Here Is The Best FX Opportunity On A 6-Month Horizon - Goldman Sachs

Since the dovish shift from the FOMC last month, the Dollar against the majors has fallen back towards the bottom of the range that it has traded in over the past year. Global equity markets have failed to benefit from what has been a string of dovish central bank meetings, which makes sense to us. After all, the dovish shift from the Fed comes at the expense of Europe and Japan, places that arguably need growth much more than the US. We don’t see the divergence trade moving in reverse as a risk-positive event in other words.

In terms of our market views, we see $/JPY higher as the main opportunity on a six-month horizon. We think the BoJ is far from out of bullets and a weak Yen is a necessary condition for Japan to bring inflation up to the 2% target. We see current market moves as an aberration.

We have less conviction that EUR/$ downside is actionable in the near term, only because the ECB has missed several recent opportunities (December and March) to puts its stamp back on markets. What is worse, popular opposition to negative rates in Germany has grown sharply, which is likely to put the ECB in a holding pattern in coming months, even if financial conditions and the Euro have not responded as it would have liked to recent easing steps.

Finally, we think one way to position for growing Brexit risk could be to be short EUR/SEK and short EUR/CHF.