Newsletter · · Ashutosh Agarwal

JPMorgan Turns Dollar Bullish but Keeps the EM Carry Trade On - EM FX: Asia, LatAm & EMEA - Week of June 26, 2026

EM FX newsletter for the week of June 26, 2026. After June's FOMC the loudest FX desks flipped to outright dollar bulls yet kept EM carry as their primary 2H alpha theme, while Eurodollar University's Jeff Snider warns the rising dollar is a global dollar-shortage signal, not a healthy cycle.

EM FX: Asia, LatAm & EMEA

Week of June 26, 2026: JPMorgan Turns Dollar Bullish but Keeps the EM Carry Trade On

The dollar just stopped being a one-way bet against EM, and the trade everyone loves had to prove it can take a punch. After June's FOMC the desks we follow flipped to outright dollar bulls, yet the loudest message of the week wasn't "sell EM," it was "carry still pays, just hedge the tail." Meanwhile a very different voice is warning the whole thing is a dollar-shortage story wearing a hawkish-Fed costume. Here's where the tape actually netted out.

TL;DR

  • JPMorgan turned bullish dollar after the FOMC but kept carry as its primary 2H alpha theme, "carry the day, vol the tail." High-real-rate EM still works; the desk just wants it expressed through options, where vol is roughly two sigma cheap.
  • The constructive EM names with conviction attached: Mexico (BOP-driven, next Banxico move maybe a hike), Hungary (euro-adoption FX strength), South Africa (terms-of-trade plus a hawkish SARB), and a selective turn back into the rupee. Lira and the won barely rated a mention.
  • The bear case isn't a strategist, it's Eurodollar University's Jeff Snider, who reads the rising dollar, crashing gold and collapsing breakevens as a global dollar shortage, not a healthy cycle.

What's new

The dollar flipped, but carry didn't die. On Global FX: Bullish Beta, Bullish Dollar (At Any Rate, June 19), JPMorgan's systematic strategist made the cleanest case: there's "no specific or predictable reason why carry should stop," with yield differentials still elevated in both G10 and EM and the AI theme underpinning risk. He flagged that in 1H real carry "delivered twice the return" of the nominal basket, implementation matters more than the basket itself. Why it moves the book: this is the bull thesis surviving contact with a hawkish Fed.

Mexico and the USMCA clock. On the same episode, the EM/EMEA strategist stayed constructive on the peso, arguing its 2025 strength was "primarily driven just by the fundamental BOP factors" and that it isn't heavily positioned. The kicker: as USMCA uncertainty on FDI fades, growth could pick up into 2027 and make Banxico "much less dovish, with basically the next move likely [a] hike, not a cut." That reframes the compressing-yield worry that's hung over the trade.

Hungary as the euro-convergence trade. Same desk: forint strength is "a core part of the government strategy" to hit the Maastricht criteria for euro adoption, lower deficit, lower inflation, a lower policy rate, EU-funds-driven growth, and the currency should grow less volatile as the fundamentals improve. The cleanest fundamental story in CE3 right now.

South Africa's terms-of-trade tailwind. The desk's own commodity projections point to "continued and meaningful increases in the terms of trade," supporting the current account, while the SARB has "turned more proactively hawkish." Tellingly, they "struggle to identify [EMEA] currencies with particularly problematic setup," the shorts and hedges have to come from the DM side.

Vol is the tail, not the trade. On 2H Vol Outlook: Carry the Day, Vol the Tail (At Any Rate, June 19), Arindam Sandilia and Sanjana Shinde laid out the options expression: implied vol sits about two sigma below the business cycle, so you harvest carry through cheap structures and buy protection patiently into autumn. They like USD/ZAR and USD/SEK as the cleanest longs into a vol normalization, with rand screening best on commodity beta and "2014-level" cheapness.

The debate

The bull camp owned the mic this week, and it's a more sophisticated bull than the simple "soft dollar plus high real rates" version. JPMorgan is now bullish the dollar (a shift made "about a month back"), modeling roughly 3% broad upside if the Fed delivers a shallow 75bp hiking cycle, yet it still wants high-real-rate EM carry on. The trick is funding and expression: own the high-yielders against soft G10 legs, harvest skew where it's rich, and treat the dollar's grind higher as a reason to hedge rather than to abandon the trade.

The bear camp showed up from outside the sell side. On ALERT: Gold Is Crashing... While The Dollar Rips Higher (Eurodollar University, June 25), Jeff Snider argued the dollar's spike isn't a Fed story at all, it's "a mechanical relationship about dollar availability," with foreign central banks selling reserve assets (Treasuries and gold) to plug a dollar shortage that began with the energy shock. He notes DXY is at a one-year high above 101.5 and 10-year breakevens are "legitimately crash[ing]," to him a tell of demand destruction, not reflation. Pair that with A Rare Eurodollar Warning Signal Just EXPLODED (June 21), where weak Hong Kong equities and China's bond-over-loan credit mix read as "depression economics," and Swiss Bond Market Just Gave A Dire Warning (June 22) with Steve Van Metre, where Swiss two-year yields are heading back toward zero. This bear case isn't "yields are compressing and the basket is crowded," it's that the dollar itself is the risk shock, and a dollar shortage cleans out carry regardless of how attractive the real-rate gap looks.

The cleanest bull and bear of the week disagree on one thing: is the rising dollar a hawkish-Fed nuisance you hedge, or a liquidity warning you respect?

The trades in play

Where the episodes actually point to expression: long EUR/HUF via risk reversals (Sandilia calls deep out-of-the-money EUR/HUF puts "absolutely collapsed" as macro piled into put spreads, leaving the risk-reversal cheap to own bullish forint); fund that forint upside with low-yield SEK in an intra-European RV; own rand and Norway's krone financed with NZD as a premium-neutral commodity-FX expression; and use USD/JPY calls as the cheapest bullish-dollar sleeve. Crucially, where the trade is consensus, USD/CNH, Sandilia says overlay risk reversals defensively rather than chase, given how "stretched the rates versus FX relationship looks." On the rupee, the Asia desk has "turned somewhat selectively constructive in a place like INR" as South Asian central banks step up resistance to depreciation, though the vol desk flagged USD/INR as a poor vol-entry point given its inverted front end.

Read-throughs

A hawkish-dollar-but-carry-on tape argues for staying long the local-rate beneficiaries (EWW on the peso BOP story, EZA on the rand terms-of-trade) while being choosier on dollar-sensitive importers. The systematic desk's oil scenarios matter for EMB and local debt: at Brent near 70 the commodity terms-of-trade momentum reverses, favoring carry over exporters; a re-escalation toward 100-110 flips it back and, notably, leaves CE3 and INR "quite well oriented." Copper and Brent both softer feed Snider's demand-destruction read, which is the warning sign for AUD-as-China-proxy and for EWZ/INDA risk beta. EUR/USD slipping to a one-year low near 1.13 is double-edged for CE3, it pressures the euro bloc, but it's exactly the backdrop in which the forint's convergence story is supposed to differentiate. The threads the tape left untouched: Turkey's lira and the won's MoEF-BoK line in the sand simply weren't voiced on the pods this week.

What changed

Two genuine shifts from prior weeks. JPMorgan moved to an outright bullish-dollar stance roughly a month ago and has now built it into a "durable part of the portfolio mix." And the Asia desk reversed its 1H rupee underweight to selectively constructive as depreciation-resistance measures begin to bite. They also closed out the terms-of-trade-beneficiary trades (Malaysia) that worked during the energy spike, those, in the desk's words, have "seen [their] best days."