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#1 31-12-2018 07:10:55

Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 2801

Danske Bank's guide to positioning oneself on the forex in 2019

Danske Bank's guide to positioning oneself on the forex in 2019

In its annual forex trading report, Danske Bank presents five themes, a wild card and seven trading ideas to consider for 2019.

"It's once again this time of year ... where we present our Top Forex Trades for the coming year. We include strategies on both forex and options, the latter allowing us to express longer-term views when short-term risks go in the opposite direction. As a foundation for all trades, we discuss five themes that we believe will determine the currency market agenda in 2019. But we add a wild card to them: the risk of a recession in the United States - probably a major risk for the market. The themes and the wild card serve in turn to explain the specific trades we are interested in. The themes are:

Theme #1: Signs of the cycle. Risky assets under pressure in the short term (due to growth and a more restrictive monetary policy) suggest that one position oneself selectively for the carry and limit short-term exposure to volatility. But as the cycle stabilises mid-2019, consider long carries, and short volatility.

Theme #2: The Scandinavian divergence will likely continue. The Norwegian and Swedish growth and policy cycles may seem similar, but Norway remains well insulated against a persistent global slowdown via the oil sector, while Sweden is fragile due to housing construction and low wage growth.

Theme #3: Demographics count. Yield spreads are on the rise, a split between capital exporters and importers is evident. Demographic changes could limit the upward pressure on "surplus" currencies that will still have to buy USD assets.

Theme #4: The USD carry rate is high. But it should increase further in 2019, with market prices "exceeding" the expectations of the Fed. In addition, the reduction in the Fed's balance sheets limits the risk of a deluge of liquidity linked to the US debt ceiling, and we anticipate a USD increase that is greater than that of the futures contracts.

Theme #5: The evaluation will trigger signals. The USD remains overvalued versus the GBP, EUR, JPY and most emerging market currencies. However, as more central banks "normalise" and political risks are evident, valuation adjustments should be made, supporting GBP, NOK, EUR, and other European currencies.

Wild card: An American recession. If such a scenario emerges, it should fuel a sharp repricing of the Fed and the USD would suffer the consequences. Risk-associated selling would likely result in a strengthening of the Japanese yen and the euro should resist.

Forex trading ideas:

Sell EUR/NOK via options (sell 3M 9.3500 put, buy 3M 9.6918 put, sell 3M 9.9500 call x 2)
Buy NOK/SEK on Forex (buy at 1.0569, target 1.1400, stop 1.0175)
Buy USD against JPY, SEK and CHF
Buy EUR/USD via options (buy 9M 1.1475 call, sell 3M 1.1200 straddle). Long-term buy, we will come back in more detail on this position in a future article.
Sell ​​EUR/GBP via options (sell 1M 0.8700 put, buy 4M 0.8700 put)
Sale NZD/CAD (sell at 0.9125, target at 0.8300, stop at 0.9525)
Sale EUR/HUF (sell at 322.84, target at 300.00, stop at 331.00).

"Anything worth having is worth going for - all the way." - J.R. Ewing



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