Global FX weekly: Friction with Conviction

Research evidence excerpt

Global FX weekly: Friction with Conviction

Key views, forecasts and latest trades

Michalis Rousakis Claudio Piron

MLI (UK) Merrill Lynch (Singapore)

michalis.rousakis@bofa.com claudio.piron@bofa.com

Exhibit 1: Our medium-term views

G10 and EM FX medium-term views

G10 We stay bearish on EUR-USD in the near term, with our end-Q2 forecast at 1.14. We view energy price futures as overly optimistic and think rates markets underprice the

US-EA growth divergence. We see room for the Fed to be repriced higher, while ECB hikes could prove counter-productive for EUR. That said, we maintain a medium-term

bearish USD bias, with our year-end EURUSD forecast at 1.20 – conditional on no Fed hikes, energy normalization, and gradual US-EA growth convergence. Our structural

JPY view has turned neutral, given the improvement in Japan’s structural flow dynamics – we forecast USD-JPY at 152 by end-2026 (156 end-Q2). We have turned

constructive on GBP, seeing political and fiscal risks as better priced. We are turning more bearish on AUD/NZD, partly on positioning. SEK remains our preferred de-

escalation hedge, and we still like fading NOK rallies, on the basis that the ‘sweet spot’ scenario of high energy prices and positive risk sentiment is not easily sustained.

EM EM FX performance remains very mixed with Asia FX clearly underperforming with only MYR and CNY sustaining year-to-date gains. We anticipate a weaker USD in H2 as

the tension dissipates and favor long CNY and MYR in Asia, and underperformance in THB and IDR. ZAR remains the best hedge given its high beta to the Iran situation. In

Latam, BRL, despite its strong performance, remains cheap vs the major improvement in its terms of trade, and the same is true for NGN EMEA FX. Among CEE FX, HUF