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Feb 23 - 09:55 AM

Credit Agricole: Highlighting Optimal G10 Carry Trades

By eFXdata  —  Feb 23 - 09:14 AM

Synopsis:

Credit Agricole explores the attractiveness of FX carry trades by evaluating short-term returns adjusted for hedging costs. Utilizing the 3-month implied rate differential and 3-month ATM volatility as metrics, the analysis identifies the most favorable G10 carry trades. Current insights reveal short positions in JPY against USD, GBP, and NZD, alongside long positions in GBP/CHF, as the top choices for carry trade strategies in the present market environment.

Key Insights:

  • Carry Trade Appeal: The evaluation of carry trades involves assessing short-term potential returns against the costs associated with hedging, factoring in implied volatility and the relative pricing of risk reversals.

  • Optimal Trades Identified: The analysis pinpoints short JPY versus USD, GBP, and NZD, as well as long GBP/CHF positions, as the most attractive G10 carry trades based on the ratio between the 3-month implied rate differential and 3-month ATM volatility.

Conclusion:

Credit Agricole's assessment offers a strategic perspective on identifying high-potential carry trades within the G10 currencies. By focusing on specific currency pairings, investors can navigate the current market dynamics more effectively, leveraging short JPY positions against select currencies and exploring long opportunities in GBP/CHF.

Source:
Crédit Agricole Research/Market Commentary

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