Morgan Stanley on the Federal Open Market Committee meeting (due 30 January 2019 at 1900GMT, Fed Chair Powell news conference follows at 1930GMT)

  • the recent tone from Fed speakers points to dovish risks
  • Here, the balance sheet will be of utmost importance
  • The Wall Street Journal reported that Fed officials may be discussing an earlier-than-expected end to the balance sheet normalisation, which we ultimately expect to occur. This could take place as early as this week's FOMC meeting. Markets are unprepared for this change and it could have significant FX implications, in our view.
  • Along with being USD negative, less liquidity withdrawal from the Fed would be a positive for EM FX, particularly the high-yielders with large USD-denominated liabilities. Our preferred longs are high-yielding, oil-exporting and risk-sensitive FX like NOK, SEK, BRL, ZAR, CLP, CNH and CAD.
  • USD, NZD, AUD and CHF look good as funders.

(bolding mine)