FX: Positions investors will put on for 2018 – Danske Bank

With year-end behind us, focus now turns to which FX positions investors will put on for 2018 as this could trigger big FX moves already early January, suggests the research team at Danske Bank.

Key Quotes

“Specifically, we expect the themes and trades outlined below for the year ahead to play out.

  • Theme #1. The cyclical outlook will still support FX carry trades, although we highlight that long-volatility positions look increasingly attractive as a hedge. From a cyclical point of view, we see support to the NOK, EUR, HUF and RUB, notably versus the USD.
  • Theme #2. Policy ‘normalisation’ will stay a key theme and the ECB could unleash the next wave of ‘normalisation trades’ mid-2018 and support the EUR via debt flows. However, it will be a long way to the ‘exit’ for the Riksbank, which will weigh on the SEK.
  • Theme #3. Jerome Powell’s Fed is less experienced when it comes to market communication and, presumably, crisis handling. This could be a drag on the USD, as we find evidence of a ‘Fed experience premium’ historically.
  • Theme #4. Scandi housing fragility has moved to the fore recently and uncertainty will prevail, notably in Sweden, for an extended period. The housing skies will clear for the NOK, while dark clouds will linger in Sweden and be a Riksbank constraint.
  • Theme #5. The potential for larger corrections arguably depends on the degree of over/undervaluation. Our fundamental valuation models suggest GBP, EUR and NOK upside versus notably the USD and the Danske currency-vulnerability scorecard puts the USD at risk, while the HUF looks attractive.”

“Hence, for the coming year we like to position for a stronger NOK vs the EUR and SEK, a higher EUR/USD as well as a lower USD/RUB, EUR/HUF and EUR/GBP. Also, even if the cyclical environment suggest support to carry strategies we find value in buying USD/SEK volatility as a hedge.”

“In the very near-term oil volatility will stay in focus amid rising tensions in Iran. Meanwhile, as we have previously noted, when geopolitics drive the oil price the impact on oil currencies such as NOK, RUB and CAD tend to be smaller than when the oil price is driven by global demand shocks. Indeed, we think geopolitics returning to the oil price is one of several reasons why we have seen oil FX correlations decline in H2 2017.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD hovering above 1.1050 amid trade concerns, ahead of ECB minutes

EUR/USD is trading above 1.1050, at familiar levels. Doubts that a US-Sino trade deal may be reached are weighing on markets. The Fed's minutes have reaffirmed the wait-and-see mode, and the ECB's minutes are awaited. 


GBP/USD advances above 1.29 as Conservatives remain in the lead

GBP/USD is rising above 1.29 as fresh opinion polls continue showing a solid lead for Prime Minister Boris Johnson's Conservatives. Further political headlines are awaited.


USD/JPY bounces-off 50-DMA but lacks follow-through

USD/JPY has bounced up from the 50-day MA support of 108.28. China's Vice Premier Liu He is cautiously optimistic about the prospects of the US-China trade deal. Related markets, however, are not buying Liu He's optimism, keeping the recovery in check. 


Gold flirting with session lows, around $1470 region

Gold edged lower through the Asian session on Thursday and is currently placed near the lower end of its daily trading range, around the $1470 region.

Gold News

Hong Kong now a feature in trade negotiations?

The US Senate and House have both passed the Hong Kong Human Rights and Democracy Bill, so now it heads to the desk of US President Trump to either sign or veto it. Sources suggest that the President will sign it into law.

Read more