feb P)
(Feb P)
(Jan)
(Jan)
50.4
47.9
46.5
-22.0
5.5
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
Ikue Saito
(81-3) 6736-8628
ikue.saito@jpmorgan.com
Global FX Strategy
27 February 2023
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Date
Country
UK
Switzerland
Hungary
Norway
Russia
South Africa
Sweden
US
Brazil
Mexico
Mar 2 (Thu)
Japan
Australia
South Korea
Euro area
Denmark
US
Mar 3 (Fri)
UK
Euro area
UK
Hungary
Turkey
US
Brazil
Canada
Time
09:00
10:00
13:00
15:00
07:00
09:30
09:30
09:30
10:00
07:30
17:30
08:00
09:00
16:00
09:00
07:30
00:00
15:00
15:00
23:45
13:00
18:00
18:00
18:00
01:30
05:00
23:30
23:30
23:30
00:30
00:30
10:00
10:00
12:30
16:00
13:30
13:30
19:00
15:00
07:45
08:00
08:45
08:50
08:55
09:00
09:00
09:00
09:00
10:00
09:30
16:00
07:30
07:00
15:00
16:00
17:00
20:00
13:00
13:30
13:30
Data/Event
PMI mfg. index (sa)
ECB's Nagel Speaks
Germany HICP (%oya)
ECB's Visco Speaks
Nationwide HPI (%m/m, sa)
M4 (%oya)
Net consumer credit (GBP bn, sa)
PMI mfg. (index, sa)
BOE Governor Andrew Bailey speaks
Retail sales (%oya)
PMI mfg. (index, sa)
PMI mfg. (index)
PMI mfg. (index, sa)
Weekly CPI (%ytd)
PMI mfg (Kagiso)
PMI mfg. (index, sa)
Richmond Fed mfg index
Construction spending (%m/m, sa)
ISM mfg. index (sa)
Markit Flash mfg PMI (index)
PMI mfg. (index, sa)
Trade balance ($ mn)
PMI mfg. (IMEF)
PMI services (IMEF)
BOJ Board Takata Speech in Kanagawa
Consumer confidence, household (index)
Jobs to applicants ratio (sa)
Tokyo CPI (%oya)
Unemployment rate (%, sa)
Building approvals (%m/m, sa)
PMI mfg (HSBC index)
HICP (%oya)
Unemployment rate (%, sa)
ECB Publishes Account of February Policy Meeting
Official Currency Net Reserves
Nonfarm productivity (%q/q, sa)
Unit labor costs (%q/q, sa)
Fed’s Waller Discusses the Economic Outlook
BOE's Huw Pill speaks
France IP (%oya)
ECB's Holzmann Speaks
Italy PMI services (index, sa)
France PMI services (index, sa)
Germany PMI services (index, sa)
ECB's Vasle, Muller Speak
Italy GDP (%q/q, sa)
PMI composite (index, sa)
PMI services (index, sa)
PPI (%oya)
PMI services (index, sa)
BOE's Andrew Hauser speaks
Trade balance (EUR mn)
CPI (%oya)
ISM non-mfg. index (sa)
Fed’s Logan Makes Opening Remarks at Event
Fed’s Bostic Discusses Racial Inequality Research
Fed’s Bowman Chairs Panel at Conference
PMI services (index, sa)
Building permits (%m/m, sa)
Labor productivity (%q/q, sa)
Feb F
JPM
na
Feb P
na
Feb
Jan
Jan
Feb F
Forecast
Consensus
na
Previous
(Feb P)
48.5
na
(Jan F)
0.5
na
na
na
na
na
na
na
na
(Jan)
(Dec)
(Dec)
(Feb P)
-0.6
1.6
0.5
49.2
Jan
Feb
Feb
Feb
na
Feb
Feb
Feb
Jan
Feb
Feb F
Feb
Feb
Feb
Feb
na
na
na
na
na
