USD trade-weighted index is positively correlated with the US recession odds, the macro view is that central banks will be in a synchronized high hold regime, shifting from hikes, while markets will transition to late-cycle dynamics amid US recession and slowing global growth. USD strength expected to persist but late cycle dynamics will be key.
The prospect for lower yields later in the year on top of cheap yen valuations make yen an attractive candidate, low yielders will be more insulated than in 2022, we share this view for the yen. We're recommending recession hedging, this could be expressed in long JPY vs NZD, CAD. Also, we view CNH/JPY short as a recession trade. We recommend shorting most-levered economies, sell CAD, SEK, and NZD vs AUD. Structural CHF appreciation should remain intact as EU FX underperforms.
- J.P. Morgan Strategy
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