FX Morning Update

Goldman Sachs maintains a slight bias toward USD weakness but has scaled back short positions, favoring AUD over EUR and cautioning on USDJPY volatility ahead of the Japanese election.

Key Takeaways

• 1.The bias remains toward gradual USD weakness, but conviction has decreased, leading the GS trading desk to scale back USD short positions.
• 2.AUD outperformance is fundamentally justified by the GSBEER model, rate differentials, and China growth prospects, making it a preferred long against EUR.
• 3.USDJPY is grinding higher toward key 'rate check' levels as markets anticipate a conclusive LDP/Takaichi victory in the upcoming weekend election.

Table of Contents

• USD: Scaled Back Positioning, Own More Leveraged USD Shorts
• AUD: Outperformance Justified, Room To Run
• JPY: Views & Flows Into Election
• NZD: Underperformance Despite Positive Labour Report

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