Global FX Strategy

Investment Rating - The report maintains a bearish view on risk in the G10 FX market, indicating a cautious stance towards upcoming catalysts [3][4]. Core Viewpoints - Recent market volatility has led to unwinds in crowded FX positions, creating a cleaner setup for upcoming catalysts, with a focus on labor market data over inflation metrics [3][4][5]. - The report emphasizes that US retail sales and initial claims will be more significant for the risk backdrop than CPI in the near term, with expectations of softer retail sales growth [4][5]. - The report highlights a shift in market focus from inflation to labor market dynamics, suggesting that the trading environment has become increasingly tactical [4][5]. Summary by Sections Market Sentiment - The report indicates that G10 FX will continue to trade based on risk sentiment, with a noted inflection point in the market [4][5]. - The report suggests that the recent NFP print has accelerated the bearish view on risk, leading to a repricing of the probability of a hard landing in the US economy [3][4]. Economic Indicators - Citi Economics expects a 0.2% month-over-month increase in total retail sales and a mere 0.1% increase in control group sales, with downside risks highlighted [4][5]. - Initial claims data is flagged as critical, with expectations that they will either align with leading job cut announcements or continue to rise due to labor market weakness [4][5]. Currency Strategies - The report recommends buying AUDNZD on dips, anticipating a dovish pivot from the RBNZ, which could create a favorable entry point for long positions [7]. - GBP is noted to be poised for a rebound, with positioning now cleaner after recent unwinds, and the report suggests selling EURGBP on rallies [8]. - The report discusses potential tactical support for JPY following a recent earthquake, which historically leads to USDJPY weakening due to repatriation expectations [9]. Central Bank Outlook - Citi Economics has revised its Fed call, expecting 125 basis points in cuts through year-end, which contrasts with market pricing of approximately 100 basis points [5]. - The report highlights dovish risks for Norges Bank, with recent data indicating falling inflation and rising unemployment, suggesting potential policy shifts [10].