na
na
na
na
na
na
na
na
na
na
na
50.5
na
na
na
na
na
na
0.3
47.8
47.8
na
na
na
na
(Dec)
(Jan)
(Jan)
(Jan)
na
(Jan)
(Jan)
(Jan)
(Dec)
(Jan)
(Feb P)
(Jan)
(Jan)
(Jan)
(Jan)
-2.8
49.3
55.0
50.0
1.3
53.0
46.8
-11.0
-0.4
47.4
47.8
47.5
2717.0
50.0
52.2
Feb
Jan
Feb
Jan
Jan
Feb
Feb
Jan
32.0
na
na
na
na
na
na
na
32.0
1.4
3.4
2.5
-7.5
na
na
na
(Jan)
(Dec)
(Jan)
(Dec)
(Dec)
(Jan)
(Jan)
(Dec)
31.0
1.4
4.4
2.5
18.5
48.5
8.5
6.6
Feb
4Q F
4Q F
na
na
na
na
2.5
1.6
(Jan)
(4Q P)
(4Q P)
594.6
3.0
1.1
Jan
na
na
(Dec)
1.4
Feb
Feb F
Feb F
na
na
na
na
na
na
(Jan)
(Feb P)
(Feb P)
51.2
52.8
51.3
4Q F
Feb F
Feb F
Jan
Feb F
na
na
na
na
na
na
na
na
na
na
(4Q P)
(Feb P)
(Feb P)
(Dec)
(Feb P)
-0.1
52.3
53.0
24.6
53.3
Dec F
Feb
Feb
na
na
na
na
56.3
54.5
(Dec P)
(Jan)
(Jan)
-154.0
57.7
55.2
Feb
Jan
4Q
na
na
na
na
na
na
(Jan)
(Dec)
(3Q)
50.7
-7.3
0.7
29
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
Ikue Saito
(81-3) 6736-8628
ikue.saito@jpmorgan.com
Global FX Strategy
27 February 2023
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Event Risk Calendar
Month
Feb '23
Mar '23
Apr '23
May '23
Jun '23
30
Date
28
3
5
7
8
8
9
10
16
16
22
22
23
23
23
23
23
28
29
29
30
30
31
3
4
4
5
5
12
13
19
21-23
25
26
27
28
28
2
3
3
3
3
4
4
7
10
11
12
18
18
22
23
24
25
25
25
25
31
6
6
7
14
15
Country
Hungary
US, Germany
China
Australia
Canada
Poland
Malaysia
Japan
Indonesia
Euro Area
Brazil
United States
Norway
Philippines
Switzerland
Turkey
United Kingdom
Hungary
Czech Republic
Thailand
Mexico
South Africa
Colombia
Israel
Australia
Chile
New Zealand
Poland
Canada
Korea
Indonesia
Global
Hungary
Sweden
Turkey
Colombia
Japan
Australia
Brazil
Czech Republic
Malaysia
United States
Euro Area
Norway
Thailand
Poland
United Kingdom
Chile
Mexico
Philippines
Israel
Hungary
New Zealand
Indonesia
Korea
South Africa
Turkey
Thailand
Australia
Poland
Canada
United States
Euro Area
Event
NBH rate announcement
US-Germany Summit meeting
National People's Congress
RBA rate announcement
BoC rate announcement
NBP rate announcement
BNM rate announcement
BoJ rate announcement
BI rate announcement
ECB rate announcement
BCB rate announcement
FOMC rate announcement
Norges Bank rate announcement
PNB rate announcement
SNB rate announcement
CBRT rate announcement
BoE rate announcement
NBH rate announcement
CNB rate announcement
BoT rate announcement
Banxico rate announcement
SARB rate announcement
BanRep rate announcement
BoI rate announcement
RBA rate announcement
BCCh rate announcement
RBNZ rate announcement
NBP rate announcement
BoC rate announcement
BoK rate announcement
BI rate announcement
World Bank/IMF Spring Meetings
