July 9 is coming into market focus as we await tariff/trade deal announcements. For the most part in G10, this is likely to be a non-event, as the only countries with potentially “live” tariff adjustments are the EU, Japan, Switzerland, and Norway. For us it is a mainly a JPY-focused event, though we acknowledge fat tail risks to a framework last-minute deal falling apart in the EU as well. Higher/ broad-based tariffs will remain USD-negative, but a shift to a more targeted approach towards certain economies could change this dynamic. This is a wildcard for the Euro.FX hedge rebalancing from under-hedged sectors in Europe and APAC should continue to act as a dollar depressant. Higher hedge ratios could be most impactful for CAD, SEK, SGD, KRW, CHF, AUD given large US asset holdings. Collating data across G10 jurisdictions, we find that pension funds’ USD hedge ratios for many countries were at the bottom end of their decade range as of 4Q’24 and so have room to rise in response to the currently-positive US equity-USD correlation. The primary risk for the dollar bearish view is if strong US growth keeps the Fed high-for-long with RoW growth faltering. But a high-for-long Fed motivated by firm inflation despite soft growth should be considered USD-negative. Positioning wise IMM data shows that net aggregate USD shorts are only in excess of 1-sigma below historical norms but anecdotally, investors are concerned about the scale of the dollar move already in the bag and the consensus nature of the view at this juncture. We are broadly seeing EUR in range of 1.15-1.18 for the upcoming week. Dips will likely be bought. We see a strong chance of US Japan trade deal & hence are optimistic on JPY seeing breaking 142.85 levels from CMP of 144.47. We are bullish on GBP this week considering UK already has a trade deal with US & is out side of the trade & tariff noise. We might see EURGBP reach .8550 from CMP of .8630. For us AUD is still significantly undervalued but don’t have a strong view in this event filled week. We expect CNH range bound between 7.15 & 7.20 in absence of any major triggers. For DXY as a whole, we expect a range of 96.5-98 in this news driven week.
