Global FX Strategy_ Escalate to de-escalate_ increased geopolitics noise until January should still be faded

Summary of Global FX Strategy - 19 November 2024 Industry Overview - The report focuses on the geopolitical landscape affecting global foreign exchange (FX) markets, particularly in relation to the Russia-Ukraine conflict and Middle Eastern tensions, with implications for currency trading strategies. Key Points and Arguments Geopolitical Tensions - Increased geopolitical tensions are expected to persist until President-elect Trump's inauguration, with a potential escalation in conflicts as involved parties seek advantageous positions before negotiations begin [2][4][8]. - The report anticipates a short-term period of heightened conflict, particularly between Ukraine and Russia, but believes a nuclear response remains unlikely [1][4]. Currency Implications - The NOKSEK currency pair is highlighted as a potential beneficiary of geopolitical risks, with expectations for it to rise towards 1.01 as a hedge against geopolitical instability [1][8]. - The report suggests buying dips in NOKSEK rather than chasing current prices, indicating a preference for strategic entry points [8]. Russia-Ukraine Conflict - A ceasefire is anticipated around current front lines, which would be advantageous for Russia, allowing control over the land bridge to Crimea [4]. - The use of nuclear weapons is deemed unlikely, as it would complicate Russia's ability to negotiate a favorable ceasefire [4]. Middle Eastern Dynamics - Trump's administration is expected to influence Israeli operations in Gaza, with indications that increased fighting may occur as Israel seeks to conclude its military actions [5]. - Trump's previous statements suggest a desire to avoid major conflicts during his administration, which may affect the dynamics between Israel and Iran [5]. Market Outlook - The report posits that geopolitical risks are currently overestimated and unlikely to lead to significant market disruptions in 2025 [8]. - Increased geopolitical noise is expected to create opportunities for certain currency trades, particularly those insulated from broader macroeconomic drivers [8]. Additional Important Content - The report includes disclaimers regarding potential conflicts of interest due to Citigroup's business relationships with the countries discussed, specifically Norway and Sweden [6][10]. - Analysts involved in the report are certified and have disclosed their affiliations, ensuring transparency in the research process [10][12]. This summary encapsulates the critical insights and forecasts presented in the Citi Research report, emphasizing the interplay between geopolitical events and currency market strategies.