NBH rate announcement
Riksbank rate announcement
CBRT rate announcement
BanRep rate announcement
BoJ rate announcement
RBA rate announcement
BCB rate announcement
CNB rate announcement
BNM rate announcement
FOMC rate announcement
ECB rate announcement
Norges Bank rate announcement
General election
NBP rate announcement
BoE rate announcement
BCCh rate announcement
Banxico rate announcement
PNB rate announcement
BoI rate announcement
NBH rate announcement
RBNZ rate announcement
BI rate announcement
BoK rate announcement
SARB rate announcement
CBRT rate announcement
BoT rate announcement
RBA rate announcement
NBP rate announcement
BoC rate announcement
FOMC rate announcement
ECB rate announcement
Month
Jul '23
Aug '23
Sep '23
Date
16
18
19
21
21
22
22
22
22
22
22
22
24
29
30
4
6
6
10
12
12
13
20
20
25
25
26
27
28
28
28
2
2
3
3
8
10
16
17
17
24
24
24
29
4
5
5
6
6
7
9-10
14
20
20
21
21
21
21
21
21
21
22
26
Country
Japan
Turkey
Chile
Brazil
Czech Republic
Indonesia
Mexico
Norway
Philippines
Switzerland
Turkey
United Kingdom
Hungary
Sweden
Colombia
Australia
Malaysia
Poland
Israel
Canada
New Zealand
Korea
South Africa
Turkey
Indonesia
Hungary
United States
Euro Area
Chile
Colombia
Japan
Brazil
Thailand
Czech Republic
United Kingdom
Australia
Mexico
New Zealand
Norway
Philippines
Indonesia
Korea
Turkey
Hungary
Israel
Australia
Chile
Canada
Poland
Malaysia
Global
Euro Area
Brazil
United States
Indonesia
Norway
Philippines
South Africa
Switzerland
Turkey
United Kingdom
Japan
Hungary
Event
BoJ rate announcement
Presidential election
BCCh rate announcement
BCB rate announcement
CNB rate announcement
BI rate announcement
Banxico rate announcement
Norges Bank rate announcement
PNB rate announcement
SNB rate announcement
CBRT rate announcement
BoE rate announcement
NBH rate announcement
Riksbank rate announcement
BanRep rate announcement
RBA rate announcement
BNM rate announcement
NBP rate announcement
BoI rate announcement
BoC rate announcement
RBNZ rate announcement
BoK rate announcement
SARB rate announcement
CBRT rate announcement
BI rate announcement
NBH rate announcement
FOMC rate announcement
ECB rate announcement
BCCh rate announcement
BanRep rate announcement
BoJ rate announcement
BCB rate announcement
BoT rate announcement
CNB rate announcement
BoE rate announcement
RBA rate announcement
Banxico rate announcement
RBNZ rate announcement
Norges Bank rate announcement
PNB rate announcement
BI rate announcement
BoK rate announcement
CBRT rate announcement
NBH rate announcement
BoI rate announcement
RBA rate announcement
BCCh rate announcement
BoC rate announcement
