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FX FUNDAMENTAL ANALYSIS


tumble to 102 by the end of next year as Japanese investors bring funds home to fund accelerating private capital expenditures, strategists led by global head of foreign-exchange strategy Hans Redeker


said in


a Nov. 25 report. A flatter U.S. yield curve will


shrink Japanese


investors’ currency-hedged returns on long-term American holdings, he wrote.


Watch Swedish, Norwegian Currencies


Some analysts see the dollar climbing further. Barclays Plc strategists including Ajay Rajadhyaksha said “rumors of USD weakness have been greatly


exaggerated.” Tey see the


greenback’s real effective exchange rate increasing by between 2 percent to 3 percent in 2019, though most of the support will come from continued Fed rate hikes in the first half of the year.


However, market-implied odds show traders are skeptical about Fed rate increases in 2019, with less than a full hike expected next year aſter an anticipated move next week.


Buy Yen


Along with a weaker dollar, another popular Wall Street currency forecast calls for a stronger yen in 2019.


Te yen could climb if the Bank of Japan continues to loosen its hold on


26 FX TRADER MAGAZINE January - March 2019


“Japanese investors adding FX exposure at current exchange rates could be wary” of the yen appreciating, Katzive wrote.


Morgan Stanley is another yen bull, expecting the dollar-yen pair to


Japanese government-bond markets during the first half of next year. Bond yields could rise further, with “more balanced” rate differentials encouraging


Japanese investors to


bring assets back home, the firm wrote.


Japanese demand for foreign assets was healthy this year but may be challenged in the coming months, Daniel Katzive, North America head of FX strategy at BNP Paribas, wrote in a Nov. 28 note. He projects the expected pause in Fed rate hikes will ultimately push down U.S yields and cause Japanese investors to shed dollars.


Scandinavian currencies are also predicted to do particularly well in 2019.


Shorting the dollar against the Norwegian krone is one of Societe Generale’s trade recommendations for the year, on hopes that the krone will act as a “high-beta euro” given Norway’s tight labor market, higher interest rates and stabilizing oil prices. A dollar short against a basket of euro and Swedish krona is one of Morgan Stanley’s top FX 10 trades of 2019, on the basis that the krona will become more attractive amid rate hikes by Sweden’s central bank.


UniCredit, too, is looking for rallies in the krona and krone, but expects that their appreciation may not be as large as it could be unless both country’s central banks are more hawkish than investors expect.


Sydney Maki


and Austin Weinstein Bloomberg


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