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May 10 - 09:55 AM

Credit Agricole: Carry Trades Attractive Amid FX Range-Trading Environment; What's the Trade?

By eFXdata  —  May 10 - 08:30 AM

Synopsis:

Credit Agricole's latest analysis highlights the growing appeal of carry trades within the current FX market, characterized by range-bound trading and decreased volatility. The firm provides insights into the shifting dynamics caused by recent economic data and central bank interventions that have impacted currency valuations.

Key Points:

  • USD Rally Pause: The USD's momentum has slowed due to revised expectations around the Federal Reserve's policy direction, following signals of a cooling US labor market and economic outlook.
  • Impact of Official Interventions: Recent interventions aimed at supporting the JPY have prompted traders to reassess long-USD positions, contributing to a return to established FX trading ranges.
  • Carry Trade Dynamics: With FX volatility subdued, the analysis identifies attractive carry opportunities, recommending the USD and GBP as investment currencies and the CHF and JPY as funding currencies. Commodity-linked currencies such as NZD, AUD, and CAD are also seen as favorable due to improving commodity terms of trade.

Conclusion:

Credit Agricole advises that the near-term FX market environment, marked by decreased volatility and persistent range-trading, presents a conducive setting for engaging in carry trades. Investors are encouraged to consider currencies with favorable rate spreads and low volatility for potential yield opportunities, while monitoring economic indicators and central bank actions that could influence market conditions

Source:
Crédit Agricole Research/Market Commentary

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