1. Long USD vs JPY, CAD, AUD, NZD, EUR
A structural dollar shortage, fiscal stimulus and a hawkish Fed should support the USD.
As US yields rise, long-term carry trades in AUD and NZD will begin to get squeezed.
A stronger USD will put pressure on commodities, especially crude oil as concerns about the OPEC cut may begin to surface. This will be bearish for the CAD and may force the BoC to cut rates.
A strong positive interest rate differential between the US and Japan means that a long USDJPY position should play a core part of our portfolio.
A short EURUSD position plays on the divergence between continued monetary easing and political uncertainty in Europe, versus a hawkish Fed and structural dollar illiquidity.
2. Short AUD versus USD, CAD, NZD
A weakening Australian economy, and risks of a stronger dollar strangling Chinese dollar-denominated debt, should continue to weaken the Aussie forcing the RBA to cut rates.
3. Short European equities (but long US equities on a significant retracement)
The FTSE needs to be shorted, as any appreciation in Sterling will result in massive bearish pressure.
The DAX looks overstretched near 11,500, and needs to be shorted as a play on rising European political tensions, risks of European bank defaults, and as a hedge on our short EURUSD position.
4. Long GBP vs EUR, AUD, JPY, (USD)
A neural BoE, rising inflation expectations, and strong economic performance should support Sterling against the weaker EUR, AUD and JPY.
A long GBP position against USD is the perfect way to hedge any long USD exposure.
Based on FX fundamentals and long term fair value, Sterling is significantly undervalued against all currencies.
5. Long gold vs USD
This is a hedge against long USD exposure, but more importantly, protects against a crisis created by dollar illiquidity.
Near 1,100, this is an excellent time to start building long positions – after most investors have been caught off-guard, squeezed and stopped out.