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4 Forex Themes For 2011

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The four best currency themes for 2011 via Saxo Bank:

Long GBP/AUD – the market positioning at the end of 2011 suggests that the UK’s prospects  are in the dumps where the belief for Down Under seems to be that trees can grow into the sky. This trade is a way to express the belief that the UK is at the vanguard in addressing its fiscal challenges and could see a better than expected trajectory in the new year while the AUD is at nosebleed levels and too dependent on a mining sector that could falter in 2011.

Short EUR/USD – The Eurozone sovereign debt situation will take some time to sort through and policy efforts by the ECB can only mean easing monetary conditions and uncertainty at a time when the U.S. Fed may find itself increasingly sidelined by reasonable U.S. fundamentals and a hamstrung Fed. EURUSD could head toward 1.10-1.15 during the course of the year.

Long CAD/JPY – If the focus shifts to credibility on sovereign debt, here is your trade. Japan’s problems will quickly accelerate and require a devaluation of the yen if interest rates head much higher in the New Year, while Canada is one of the best positioned major countries in terms of banking sector and sovereign debt credibility.

Short NZD/NOK – this is a valuation play more than anything else. The Norwegian krone has been neglected while the kiwi’s rise has been at least partially built on lazy assumptions and its exposure to Asia. Also, if risk appetite faces challenges in the New Year, NZD would likely suffer more than NOK.

Source: Saxo Bank

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by Andrew Wilkinson, Senior Market Analyst at Interactive Brokers

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