。 1CURRENCIES ● GLOBALJanuary 2019Dollar: The best of a bad bunch (pg 3)The USD’s story may not look as positive as it did in 2018, but there are four key factors that webelieve will continue to support the USD in 2019. In the relative world of FX, USD shouldcapitalise on the slowing global economy as other currencies look more vulnerable with theirrespective central banks facing an inability to loosen policy if needed. The underlying level ofrates remains USD supportive too, as the USD remains the high-yield play in G10. The balanceof risks around consensus rate hike forecasts still points to USD upside, and positioning is notskewed against the greenback, in our view. Therefore, while the USD may not be perfect, wethink it is the best of a bad bunch in G10.Exposing the “Fragile Four”: CAD, CHF, SEK, NOK (pg 12)Amidst slowing global growth and tighter financial conditions we believe that structural frailtiesmay become a bigger issue for G10 FX markets again. Historically, investors have focused onfiscal imbalances as a key worry. But in the post-QE world, where major central banks arewilling to buy government debt to keep borrowing costs low, we do not see this as such a bigconcern. Instead, private sector debt, in both the household and corporate sectors, presentsmore of a vulnerability in our view. Looking at both the underlying level of private sector debtand the increase in leverage in the last decade, we identify a “Fragile Four” in G10 FX that aremost heavily exposed to these factors: CAD, CHF, SEK and NOK. 2019 Currency Outlooks (pg 17)We provide single-page summaries of our 2019 outlook for the most actively traded currenciesin G10, Asia, CEEMEA and LatAm as well as gold.G10(pg 18-26)Asia(pg 27-30)CEEMEA (pg 31-34)LatAm(pg 35-38)Gold (pg 39-40) Summary CURRENCIES ● GLOBALJanuary 20192 Key eventsDate Event9 January BoC rate announcementFOMC December meeting minutes23 January BoJ rate announcement24 January ECB rate announcementNorges Bank rate announcement30 January FOMC rate announcement5 February RBA rate announcement7 February BoE rate announcementSource: HSBC Central Bank policy rate forecasts (%) Last Q2 2019(f) Q4 2019(f)USD 2.25-2.50 2.25-2.50 2.50-2.75EUR 0.00 0.00 0.00JPY -0.10 -0.10 -0.10GBP 0.75 0.75 0.75 Source: HSBC forecasts for Fed funds, Refi rate, Overnight Call rate and Base rateConsensus forecasts for key currencies vs USD 3 months 12 monthsEUR 1.145 1.186JPY 112.2 110.6GBP 1.307 1.362CAD 1.307 1.285AUD 0.716 0.731NZD 0.663 0.666Source: Consensus Economics Foreign Exchange Forecasts December 2018 3CURRENCIES ● GLOBALJanuary 2019Challenging the consensus (again)“If it ain’t broke, don’t fix it”, and so we enter 2019 retaining our counter-consensus USD bullishview. It is tempting to start the New Year with a dramatic revelation or change of view. But wefeel no pressure to do so. Our forecast revisions are modest and mostly point to greater USDstrength than previously envisaged. We were happy in 2018 to stand apart from the consensus.In late April, we moved from being USD neutral to USD bullish, a shift which has worked out well.We see little reason to change. Consensus offers a tale of USD weakness which failed it in 2018.It will likely fail it again in 2019 as four themes remain USD bullish.1. USD should capitalise on slowing global economy2. USD remains the high-yield play in G103. Policy rate changes are unlikely to undermine the USD4. USD: Market Long does not mean we are wrong 1) USD should capitalise on slowing global economy2019 has begun with the market in a sombre mood, digesting mounting evidence of a slowingglobal economy. Should this trend persist, the JPY would be the natural outperformer but theUSD would likely not be far behind. The Fed has the policy wherewithal to support the USeconomy through interest rate cuts and a resurrection of a bond buying programme if needed.Other G10 central banks, notably in Europe, are less well placed to offer policy insulation.Instead, we believe weaker currencies would act as the main shock absorber to help reflatetheir economies. In addition, a cyclical downturn could highlight structural frailties aroundhousehold and corporate debt levels for the likes of Norway, Sweden, Switzerland and Canada– they would emerge as a new “Fragile Four”.2) USD remains the high-yield play in G10Alternatively, perhaps the gloom is misplaced and slower growth may not herald a more threateningdownturn. In this scenario, the fixation remains on policy, the cyclical dynamic. Might 2019 bethe year when the ECB starts to raise rates and the Fed stops This is a major premise used bydollar bears but it need not point to USD downside. We need to think about levels and not justthe change in rates. The USD is the high-yielding carry play in G10. Other currencies simplycannot compete, and the carry gap remains wide. The USD bears argued that the USD wouldfall sharply once the Fed was done hiking. The rates market now says we are at this point, butthe USD has not collapsed. Dollar bears are now scratching around for other arguments. Dollar: The best of a bad bunch We retain our counter-consensus USD bullish view for 2019 In the relative world of FX, the USD is still best placed to strengthenin most scenarios Four themes remain supportive of the USD in 2019。。。。。。