NBP rate announcement
BNM rate announcement
G20 summit
ECB rate announcement
BCB rate announcement
FOMC rate announcement
BI rate announcement
Norges Bank rate announcement
PNB rate announcement
SARB rate announcement
SNB rate announcement
CBRT rate announcement
BoE rate announcement
BoJ rate announcement
NBH rate announcement
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
Ikue Saito
(81-3) 6736-8628
ikue.saito@jpmorgan.com
Global FX Strategy
27 February 2023
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Month
Oct '23
Nov '23
Dec '23
Date
27
27
28
29
3
4
4
13-15
19
19
23
24
25
26
26
26
27
31
1
1
2
2
2
2
7
7
8
9
16
21
23
23
23
27
29
29
30
5
6
6
13
13
14
14
14
14
14
14
15
19
19
19
21
21
21
Country
Czech Republic
Thailand
Mexico
Colombia
Australia
New Zealand
Poland
Global
Indonesia
Korea
Israel
Hungary
Canada
Chile
Euro Area
Turkey
Colombia
Japan
Brazil
United States
Czech Republic
Malaysia
Norway
United Kingdom
Australia
United States
Poland
Mexico
Philippines
Hungary
Indonesia
South Africa
Turkey
Israel
New Zealand
Thailand
Korea
Australia
Canada
Poland
Brazil
United States
Euro Area
Mexico
Norway
Philippines
Switzerland
United Kingdom
Colombia
Chile
Hungary
Japan
Indonesia
Czech Republic
Turkey
Event
CNB rate announcement
BoT rate announcement
Banxico rate announcement
BanRep rate announcement
RBA rate announcement
RBNZ rate announcement
NBP rate announcement
World Bank/IMF Annual Meetings
BI rate announcement
BoK rate announcement
BoI rate announcement
NBH rate announcement
BoC rate announcement
BCCh rate announcement
ECB rate announcement
CBRT rate announcement
BanRep rate announcement
BoJ rate announcement
BCB rate announcement
FOMC rate announcement
CNB rate announcement
BNM rate announcement
Norges Bank rate announcement
BoE rate announcement
RBA rate announcement
Gubernatorial elections
NBP rate announcement
Banxico rate announcement
PNB rate announcement
NBH rate announcement
BI rate announcement
SARB rate announcement
CBRT rate announcement
BoI rate announcement
RBNZ rate announcement
BoT rate announcement
BoK rate announcement
RBA rate announcement
BoC rate announcement
NBP rate announcement
BCB rate announcement
FOMC rate announcement
ECB rate announcement
Banxico rate announcement
Norges Bank rate announcement
PNB rate announcement
SNB rate announcement
BoE rate announcement
BanRep rate announcement
BCCh rate announcement
NBH rate announcement
BoJ rate announcement
BI rate announcement
CNB rate announcement
CBRT rate announcement
31
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
Global FX Strategy
27 February 2023
Ikue Saito
(81-3) 6736-8628
