USD: Time To Rotate Longs

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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.

This 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

Indeed, we suspect that investors may want to wait until after President Donald Trump’s inauguration before adding to their USD-longs.


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