Credit Agricole CIB FX Strategy Research notes that as several G10 central banks have dropped their easing bias of late while the Fed has remained committed to its tightening cycle, this has given rise to the FX convergence trade where investors buy currencies with an improving growth outlook and ignore their challenging inflation outlook.
In that regard, CACIB outlines 4 key points on the winners and losers of the convergence FX trade:
“1- EUR and SEK increasingly look like the ‘stars’ of the convergence trade while CHF and JPY like its ‘dogs’.
2- USD remains a reliable long – the ‘cash cow’ of the convergence trade – and it should benefit from an improving US growth outlook in H217.
3- GBP should remain a ‘dog’ for now, even as the BoE moves closer to removing the stimulus introduced in the wake of the Brexit referendum.
4- AUD, NZD and CAD are the ‘question marks’ of the convergence trade. They rank highly in terms of growth expectations but their outlook is clouded,” CACIB argues.
Source: Credit Agricole CIB Research
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