Goldman Sachs (GS) is forecasting euro parity against the greenback next year in its top ideas for 2017, with dollar strength relative to the euro and sterling taking the top spot as its number one trade.
Others include bullish calls targeting emerging markets and inflation-protected fixed income. For the full list, see below;
Top Trade #1:
Divergence between economic fortunes on either side of the Atlantic ocean are likely to mean further gains for the U.S dollar relative to the euro and the pound.
Goldman sees the euro at parity against the dollar by the end of the fourth-quarter 2017. This is while sterling is set to trade between the bank's forecast of 1.2000 at the start of the year and 1.1400 by the end of the final quarter.
In addition to trading gains, investors could earn an interest rate carry of 1.3%, according to the presentation.
Top Trade #2
Capital outflows stemming from fears of a trade-fight with Donald Trump added to an already strong U.S. dollar, leave Goldman analysts anticipating a further decline of the Chinese currency relative to the dollar.
They forecast that the dollar-renminbi pair will rise from 6.87 at the end of 2016 to 7.30 by the close of 2017. However, Goldman's preferred means of trading the pair is via the 12-month non-deliverable-forward.
Top Trade #3
Dollar strength remains a base ingredient of the Goldman Sachs menu for the year ahead but higher interest rates and a bullish outlook for emerging market economies has left analysts eyeing an EM carry-trade.