ikue.saito@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Central bank announcement dates in 2023
2023 →
JAN
Australia
Brazil
Canada
Chile
25
26
Colombia
Czech Republic
27
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
7
1
7
22
4
2
3
6
21
4
8
2
5
20
3
7
1
5
13
8
12
4
12
7
19
12
28
6
5
25
26
30
21
28
3
29
27
27
3
4
23
15
20
27
25
29
14
26
22
25
10
16
28
13
2
31
29
28
Euro area
Hungary
India
24
2
28
8
16
28
Indonesia
Israel
19
2
16
20
16
19
3
25
22
Japan
Korea
18
13
10
23
28
13
25
Malaysia
Mexico
19
New Zealand
Norway
9
South Africa
Sweden
Switzerland
Thailand
Turkey
United Kingdom
United States
32
9
30
22
19
Philippines
Poland
16
8
26
3
18
5
23
22
23
8
18
10
22
6
5
30
23
29
25
23
2
23
23
1
22
16
17
17
6
20
25
11
22
22
20
3
14
26
26
24
21
14
19
21
4
19
23
23
27
22
31
19
30
7
28
21
19
2
9
14
21
29
2
14
21
6
16
8
14
6
4
4
23
23
2
21
27
29
24
3
21
21
22
27
15
21
21
21
29
31
2
24
10
12
25
26
24
6
22
24
4
9
19
25
6
6
19
20
14
26
23
2
21
14
1
13
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
Kunj J Padh
(1-212) 834-5108
kunj.padh@jpmchase.com
Global FX Strategy
27 February 2023
Octavia Popescu
(44-20) 3493-5654
octavia.popescu@jpmorgan.com
J.P. Morgan FX forecasts vs. forwards & consensus
Exchange rates vs. U.S dollar
Current
Majors
24-Feb
JPM forecast gain/loss vs December 23*
Actual change in local FX vs USD
Mar 23
Jun 23
Sep 23
Dec 23
Spot
Forwards
Consensus**
Past 1mo
Past 3mo
YTD
EUR
1.06
1.10
1.10
1.08
1.08
2.2%
0.5%
-1.8%
2.4%
2.4%
2.4%
Past 12mos
-5.6%
JPY
136
135
133
130
128
6.0%
1.1%
-3.1%
3.7%
3.7%
3.7%
-14.8%
GBP
1.20
1.20
1.18
1.16
1.15
-4.0%
-4.6%
-6.5%
1.7%
1.7%
1.7%
-10.5%
AUD
0.68
0.69
0.70
0.70
0.70
3.6%
2.6%
-2.8%
1.7%
1.7%
1.7%
-5.7%
CAD
1.36
1.33
1.34
1.35
1.36
0.0%
-0.6%
-3.7%
-1.7%
-1.7%
-1.7%
-5.7%
NZD
0.62
0.62
0.61
0.60
0.60
-3.0%
-2.9%
-7.7%
1.8%
1.8%
1.8%
-7.6%
JPM USD index
129.1
127.3
127.3
127.9
128.2
-0.7%
-0.7%
2.1%
-1.9%
-1.9%
-1.9%
5.2%
DXY
104.9
102.1
102.0
103.1
103.1
-1.7%
0.1%
2.7%
-2.0%
-2.0%
-2.0%
8.0%
CHF
0.94
0.90
0.89
0.90
0.89
5.3%
1.9%
3.3%
2.0%
2.0%
2.0%
-1.1%
ILS
3.68
3.50
3.50
3.45
3.45
6.7%
5.0%
-4.9%
-5.5%
-5.5%
-5.5%
-11.9%
Europe, Middle East & Africa
Americas
SEK
10.42
10.36
10.18
10.19
10.28
1.3%
-0.1%
-5.1%
2.3%
2.3%
2.3%
-8.8%
NOK
10.34
10.00
9.82
9.81
9.91
4.4%
2.8%
-5.5%
-1.6%
-1.6%
-1.6%
-13.3%
CZK
22.4
21.82
21.82
22.69
23.38
-4.3%
-3.2%
-5.5%
5.6%
5.6%
5.6%
-1.2%
PLN
4.47
4.36
4.41
4.54
4.58
-2.5%
-0.8%
-7.8%
2.1%
2.1%
2.1%
-7.4%
HUF
360
364
373
389
398
-9.5%
-2.2%
-9.6%
10.7%
10.7%
10.7%
-8.8%
TRY
18.88
19.00
21.00
23.00
25.00
-24.5%
-6.3%
-12.9%
-1.4%
-1.4%
-1.4%
-25.6%
ZAR
18.41
