Bank of America Global Research discusses the next phase in G10 FX.
"Markets continue to move beyond peak conflict conditions. Broader measures of FX volatility and skew continue to revert towards pre-conflict levels and the BBDXY, SPX and VVIX have retraced levels relative to respective ranges since 27th February on the belief that negotiations limit the risk for further near-term escalation. Whether this calculation proves correct remains to be seen, but we do think that the USD reversal through April has, in part been driven by seasonal factors. Using a 15yr window, April is the most negative seasonal month for USD performance," BofA notes
"For this reason, remain wary that USD underperformance can extend at its current pace: as much as April is the most negative month for USD performance, May is the second most positive for BBDXY performance. We continue to maintain a core long USD position versus both CAD (via options) and GBP (in spot) heading into May.
Key to this view is that whilst FX and equities have mean reverted, both oil prices and bond yields remain elevated relative to the range from February," BofA adds.
