Society Generale Cross Asset Strategy Research discusse the FX market outlook in 2018 from a relative valuation perspective.
"The dollar looks dull, but a bit expensive given where real yields are. The euro is cheap but needs markets to discount far into the future in order to benefit from a hiking cycle that will only start in 2019. Yen bulls may have to wait even longer before the BoJ lets the yen off the leash, but when it goes up, there will be a bang," SocGen argues.
"Directionally, the JPY and EUR both have big current account surpluses and cheap currencies. The euro is recovering first, and the yen will follow with a lag. Sterling now looks cheap relative to the NZD, CAD and AUD, but is handicapped. Long CAD vs NZD and USD looks like a better trade.
And short CHF/NOK is a trade that can work in 2018, assuming a continued benign global macro environment," SocGen adds.