The desk anticipates that the upcoming rollover dynamics in both US and Eurex bond futures will drive significant shifts in the EUR/USD landscape. Per the full note, the analysis from J.P. Morgan highlights the September and December bond futures rolls, suggesting a strategic trading opportunity in the EUR/USD pairing. With the current spot at 1.1419, notable forecasts suggest a potential realignment towards the upper consensus target range around 1.1700 to 1.1900. Absent any immediate high-impact economic schedule will leave FX traders focusing on the implications of these futures dynamics.
What the desk is arguing
The desk argues that shifts in futures rollover may create upward pressure on EUR/USD as traders adjust positioning ahead of the Sep25/Dec25 futures announcements. This perspective is informed by discussions between J.P. Morgan’s Ipek Ozil and Khagendra Gupta on the influencing factors behind these rolls and their market impacts.
As rollover dates approach, it is crucial to note that the EUR/USD has not only been sensitive to U.S. rate expectations but has also maintained an intricate relationship with European market dynamics. J.P. Morgan suggests that without adverse catalysts, we could see the EUR/USD pair responding vigorously to these trends.
Where it sits in our coverage
Our current consensus target for EUR/USD is set at 1.1550 for Dec-26, with a varied range spanning from 1.1200 to 1.2000. Specific forecasts include: - goldman: 1.1200 (Dec26) - deutschebank: 1.2500 (Dec26) - bofa: 1.1240 (Dec26)
This sits near the middle of the forecast spectrum, indicating our call aligns well with expectations without reaching the extreme upper limits proposed by some such as deutschebank. However, it leans towards the top-end targets established by goldman and others in anticipation of upward momentum from forthcoming futures rolls.
How other firms see it
The majority of forecasts are aligned towards an appreciating EUR/USD, with firms like jpmorgan, goldman, and deutschebank all projecting higher targets for 2026. Conversely, firms like bofa take a more conservative stance, with targets closer to the lower end of the spectrum.
Given the interplay of bond futures with monetary policy trajectories, the EUR/USD outlook remains closely tied to the actions of the ECB and Fed, particularly as expectations evolve regarding their respective interest rate paths in the coming months.
01J.P. Morgan identifies futures roll dynamics as pivotal for upcoming EUR/USD shifts.
02The current spot at 1.1419 could move significantly based on rollover expectations.
03Most firms project a higher EUR/USD with targets spanning from 1.1200 to 1.2500 for Dec-26.
04Low-impact economic events this month could skew market attention towards futures roll outcomes.
Market implications
Traders should closely monitor the EUR/USD level around 1.1700 for potential breakouts as roll dates draw near. The lack of upcoming high-impact events allows for smoother positioning around these futures dynamics.
Risks to this view
Any deviation in expected bond futures outcomes or unexpected shifts in monetary policy from either the ECB or Fed could lead to a reevaluation of the EUR/USD trajectory. A significant change in either bank's forward guidance could invalidate the call.
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, currency and commodity markets. I'm Ipek Ozil, Head of U.S.
Interest Rate Derivative Strategy at J.P. Morgan. And today I am joined by my colleague Kagan Regupta, Head of European Interest Rate Derivative Strategy.
And we're here to discuss the drivers and our outlook for September-December U.S. and EURX bond futures rollover that's coming up shortly. We are recording this podcast on August 14th, and our comments today are based on our published research available on J.P. Morgan Markets.
So Kagan, we did our first podcast together on the rollover outlooks in the last quarter, and it's that time of the year. Well, I guess quarter again. And we're about to enter the period which is typically the last two weeks of August when futures contracts will be rolled over to the next contract if investors want to maintain their positions.
And I guess like before we get into some of the details, it is worth pointing out that there are some differences between the U.S. and EURX bond futures. So in the U.S., a bond can be delivered into the futures contract any time during delivery month, which in this instance would be September. And in the U.S., we also have the concept of what we call a first delivery day and a last delivery day.
In contrast, EURX futures have one delivery day. So for this role, the September futures will trade until 1130 a.m. U.K. time on September 9th, and all open positions at that time will go into delivery where the short will then decide on which bond to deliver.
