BNP Paribas Shares Top Thematic FX Trades for 2018

FX Recommendations

• G10 Spot

Long USDCHF at 0.9879, targeting 1.0200, stop loss at 0.9725.

• Option structures

GBPUSD: buy 1x 6m GBPUSD 1.30 put with 1.2250 European Knock Out. (25-Apr-18 expiry).

• USDCHF bullish seagull: buy 1x 20 Dec 0.9980 USDCHF call, sell 1x 30 October 0.94/0.91 put spread, offered at 8bp.
• 1-touch EURUSD calendar spread: buy 1x 15-Dec-17, Sell 1x 13-Oct-17, EURUSD 1.13 1-touch offered at 15.00%.  
• EURSEK put spread: buy 1x 9.45, sell 1x 9.20. (09-Feb-18 expiry).

G10 Themes

• Weekly FX Key Themes: Five G10 central bank meetings in two days

• The Fed, ECB, BoE, SNB and Norges Bank will all hold their monetary policy meetings next week. 
• The Fed is now fully priced in to hike rates by 25bp. We continue to see US tax reform as the key driver of the USD.
• We think ECB Governor Mario Draghi’s press conference is likely to be less dovish than in October. EURJPY could rise. 

• Top FX Trades for 2018: USD seen outperforming in H1

• USD expected to outperform in H1 2018 (before retreating materially in H2).
• GBP appears rich versus our estimates of short-term valuation.
• EURUSD expected to rise materially from 1.13 to 1.22 in second half of 2018.

• BNPP CLEER™ forecasting model: Pricing the eurozone recovery

• BNPP CLEER™ provides projections for exchange rates based on current and forecasted economic fundamentals.

• BOC message reinforces range for USDCAD

• The BoC’s message reinforces our range-bound expectations.
• FX headwinds have diminished but remain a factor.
• The central bank seems appropriately priced to track the Fed.

FX Volatility Focus

• Implied correlation between CHF and JPY near nine-year highs – Selling CHF against JPY and USD via CHFJPY/USDCHF switches

• We explore selling the CHF against the USD and JPY, to benefit from attractive carry and market expectations that the BoJ will signal a trimming of its asset purchases.
• CHFJPY ATM vols, risk-reversals and implied correlations between CHF and JPY are near ten- year extremes.
• We explore buying CHFJPY puts funded by USDCHF puts.