How far can the relief march go? by Investing.com

Investing.com – Donald Trump’s inauguration week began with a rally for G10 currencies against the U.S. dollar (USD), with a Wall Street Journal report hinting at a possible tariff delay.

UBS strategists analyzed the rally by referring to their short-term valuation model, assessing the degree of tariff risk sold to the currency since last Friday and the likelihood of the US dollar weakening in the near term as a result.

According to UBS, the worst performing currencies at the start of the week were (EUR), (AUD) and (NZD), with fair values ​​(FVs) of approximately 1.0450, 0.6400 and 0.5750 respectively.

While UBS sees the euro as likely to reach its near-term target, they are more skeptical, citing persistently low rates and continued weakness in China, with significant rallies in commodity currencies such as the AUD and NZD.

The investment bank maintains that long USD positions, with the exception of (CAD), are not excessive to signal a major correction to EUR and (JPY).

“Ultimately, we think the US dollar rebounds represent buying opportunities,” said strategists led by Vasily Serebryakov.

While the focus remains on the dollar, UBS noted that a major event risk for the yen is approaching with the Bank of Japan (BoJ) meeting scheduled for January 24. A hike of approximately 22 points is anticipated, indicating a potential increase from the 25 starting point. Although it reinforces the BoJ’s tendency to ease international policy, it will not lead to higher JPY gains.

The UBS Equity Hedge Rebalancing Model also shows the possibility of buying JPY at the end of the month.

As for the euro, strategists have highlighted the currency’s resilience over the past two years despite weak infrastructure. They attributed this strength to strong BoP (BOP) gains due to the return of foreign bond funds.

However, if French political instability persists and the European Central Bank (ECB) continues to cut rates, these revenues, particularly into French debt, could be at risk, UBS warns.

“What we’ve seen so far is that demand for French debt is weakening, particularly from Japanese investors, but overall bond inflows are likely to be resilient through November,” strategists said.

Looking ahead, the attractiveness of the Eurozone’s product environment for international investors may change, so they suggest keeping an eye on this sector.