So while the switch option remains relevant going into delivery, the time value and wildcard optionality concepts becomes a little less relevant for EURX futures. But other than that, these futures are pretty similar in how they work. So with that brief background, again, I think we can just jump into the discussion of the role.
And in the U.S., if we were doing this podcast just two weeks ago, the macro background would have looked completely different. But since then, we've had a weaker than expected July payroll print, followed by a CPI report that did not close the door to a September ease. But then today we got some strong PPI numbers.
But regardless, markets are currently priced to a 25 basis point ease in September. And our economists changed their forecast and they now look for the first ease to happen in September, followed by three consecutive eases, which actually puts us to roughly, or not roughly, just 75 basis points of easing by year end. And, you know, something that we have talked about in the past is how changes in the forward financing rates can have an impact on the role.
But with the forward financing rates priced to like a September ease, and not much data in the next couple of weeks to change that pricing, we think they will be stable and not actually be a driver of the role in this cycle around. So that's kind of the U.S. macro backdrop. Can you give a macro backdrop of Europe?
Yeah, thanks, Ipek. So the macro backdrop and pricing for the ECB in Europe is much more benign this time around. The ECB has delivered a series of cuts over the past few months, and going down from 4% to 2% recently, and then went on to pause in the July meeting.
Now, while the bias from their forecast still shows them to continue to have an easing bias, but we believe that the bar for further easing is high and the path is relatively narrow. The investor curve is pricing almost close to zero basis point for the September easing, and just about 50% probability of a 25 basis point cut by the December meeting. Our own forecast is for them to deliver one final cut in October.
Now, keep in mind, this meeting is on the 30th of October. This one cut is based on the view that ECB staff assumptions already incorporates cut in their technical assumptions, and even then there is a small undershoot of inflation for 2026. The governing council has stated that small deviations from the target is reasonable, but we believe that with wages declining, growth still tepid, prospect of further decline in oil prices, and strong currency, a risk remains of that of a larger undershoot, and that risks or at least one cut, possibly maybe more, but that will take time.
So that this additional cut is essentially a story over the next few months and may not be that relevant for the rollout look. For the roll, I do believe, as you said, evolution of funding rates will be the main driver, especially for the contracts that have the same joint dominance CTD. Now, having said that, I believe that with barely anything priced the September meeting and still quite some data to come before the last delivery date, which is the 9th of September, I think risk reward supports lower funding rates, which would exert in my view, some bullish pressure on the Eurex calendar spreads, especially the one like I mentioned with joint dominant CTDs.
So EPEC, so that's kind of little bit talked about funding here. Let's talk about some of the other drivers like, you know, seems like positioning will be a major driver for the role again this time around. Yeah, that's right.
And I mean, that's because open interest and futures complex just continuous increase. And, you know, when we look at positioning, we like to look at asset manager positions. And that is because, you know, asset manager accounts and aggregate have a much stronger preference to avoid delivery risk.
And actually, this is mostly just by policy. And that forces them to roll their longs early. So in sectors where asset managers are net long or significantly net long, you could expect a bearish pressure on the calendar spread.
So I mean, it's not a surprise that asset managers are net long across the curve, but we expect this net positioning to have an impact on the 10-year note and the ultra 10-year note sectors, and to a lesser extent in the five-year note and two-year note sectors. But everywhere else, it seems to be mostly in line with historical averages. So Kagendra, how about positioning in Eurex futures?
You know, for the US futures, like you mentioned, there is an official source of positioning information from, I believe, from CFTC. Unfortunately, that is not the case for Europe. So we don't have the detail of the distribution of detail of the positioning, the distribution across various investor types.
So what we have to do is estimate where the positioning looks like. So we do that by looking at the changes in open interest versus prices. Now, we start with a simple way and then build up to make adjustments for changes in open interest during the roll period, given typically increased activity from fast money going into the roll.
So we have a couple of research notes, listing all the details and the technicalities of how we calculate this positioning available for listeners. By using this method, we estimate that positioning is, as of now, kind of mixed for German futures. What I mean is we see net short in Buxell versus net long in Bern.
So that is short in 30 years versus long in 10-year sector. This is consistent with large interest in long and steepness. That has been a persistent theme in Europe this year, primarily driven by the Dutch pension fund story.
