AUSSIE 3-YEAR TECHS: (U5) Rallies Off Lower Levels

Goldman Sachs: "What if this is as good as it gets? Following a bigger reduction in US-China tariff rates than expected, our colleagues have upgraded growth forecasts and equity return targets. In FX, we are not making any material changes to our view, aside from some tactical shifts in risk-sensitive currencies such as JPY and AUD. Despite a somewhat brighter US outlook, we still expect the Dollar to weaken. There are a few reasons for this. First, while we have modestly lowered our tariff rate assumptions with a commensurate decline in recession risks, they are still settling in a much more protectionist area than our assumptions from a few months ago. And we think this is more of a local low than a whole new direction for trade policy. If this is peak optimism, we do not think it fully addresses our concerns for the Dollar. Tariffs around here will still weigh on US consumers' real incomes and US firms' margins, and the uncertainty will likely continue to loom large in spending and pricing decisions. Second, despite the changes in targets, our equity colleagues still see more balanced return prospects globally, and note that returns so far this year should underscore the value of more globally diversified portfolios. That is not a high bar considering we entered 2025 with US allocations at the highs and USD hedging ratios at the lows. Third, when it comes to the swift change in US policy and, in turn, our economic forecasts, the back and forth is part of the point in our FX outlook. We expect this uncertainty will continue to prompt investors and savers alike to rethink their USD FX exposure. We continue to think that riskier parts of G10 and emerging markets will lead the next phase of Dollar depreciation, and we think near-term impulses favor CNH and a diversified basket of EM carry, with JPY and EUR serving as portfolio hedges in an environment with “lower but not low” recession risks." 

J.P. Morgan: "Outlook: We stick with our strategic weaker-dollar call in the wake of the US-China tariff de-escalation. US moderation can continue, albeit with lesser intensity, and lower tariff risk premium supports global growth which keeps the middle of the USD-smile in play. FX/cross-asset corrs starting to normalize. Positioning remains more of a risk for JPY than USD. US fiscal news suggests possibly more thrust than expected, but not final yet; USD to weigh growth vs term premium implications.

Macro Trade Recommendations: Portfolio unchanged. Stay short USD in cash vs EUR, JPY, AUD. Short CHF/JPY in cash. Short GBP vs NOK, SEK cash basket. Short EUR/Scandi in cash and options. Hold EUR/CHF EUR/GBP topside dual digital. Stay long AUD/NZD in cash.

Emerging Markets FX: We turned neutral EM FX last week (from UW before) following the de-escalation in the trade war. EM FX risk appetite has swung from oversold to nearly overbought, limiting near-term upside. Top bullish picks: TRY, ILS, CZK, HUF, MYR, EGP. Top bearish picks: RON, COP, TWD, VND

FX Derivatives: FX vols are sharply lower. Vol premium in G10 looks thin. Lagging, Asia EM and EUR x-vol still contain vol premium. Sell DH USD/INR calls. Buy USD/INR condor put. We are bearish EUR vols and select x-vols. Buy EUR/PLN 4.15-4.30 range or short EUR/PLN atm vs long USD/PLN atm.

Technicals: EUR/USD looks vulnerable to further downside while still below Apr top pattern. Initial cable weakness holds first support at 1.3163, but still looks vulnerable. USD/JPY bounce overshot 147-handle resistance as markets reprice US recession odds lower. AUD/USD looks like an exhausted rally; key support at 0.6344."