Goldman: Closing Commodity FX Basket; Eyeing Expression For EZ Recovery

Goldman Sachs note that "after a choppy few months we are closing our recommended USD short trade, expressed vs. a basket of G10 commodity currencies (AUD, CAD, NOK, & NZD). The trade is up about 5% since inception (in early October), but roughly flat since the start of the year. Although we still expect these currencies to appreciate vs the Dollar over the coming quarters, firm U.S. growth and rising bond yields may keep the greenback supported over the short-term. Beyond the next few weeks we think the main opportunity in G10 FX markets will be positioning for the likely recovery in European activity. Vaccinations are set to accelerate significantly in April and May, and past experience suggests current lockdowns will lower covid case numbers relatively soon. Accelerating European growth should help unwind some of the divergence with the U.S. priced into domestic yield curves, as well as support commodity prices and risky assets generally. Therefore, despite the recent pullback, we are keeping our 3-month and 12-month EUR/USD forecasts unchanged at $1.21 and $1.28, respectively. Clear evidence that Europe's covid situation is getting under control would likely warrant fresh USD short recommendations."