Our indicators show small longs in 10-year OATs and BTPs as well. Again, this is consistent with what we hear about interest in inter-UME spread tightness. In fact, our client survey of real money clients shows that positioning in inter-UME longs is close to the recent highs of the last few years.
So Ipek, moving away from positioning, what about other factors? What do you see in US futures? Well, Kagenya, so there are a couple of other factors.
But unfortunately for me, it also appears that this roll cycle, the wildcard will play much less of a role and our listeners by now know that that is usually my favorite topic to talk about. So won't have much to say about that. But outside of the wildcard, it's, I think, important to note that the basis in the ultra long and classic bond contracts appear slightly rich, which could, you know, have a pressure on calendar spreads.
And additionally, what we see is that all contracts, except these two longest contracts, have different CTDs, which means there could be some relative value opportunities. And we see this in the 2-year note and the ultra 10-year note contracts. But the impact is likely to be more modest during this roll cycle, as the mispricing seems relatively modest.
And, you know, I'll also add that the fact that there are different CTDs means calendar spreads are going to be directional with yields. And therefore, we recommend BPV weighting them when you're rolling your positions. And Kakenya, what about on your side?
What are the main drivers that you're seeing outside of positioning? So as I mentioned earlier, you know, funding rates will be the primary driver for bond, Boxel and 10-year OAT and BTP, because they're the same joint dominant CTDs. So just the evolution of funding rate itself will exert some bullish pressure on these calendar spreads.
For other calendar spreads with different dominant CTDs, like Bobo and Schatz, it will be the evolution of the bond yield curve and the relative value between the CTDs, which we proxy via soft spread differentials. Now, I need to highlight that our views on these underlying drivers is rather very modest. We don't expect a lot of moves in the yield curve, given the current levels of the bond yield curve and the directionality of the bond yield curve.
And then the relative value between the CTDs, that is a software differentials have also been very, very steady. So not a lot of moves from these drivers on my side. Now, of course, like I mentioned earlier, we can't ignore positioning either.
Thanks, Surendra. And maybe we can keep this podcast short and sweet and wrap up with our view on calendar spreads. I'll let you go first.
Yeah, sure. And also for Buxell, just to summarize, in addition to expected lower funding rates, which is bullish for the calendar spread, we also see scope of some potential increase in net optionalities, especially in a rally. And then there is a positioning angle as well.
So we are overall bullish on Buxell. In Burns, there is a 10-year pot in addition to funding rates. We typically see repo specialist increase going into the last trading day.
And a repeat of this seasonality should exert some bullish pressure on Burns spread. Similar biases for 10-year OAT and BTP. However, if I superimpose the positioning, especially in BTP spreads, we believe that this will overwhelm the potential impact from lower funding rates in 10-year BTP.
And overall, we have a small bearish bias on 10-year BTP. Like I mentioned earlier, in any case, the range of moves for these calendar spreads is likely to be small, given the expected volatility of these drivers. For Bobble and Schatz, that is a 5-year and a 2-year sector, we have different dominant CTDs.
So we would see evolution of CTD spread as the main driver. Now, as we dig deep, if we dig deeper, the CTD spread is likely to remain stable, given our neutral view on the macro component, and also on the invoice sub-spread differential, that's the relative value between the front and the back CTDs. So we are kind of neutral on the Bobble and Schatz duration neutral calendar spread, expecting the drivers are going to be relatively range-bound.
Thanks, Kirgan. And I'll wrap up with our views in the US. So in the US, we're mildly bullish on the WLION and the US weighted calendar spreads.
That is mostly just based on the richness of the front basis. We're bearish on the ultra 10-year node and 10-year node calendar spreads. And that is mostly driven by the positioning.
We're mildly bearish on the 5-year node calendar spreads, as positioning seems to be somewhat of a less of a factor. And finally, we're neutral on the 2-year node weighted calendar spread on balance of risks. And with that, we'll wrap up here.
Thank you to all of our listeners. Stay tuned for more updates on the fixed income space here at AnyRate, J.P. Morgan's global research podcast series.
This communication is provided for information purposes only. Please read the J.P. Morgan research reports related to its contents for more information, including important disclosures.
Copyright 2025 J.P. Morgan Chase & Company, all rights reserved. This episode was recorded on August 14, 2025.