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FX Top Trades 2013: How to Position for the Coming Year Print E-mail
Long Term Forecasts | Written by Danske Bank | Dec 05 12 14:55 GMT

FX Top Trades 2013: How to Position for the Coming Year

Six themes, 10 trades

For the fourth time, we present our year-end FX Top Trades for the coming year. In the years 2010-2012, our FX top trades delivered an average return of 3.1%, with a hit ratio of 80% each year.

As in previous years, this year's trade ideas are based on a number of global themes that we believe will dominate the FX market in 2013. We assume that we will: i) see a modest global recovery, ii) that monetary easing will continue, iii) that the current low volatility environment is here to stay, iv) that we will see fewer tail risks, v) that value is to be found in EMEA and finally that vi) macro-prudential polices will be a new important theme to follow in the FX Market. In the table below, we have listed the 10 trade recommendations and have plotted them against the different themes.

We are, as such, not overly optimistic about growth, but we argue that positioning, monetary easing, too modest growth expectations and fewer tail risks warrant a bullish view on the market: hence, most of the trades are expected to be positively correlated with market risk. Especially, we argue that the market is still underestimating the ramifications of the monetary easing we expect to see from the Fed and Bank of Japan in 2013. We also argue that these factors, combined with a continuous low volatility environment, favour all kinds of carry strategies and the EMEA currencies. Finally, we argue that one should buy currencies supported by central banks taking macro-prudential considerations into account.

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 seven spot/forward trades and three option based recommendations. The latter are primarily used to take advantage of attractive option market pricing, express a view on volatility or lower spot-exposure or hedge tail-risks in the trade recommendations.

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 from time to time

FX Top Trades 2013

#1: Bearish JPY/SEK strategy
#2: Long EUR/USD via options
#3: Short USD/CNH via 12M fwd
#4: Long RUB/CZK
#5: Selected carry basket
#6: Short USD/CAD
#7: Long EUR/CHF
#8: Long USD/JPY via options
#9: Short GBP/NOK
#10: Short USD/SGD

Full Report in PDF

 

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.

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