📝USD Shorts Hit 1-Sigma Below Historical Norms: J.P. Morgan FX Strategy

IMM data shows that net aggregate USD shorts are in excess

of 1-sigma below historical norms, and 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.

Moreover: (a) a comparable constellation of trailing dollar

declines (USD TWI < -5% over 6-mo) and positioning (IMM

shorts > 1.s.d) has occurred a handful of times this millennium, whose 6-month forward return consequences have been unremarkable: the norm is for the dollar to flatline rather than reverse course in a V-shaped fashion (stablecoins). This historical pattern corroborates our baseline of a lower octane 2%-3% additional weakening of the broad dollar through YE’25 given the asymmetric risks around a US recession and Fed cuts in H2; and (b) given the structural hues to the dollar downtrend this year, our preferred measure of USD positioning goes beyond IMMs / DTCC flows to encompass the broader suite of dollar longs via FX-unhedged US equities, which have at best been trimmed only at the edges since Liberation Day. - J.P. Morgan FX Strategy