Reconciling the different developments, we believe the consensus
long-USD trade is entering a more mature phase. The subdued start to the
year for the greenback suggests markets have been caught with an overly
long position and will now turn more selective with respect with entry
levels and exposure.
We expect US data to sustain the policy divergence for now, with
USD/JPY eventually reaching 120, in our view. However, over the longer
horizon, we continue to see risk of disappointment with the extent of
the US fiscal stimulus and rising global trade tensions.
suggests investors could benefit from partly rotating their USD-longs
into positions against risk-sensitive EM currencies as well as AUD and
NZD in the G10.
we suspect that investors may want to wait until after President Donald
Trump’s inauguration before adding to their USD-longs.