Summary of FX Markets Weekly Conference Call Industry Overview - The report focuses on the foreign exchange (FX) market outlook for 2026, discussing various currency pairs and macroeconomic factors influencing currency valuations. Key Points and Arguments Dollar Outlook - The consensus remains bearish on the USD, with no significant pushback from clients on this view [11][12] - The dollar is expected to experience constrained weakness unless the Federal Reserve adopts a more dovish stance [11] - A long-term relationship exists between equity inflows and dollar performance, with foreign direct investment (FDI) inflows being a more reliable indicator for dollar strength [13][16] Capital Inflows and FX Dynamics - Large capital inflows into the US do not necessarily support the dollar; instead, FDI inflows are more critical [13][14] - The domestic and international perspectives on the Japanese yen (JPY) diverge, with international views being more bearish [14][58] Emerging Markets and Carry Trades - The report maintains an overweight (OW) position on emerging market (EM) FX, with a focus on carry-oriented strategies [2] - FX carry trades are well subscribed, but risks associated with volatility shocks are acknowledged [3][31] Central Bank Policies - Significant central bank re-pricing has occurred, particularly for SEK and CAD, with expectations of fewer hikes than currently priced in [39] - The report highlights the importance of fiscal divergence among developed markets (DM), particularly between the US and Japan [14][38] Volatility and Risk Management - FX volatility remains subdued, with concerns about potential shocks from AI-driven market events [48][49] - The report suggests using forward volatility as a hedge due to the persistent softness in realized volatility [50] Euro and Asian Currencies - The euro (EUR) is viewed as a viable funder for regional growth trades, but its strength against Asian currencies may fade if the Fed becomes more hawkish [51][53] - The report emphasizes the need for a nuanced approach to Asian FX, given the diverse drivers affecting currency performance [14] Client Feedback and Market Sentiment - Client feedback indicates a low conviction level regarding the dollar's outlook, with many clients expressing a neutral to mildly bearish stance [12][10] - The report notes that market participants are cautious about the implications of potential fiscal easing ahead of the US midterm elections [30] Other Important Insights - The report discusses the implications of the Supreme Court's decisions regarding Fed governance and its potential impact on the dollar [24][26] - The relationship between US twin deficits and the dollar's performance is highlighted, with projections indicating elevated deficits [18][23] This summary encapsulates the key insights and discussions from the FX Markets Weekly conference call, providing a comprehensive overview of the current state and outlook of the FX market.