Given that the average investors’ tradable horizon is no more than 3-6 months, and that the bulk of US-policy driven FX moves are likely to be front-loaded in Q1 with some possibility of a reversal/inflection in H2, this analysis uses Q1’17 targets as strikes for 3M one-touch options in the direction of the forecast; smaller the option price, lesser the extent of the market’s view already discounted by option markets.

We are aware that the one-touch option product does not trade liquidly in many EM currencies, but matters less in this context when option pricing is used purely as an analytical tool; real-life trade implementation, if desired, can always take the vanilla option route.

The above chart demonstrates the ranks of USD pairs vs. G10 and EM currencies using the scheme described above, and suggests that bullish USDCAD views (Q1 target 1.40, Q2 1.43) offer the greatest upside, followed by USDINR (Q1 69.75, Q2 70.50), USDZAR (Q1 15.25, Q2 15.10) and Asians such as USDSGD (Q1 1.47, Q2 1.48) and USDKRW (Q1 1230, Q2 1200).

At the other end of the spectrum, CHF, NOK and BRL targets vs. USD are priced into option prices to a large degree, hence, these currencies are better purchased on crosses to provide some thematic relief to portfolios tilted predominantly long dollars.

Please be noted that we are short EURCHF as a constructive franc + European politics hedge, short CADNOK as an oil-neutral trade protectionism/NAFTA renegotiation play and long BRLCOP as a regional Latin RV.