Equilon FXThis article preserves the desk’s published view at that time. Prices, market assumptions and trade status are historical statements, not current guidance or independently verified performance.
Year-ahead pieces are usually wrong by April. We don't write them as predictions — we write them as the prior the desk is operating from. The trades we take in Q1 are downstream of this read.
The base case
The Fed holds in Q1, signals one cut for the second half if data softens. The ECB holds and pretends it's data-dependent while waiting for cover to cut. The BoJ slowly normalizes but at half the pace markets expect. Net effect: rate differentials stay wide, vol stays low, dollar grinds higher into mid-year.
What this means for G10
USD/JPY: the structural pair of the year. Carry pays. BoJ doesn't intervene meaningfully. The pair grinds to 156-158 unless one of the four catalysts we're watching prints (Fed pivot, BoJ surprise, US recession, geopolitics).
EUR/USD: range-bound between 1.07 and 1.10 for the better part of Q1. The ECB needs cover to cut, the Fed needs softer data — neither is imminent. Range trading wins until one side breaks.
GBP/USD: softer than EUR. The UK growth picture is worse. We're net short biased on rallies.
Commodity currencies: AUD, NZD, CAD all softer in the base case. Risk to base case is China stimulus surprising upside.
What kills the base case
- Fast Fed pivot — would compress rate gaps, dollar weakens against everything except yen (carry-rotation).
- BoJ surprise tightening — yen rallies 5-8% on the announcement. We'd flip the structural USD/JPY trade fast.
- US recession printing — risk-off, dollar wins as funding currency, but commodity currencies and EM bleed hard.
- Geopolitics — unpredictable by definition. Default playbook: cut size, increase cash, wait for the second-day reaction.
The desk's playbook for Q1
- Patient on USD/JPY structural short (waiting for 151.50 break)
- Range trading EUR/USD inside 1.07-1.10
- Long carry-friendly setups (EUR/CHF, selective AUD/JPY)
- Skip everything else
We're not making heroic year-ahead bets. We're identifying the regime, sizing inside our normal playbook, and letting the chart tell us when the regime changes. The macro view exists to tell us what to skip, not what to force.
The honest disclaimer
This read is wrong somewhere. It always is. The discipline is to update it when the data tells you to, not to defend it because you wrote it down. Beliefs are working hypotheses, not commitments.
We revisit this piece every quarter. Q2 update lands in early April.
Educational only. Not investment advice. Read the full risk disclaimer.