1Finance

Week Ahead: Will Divergence FX Trade Stage A Comeback Into FOMC & BoJ?

• "We think that investors will revisit the topic of policy divergence ahead of the April FOMC meeting. Despite recently disappointing activity data, we expect the policy statement to present a more balanced outlook for the economy and inflation than in March, supported by the recent recovery in commodity prices and the improvement in global financial conditions. To the extent that this is seen as a step away from the Fed's overly cautious stance at the start of the year, it can set the stage for a cautious USD rebound especially against currencies where we believe more monetary easing is only a matter of time."
• "We maintain a fairly constructive outlook for USD/JPY over the longer-term. We also think that other 'divergence' trades could be attractive as well in the nearterm. In particular we believe that a bearish JPY view could also be expressed against currencies with central banks that have reached the limits of their easing programmes, like SEK and EUR."
• "Elsewhere, we have stressed the risks to the rally in commodity currencies. As a weaker USD on the back of the more dovish Fed were among the important pillars of the rally, we will not be surprised to see a bout of profit taking in the aftermath of the FOMC meeting. Another theme that could gain more traction is the apparent abatement of Brexit risks as confirmed by polls."
• "We suspect that GBP could remain supported against safe haven currencies like JPY and CHF."

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