Goldman: Sticking With Shorts As Global Rebound Dominates Differentiation

Goldman Sachs note that "despite the Dollar rally to start 2021 we are not inclined to change our bearish medium-term forecasts. First, the economic outlook primarily features a synchronized global rebound, not regional divergence. Every country in the world is dealing with the same challenge -controlling covid while supporting the economy - and all will rebound as vaccination allows a reopening of high-touch industries. Until the vaccination process progresses further, we favor positioning for a broad global recovery through USD shorts rather than variation in near-term growth prospects through non-USD crosses. Second, further steepening of the US yield curve should not have major implications for most currencies (although JPY may be an exception). Front-end rate differentials matter much more for currency markets, and the Fed has made a credible commitment to keep policy rates at zero until inflation picks up. Third, we still think the starting point matters: the Dollar is highly valued and highly positioned after a long stretch of US economic and asset market outperformance, suggesting greater downside than upside for Dollar crosses. We therefore stay short USD vs CAD and AUD in G10, vs a basket of crosses in EM, and vs CNY (via unhedged CGBs)."