The first of our two pillars for USD strength -- the FOMC/US rates remains USD-supportive while the second global growth momentum is in flux. Like underweight positions as a measure of EMFX flashes oversold levels.
Stay defensive and long USD, but via options rather than cash given highly choppy price action. Remain only modestly UW EM FX in the GBI-EM model portfolio with an UW in both PLN and ZAR, the latter our is preferred short; see medium-term depreciation pressure due to China exposure, carry costs and central bank’s reluctance to intervene in currency markets. The fourth quarter has seen extreme bouts of volatility, but EM FX has been surprisingly resilient because of already extended bearish positioning.
- J.P. Morgan
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