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Top 10 FX Trades For 2017 – Morgan Stanley

The US dollar has a strong run to end 2016. What’s up for 2017? The team at Morgan  Stanley lists the Top 10 trades for the upcoming year:

Here is their view, courtesy of eFXnews:

USD has entered its last leg within a secular bull market.  We expect USD to be driven by widening rate and investment return differentials.

USD strength should be front-loaded against low-yielding currencies, particularly JPY and KRW.

Later in the cycle we see USD strength broadening out with the help of rising US real rates, specifically hitting high-yielding currencies. Higher real rates should eventually tighten financial conditions, increasing the headwinds for the US economy and marking the turning point for USD after 1Q18.

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forex-2017-world-has-changed

1) Long USD/JPY:  Yield differentials driving outflows from Japan and higher inflation expectations.

2) Long USD/KRW:  Diverging growth and monetary policy to increase outflows from Korea.

3) Short EUR/GBP:  No new negative UK news allows the undervalued GBP to recover.

4) Long USD/NOK:  Norway government’s slower fiscal support to make long NOK positions adjust.

5) Short AUD/CAD:  Reflects the diverging US-China economic growth stories.

6) Short SGD/INR:  Relative external sector dependence, China exposure and debt overhangs.

7) Long USD/CNH:  RMB weakens from capital outflows and diverging monetary policy from the US.

8) Long BRL/COP:  We expect reform momentum and high yields to cushion external risks.

9) Long RUB/ZAR:  Continued tight monetary policy should help RUB outperform.

10) Long CHF/JPY:  Yield differentials weaken JPY, while CHF is a good eurozone political risk hedge.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.