According to Mark McCormick, North American head of FX strategy at TD Securities, the early focus in 2019 is the slow rotation from the USD-based carry trade to G10 valuation – dumping the expensive USD in search for cheap currencies outside the US.
Key Quotes
“We think the USD bear market is likely to reassert itself following a temporary deviation last year.”
“Our growth signals are still modestly long the USD but the extreme overvaluation of as much as 20% on some models partly dilutes them. The prospects of growing fiscal support outside the US should amplify the growth convergence story this year just as the Fed nears the endgame and temporary US support ebbs.”
“In EM, our colleagues prefer higher-yielding Asian currencies and idiosyncratic Latam stories to a single EM view. In turn, we prefer to play multiple USD baskets (reserves, dollar bloc and select EM) rather than a single, universal dollar, which should offer more attractive cross trades.”
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