Natixis CIB Currency Outlook – USD Rally Peaks
Natixis CIB currency strategists state that the recent rally in the US dollar has reached its apex, arguing that the market has already fully priced in the Federal Reserve’s hawkish stance following Fed Chairman Kevin Warsh’s recent comments on fighting inflation. They contend that this leaves little scope for further upside in the greenback.
Recommended Trade Strategy
The bank advises investors to sell the US dollar against three major currencies using reverse‑knock‑out option contracts, which cap upside potential but reduce trade costs. The specific recommendations are:
- Euro (EUR/USD): Buy a 6‑month call option with a strike price of 1.1550 and a reverse‑knock‑out barrier at 1.19.
- Japanese Yen (USD/JPY): Buy a 3‑month put option with a strike price of 161.45 and a barrier at 155.
- Chinese Yuan Offshore (USD/CNH): Buy a 3‑month put option with a strike price of 6.75 and a barrier at 6.60.
Regional Catalysts Supporting the Trades
- Europe: The European Central Bank has already begun raising interest rates, creating a divergence with expectations of a pause in Fed rate hikes.
- China: A resilient trade surplus combined with strong corporate dollar sales is projected to support the yuan.
- Japan: The yen is trading near a 40‑year low, resulting in a heavily short market. Natixis notes that rising domestic inflation could prompt government intervention, potentially triggering a short‑squeeze.
This article was generated with AI assistance and reviewed by an editor. For full terms, see the T&C.