18.00
18.50
19.00
19.50
-5.6%
-3.3%
-12.8%
-5.2%
-5.2%
-5.2%
-16.7%
ARS
195.3
215
250
280
390
-49.9%
-5.7%
-23.1%
-16.7%
-16.7%
-16.7%
-45.0%
BRL
5.16
5.25
5.15
5.20
5.30
-2.7%
2.8%
-2.5%
5.9%
5.9%
5.9%
-0.8%
CLP
814
815
830
850
865
-5.9%
-2.9%
-5.8%
13.2%
3.5%
13.2%
0.7%
COP
4857
5000
5000
5100
5200
-6.6%
-0.4%
-8.7%
3.5%
3.5%
3.5%
-19.2%
MXN
18.44
19.15
19.20
19.25
19.30
-4.4%
1.3%
0.8%
5.5%
5.5%
5.5%
11.5%
PEN
3.80
3.90
3.85
3.90
3.95
-3.8%
-2.1%
-4.3%
1.1%
1.1%
1.1%
0.0%
40.6
39.3
38.9
38.1
36.5
-10.1%
0.3%
-4.4%
3.7%
3.7%
3.7%
-4.1%
LACI
Asia
CNY
6.94
6.80
6.75
6.75
6.75
2.9%
1.0%
-2.2%
3.1%
3.1%
3.1%
-8.8%
HKD
7.85
7.84
7.83
7.82
7.80
0.6%
-0.1%
0.0%
-0.3%
-0.3%
-0.3%
-0.5%
IDR
15225
14900
14900
15000
15100
0.8%
1.3%
-1.5%
2.9%
2.9%
2.9%
-5.5%
INR
82.75
83.00
84.00
85.00
86.00
-3.8%
-1.9%
-5.8%
-1.3%
-1.3%
-1.3%
-8.6%
KRW
1305
1240
1260
1280
1300
0.4%
-0.8%
-6.2%
2.6%
2.6%
2.6%
-7.8%
MYR
4.44
4.30
4.25
4.20
4.15
6.9%
5.3%
0.0%
2.7%
2.7%
2.7%
-5.2%
PHP
54.90
55.50
56.00
56.50
56.00
-2.0%
-0.9%
-3.6%
4.5%
4.5%
4.5%
-6.5%
SGD
1.35
1.340
1.350
1.340
1.330
1.2%
0.1%
-1.5%
2.4%
2.4%
2.4%
0.7%
TWD
30.5
29.50
29.25
29.25
29.25
4.2%
0.7%
1.5%
2.2%
2.2%
2.2%
-8.0%
THB
34.8
34.00
33.25
32.50
32.00
8.8%
6.1%
3.3%
3.1%
3.1%
3.1%
-6.5%
ADXY
100.5
102.6
102.8
102.7
102.6
2.1%
0.7%
-2.0%
2.3%
3.7%
2.3%
-6.9%
EMCI
50.5
51.0
50.2
49.4
48.6
-3.8%
2.7%
-2.7%
0.9%
0.9%
0.9%
-4.0%
Exchange rates vs Euro
Actual change in local FX vs EUR
JPY
143.4
149
146
140
138
3.7%
0.6%
-1.3%
1.2%
1.2%
1.2%
-9.8%
GBP
0.88
0.92
0.93
0.93
0.94
-6.0%
-5.1%
-4.8%
-0.7%
-0.7%
-0.7%
-5.2%
CHF
0.99
0.99
0.98
0.97
0.96
3.1%
1.4%
5.2%
-0.4%
-0.4%
-0.4%
4.7%
SEK
11.01
11.40
11.20
11.00
11.10
-0.8%
0.4%
-2.5%
-0.1%
-0.1%
-0.1%
-3.5%
NOK
10.93
11.00
10.80
10.60
10.70
2.1%
3.3%
-2.8%
-3.9%
-3.9%
-3.9%
-8.2%
CZK
23.65
24.00
24.00
24.50
25.25
-6.3%
-3.7%
-3.8%
3.2%
3.2%
3.2%
4.6%
PLN
4.72
4.80
4.85
4.90
4.95
-4.6%
-1.2%
-6.1%
-0.3%
-0.3%
-0.3%
-2.1%
-3.5%
HUF
381
400
410
420
430
-11.4%
-2.7%
-7.9%
8.1%
8.1%
8.1%
RON
4.92
4.90
4.90
5.00
5.05
-2.6%
0.5%
-0.6%
0.2%
0.2%
0.2%
0.6%
TRY
19.96
20.90
23.10
24.84
27.00
-26.1%
-6.8%
-11.3%
-3.6%
-3.6%
-3.6%
-20.8%
RUB
80.48
66.00
66.00
64.80
64.80
24.2%
43.3%
28.2%
-22.4%
-22.4%
-22.4%
17.2%
BRL
5.45
5.78
5.67
5.62
5.72
-4.7%
2.3%
-0.6%
3.5%
3.5%
3.5%
5.1%
MXN
19.50
21.07
21.12
20.79
20.84
-6.5%
0.8%
2.6%
3.0%
3.0%
3.0%
18.0%
 indicates a revision resulting in a stronger currency forecast,  indicates a revision resulting in a weaker currency forecast. Source: J.P.Morgan
* Positive indicates JPM more bullish on local currency than spot, consensus or forward rates.
