FX Alpha 9 July 2013

FX Alpha

I’ll buy that for a dollar!

I’ll buy that for a dollar!I Clearly divergent policy cycles amongst the majors will lead to USD appreciation. The question is how to position for the USD move. We think USD-JPY should outperform USD-CHF, whilst the likes of AUD, NZD and GBP remain vulnerable to further downside.
The leap towards explicit forward guidance policies by the BoE and ECB last week clearly highlights the divergence in monetary policy amongst the majors with respect to the Fed. A clear majority of market participants now expect a significant USD rally in the coming months and years. The only question is what to buy the USD against?
USD outperformance against safe haven currencies is perhaps the most obvious position to initiate. The trade should benefit from rate spreads moving in favour of the USD and also from the dollar’s transformation into a more growth oriented currency. So should one buy USD-JPY or USD-CHF?
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