Global Rates: Analyzing Eurex and US futures roll
The desk anticipates a significant impact from the upcoming Dec25/Mar26 bond futures rollover, as discussed by J.P. Morgan's Khagendra Gupta and Ipek Ozil in their recent podcast. They highlight that the dynamics of US and Eurex futures rolls will be influenced by current interest rate expectations and market positioning. Per the full note, the current EUR/USD spot is trading at 1.1500, which is notably below the consensus target of 1.2000 for Dec26, indicating potential undervaluation against market forecasts. This divergence could present trading opportunities as the market adjusts to the evolving interest rate landscape.
What the desk is arguing
The desk believes that the upcoming bond futures rollover will create volatility in the EUR/USD pair, particularly as market participants reassess their positions in light of interest rate changes. Per the full note, Gupta and Ozil emphasize that the interplay between US and Eurex futures will be crucial in shaping market sentiment leading into the rollover period.
The current spot price of 1.1500 is 4% below the Dec26 consensus target of 1.2000, suggesting that the market may be underpricing the euro relative to the anticipated interest rate trajectory. This discrepancy could lead to a correction as traders realign their expectations with the broader market outlook.
Where it sits in our coverage
Our consensus target for EUR/USD is 1.2000 for Dec26, with a range from 1.1300 to 1.2500. Notable firm targets include: - jpmorgan: 1.2000 - goldman: 1.2500 - deutschebank: 1.2500
This view aligns with the broader consensus, as most firms are forecasting a strengthening euro, with goldman and deutschebank sitting at the upper end of the range. The desk's position is consistent with the prevailing market sentiment, suggesting a potential upside for the euro as we approach the rollover.
How other firms see it
Firms such as jpmorgan, goldman, and deutschebank are aligned in their bullish outlook for the euro, all targeting levels above the current spot price. Conversely, citi and bofa hold a more cautious stance, projecting lower targets for the euro, with citi forecasting 1.1300 for Mar26.
The EUR/USD trajectory is closely tied to the Federal Reserve's interest rate decisions and the ECB's policy stance, making these central banks critical to watch in the coming weeks. Additionally, fluctuations in US Treasury yields will likely influence the euro's performance as traders react to changes in the interest rate environment.
Key takeaways
- 01The desk expects volatility in EUR/USD due to the Dec25/Mar26 bond futures rollover.
- 02Current EUR/USD spot at 1.1500 is significantly below the Dec26 consensus target of 1.2000.
- 03Market positioning may shift as traders reassess interest rate expectations.
- 04Key firms are aligned in their bullish outlook for the euro, with targets above current levels.
Market implications
Traders should monitor the EUR/USD pair closely as it approaches the Dec26 target of 1.2000. The upcoming bond futures rollover could catalyze significant price movements, particularly if market sentiment shifts in response to interest rate announcements.
Risks to this view
Missed expectations for central bank policy shifts could disrupt roll spreads. Liquidity thinning in late December may exacerbate any imbalances.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
Hi, and welcome to At Any Rate, J.P. Morgan's global research podcast, where we take a look at some of the drivers behind the biggest trends and themes across fixed income currencies and commodity markets. I'm Kagendra Gupta from European Interest and Derivative Strategy at J.P.
Morgan, and today I'm joined by my colleague Ipek Ozil, head of U.S. Interest and Derivative Strategy, to discuss the drivers and outlook for our December-March U.S. and EURX bond futures rollover. We are recording this podcast on November 18th, and our comments today are based on our published research available on J.P.
Morgan Markets. Ipek, welcome to the next round of our rollover podcast. We are now entering the busy period for U.S. and GILT rollover season, where investors have either started thinking actively about the futures position that needs to be rolled over to the next contract, that is, assuming they want to maintain their positions.
We have discussed in the past the technical differences between the U.S. and EURX futures with regard to the delivery period versus the fixed date. So I'll skip that this time and point our listeners to past episodes of the rollover where we discussed this. So let's jump straight to the discussion of the roll.
Now, I have two main questions for you, Ipek. First, there is a significant uncertainty around the Fed, especially given the U.S. shutdown had led to data fog, which will hopefully start to clear as past data start to come in, starting from the September payroll report on Thursday of this week. Now, I understand that funding rates are typically a big driver for U.S. rolls.
Amongst this uncertainty, what views are you taking about short-term funding rates? And is there any impact on Fed's stopping of QE on the roll from a funding perspective? Hi, Kaganra.
And I guess I have to say that at this time, things for the U.S. roll are not that very interesting because of the lack of data due to the government shutdown, as you mentioned. So the shutdown ended last week, and we are going to get data starting this Thursday. But there has been, as you said, a big data fog.
And with the Fed, there is a lot of uncertainty. We're actually pricing in roughly 50% chance of a cut for December. And given how close we are to December meeting date, it's actually quite high.
But we're all just waiting for data. And the first data is going to be in a few days. Until we get some data, it's hard to take a view on financing rates.
Sources & References
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