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Long Term Forecasts |
Written by Danske Bank |
Dec 14 11 11:23 GMT
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FX Top Trades 2012: How to Position for the Coming Year
Six themes, Ten trades
For the third time we present our FX Top Trades for the coming year. In 2010 and 2011 our top trades delivered an average return of 3.7% and 3.5%, respectively, with a hit ratio of 80 %. Like the last two years the trade ideas are based on a number of global themes. In 2012, we assume that: i) recession fears are excessive, ii) that global monetary easing will continue; iii) the EMU crises will continue, but the euro will not break-up; iv) that volatility will stay high, v) the dollar will face a structural headwind; 6) and that we will see continued FX interventions. In the table below, we have listed the 10 trade recommendations and have plotted them against the different themes.
There is no hedging or portfolio element built into the 10 trades and the return potential is based on a risk/reward ratio of approximately 1:2. We present 6 spot/forward trades and 4 option based recommendations. The latter is primarily used to utilise attractive option market pricing, express a view on volatility or lower spot-exposure or hedge tail-risks in the trade recommendations. Often We run an active trade management and reserve the right to book profits or take losses at any time should the underlying fundamentals change. We will of course follow up on the trades with P/L updates etc.
In general, for the third consecutive year we take a non-bearish view on the market, though this time more cautious. We are certainly not overly optimistic about growth or risk appetite with the euro zone in recession and the debt crisis still roaring its ugly head; but we do argue that an overly negative economic and financial outlook is priced into financial assets. In fact, we see some similarities to the beginning of 2009, where the market feared a severe economic depression that never materialised. But that said, we have this time included option strategies that take a more cautious view on the market. The last two years have also taught us that guarding against tail-risk events is important.
See also the presentation: FX Top trades 2012 (easy accessible overview of the trades).
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About the Author
Danske Bank
Disclaimer
This publication has been prepared by Danske Markets for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Markets´ research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Markets is a division of Danske Bank A/S, which is regulated by FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright (©) Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
