Strategy for the week ahead

Credit Agricole CIB FX Strategy Research discusses how the race to bottom in global bond yield curves since the start of November has impacted the recent price action in the G10 FX market.

"We believe that the recent race to the bottom in G10 long-term yields may explain why AUD, NZD, NOK, CAD and USD now look less attractive. Also, it raises the question whether the worsening outlook for global FX carry trades bodes ill for the rally in global stocks or vice versa, ie, buoyant stock markets and commodity prices bode well for AUD, NZD, CAD, NOK and USD from here.

In that regard, CACIB notes that next week may bring answer, with the Congressional testimony of Fed Chair Yellen, the Senate hearing of Fed chair nominee Jerome Powell, the vote on the Senate tax bill, along with US data (core PCE inflation).

"As a result USD could continue to struggle against the lowyielding G10 currencies like EUR and JPY, especially if Eurozone and Japanese inflation surprise on the upside next week," CACIB argues.

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