33
Global FX Strategy
27 February 2023
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
Correction: Clarification to section title on page 10 - should read ‘stay short CHF vs JPY
Disclosures
Analyst Certification: The Research Analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple Research Analysts are
primarily responsible for this report, the Research Analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the Research Analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect
the Research Analyst’s personal views about any and all of the subject securities or issuers; and (2) no part of any of the Research Analyst's
compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the Research Analyst(s) in this
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Analyst’s analysis was made in good faith and that the views reflect the Research Analyst’s own opinion, without undue influence or intervention.
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Specialists (Sales and Trading) may be shown on this report as contacts but are not authors of the report or part of the Research Department.
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J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average
total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this
stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over
the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of
a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be
relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India) and U.K. small- and mid-cap equity
research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’
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J.P. Morgan Equity Research Ratings Distribution, as of January 01, 2023
J.P. Morgan Global Equity Research Coverage*
IB clients**
JPMS Equity Research Coverage*
IB clients**
Overweight
(buy)
48%
47%
47%
65%
Neutral
(hold)
37%
45%
40%
66%
Underweight
(sell)
14%
35%
13%
55%
*Please note that the percentages might not add to 100% because of rounding.
**Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the
previous 12 months.
For purposes only of FINRA ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and
our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. This information is current
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Ratings System: J.P. Morgan uses the following issuer portfolio weightings for Emerging Markets sovereign credit strategy: Overweight (over the
next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark credit returns); Marketweight
(over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or benchmark credit
34
Global FX Strategy
27 February 2023
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
returns); and Underweight (over the next three months, the recommended risk position is expected to underperform the relevant index, sector, or
benchmark credit returns). NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because of either legal, regulatory or
policy reasons or because of lack of a sufficient fundamental basis. The previous rating no longer should be relied upon. An NR designation is not a
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differ from the ratings provided in EM corporate coverage.
Valuation & Methodology: For J.P. Morgan's Emerging Markets Sovereign Credit Strategy, we assign a rating to each sovereign issuer
(Overweight, Marketweight or Underweight) based on our view of whether the combination of the issuer’s fundamentals, market technicals, and the
relative value of its securities will cause it to outperform, perform in line with, or underperform the credit returns of the EMBIGD index over the
next three months. Our view of an issuer’s fundamentals includes our opinion of whether the issuer is becoming more or less able to service its debt
obligations when they become due and payable, as well as whether its willingness to service debt obligations is increasing or decreasing.
J.P. Morgan Sovereign Research Ratings Distribution, as of January 1, 2023
Global Sovereign Research Universe*
IB clients**
Overweight
8%
40%
Marketweight
82%
42%
Underweight
11%
86%
*Please note that the percentages might not add to 100% because of rounding.
**Percentage of subject issuers within each of the "buy, "hold" and "sell" categories for which J.P. Morgan has provided investment banking services within the previous 12 months.
The Sovereign Research Rating Distribution is at the issuer level. Issuers with an NR or an NC designation are not included in the table above. This information is current as of the end of the
most recent calendar quarter.
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Global FX Strategy
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Global FX Strategy
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Meera Chandan
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Global FX Strategy
27 February 2023
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38
Global FX Strategy
27 February 2023
Meera Chandan
(44-20) 7134-2924
meera.chandan@jpmorgan.com
J.P. Morgan Global FX Strategy
London
Meera Chandan
ED
Co-Head of FX strategy
(44-20) 7134 2924
James Nelligan
VP
Global FX Strategy
(44-20) 3493-6829
meera.chandan@jpmorgan.com
james.nelligan@jpmorgan.com
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London
39
Completed
24 Feb 2023 06:43 PM GMT