• Clients should enter 2015 as they ended 2014.
• We are long USD/CHF and USD/JPY; short EUR/GBP and CHF/DKK.
• We are sidelined in NOK as oil prices have yet to bottom out.
Our open trades in the FX Trading Portfolio
We currently have four trades on in our Danske Bank FX Trading Portfolio. The trades are long USD/CHF, short EUR/GBP, long USD/JPY and short CHF/DKK (see FX Top Trades 2015: How to position for the new year, 3 December 2014). The trades reflect our best way to express the four themes we expect to drive FX markets in 2015: (1) recovery and divergence, (2) currency war, (3) monetary policy surprises and (4) oil price recovery.
The Swiss National Bank (SNB) cut the deposit rate to negative on 18 December, delivering on its promises to maintain its 1.20 floor against the EUR. The CHF is our preferred funding currency on monetary policy surprises and currency war (see chart 1). We expect the ECB to announce sovereign QE in Q1, probably at its next monetary policy meeting on 22 January (for more details see Flash Comment: We expect the ECB to announce government bond purchases in Q1, 10 December 2014). We expect the EUR to fall further ahead of the ECB meeting and the Greek election on 25 January. We favour expressing our bearish view on the EUR through a short EUR/GBP position.
Our long USD/CHF, short EUR/GBP and long USD/JPY trades are all deep in the money but we see no reason to change our targets and stop-loss levels as, in our view, they still have a lot further to go. EUR/DKK has bounced in thin year-end liquidity. However, we believe that the downtrend in EUR/DKK will resume ahead of the January ECB meeting. While the SNB has the ability to react to weaken its currency and a mandate that might require additional easing if deflation risks increase, we do not believe Danmark’s Nationalbank (DN) will participate in a currency war. Indeed, we believe it may allow EUR/DKK to fall further this year.
In FX Top Trades 2015: How to position for the new year, we flagged six other trades, including long NOK/SEK and short USD versus the NOK, CAD and MXN, where we have defined clear preconditions for the timing of entry. Based on our preconditions, it is still too early to enter these trades as oil prices are still falling. In addition, we are watching opportunistically for other trading opportunities in our FX Trading Portfolio.
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