UBS - "USDJPY remains the focus of the currency markets. Over the last two weeks the flush out of positions in the currency pair and the Nikkei has been savage, causing investors to unwind other dollar longs against the euro, pound and Swiss franc. In contrast, the fundamentals supporting a stronger dollar this year remain intact.

(...) most of the forty clients we met this week in France, Sweden and Switzerland also still favour the dollar this year. Longs have clearly been strongly…

UBS - "Currency markets face three key events for the rest of June. The Bank of Japan meets on June 11, under pressure to take further measures to reduce volatility in JGB and stock markets. The Federal Open Market Committee holds its next meeting on June 18-19. Last, on June 27-28 European Union leaders will discuss further steps on banking union, ahead of a critical finance ministers meeting on July 8-9. If the BoJ is able to stem the plunge in the Nikkei, then further speculation about…

ING Bank - "One of the major FX themes over the last month has been the correction lower in commodity currencies and the uplift that correction has provided to the dollar. The widespread perception is that abundant global liquidity has kept commodity currencies over-valued. And a combination of action by the commodity producers – and the perception that the Fed could be ready to remove the punchbowl of cheap funding - has finally prompted a re-alignment. We expect this trend to extend over…

Societé Generale - "Following a small correction in late April, the dollar is rallying with a vengeance. A pause may be due, but recent moves confirm the shape of things to come: dollar gains will be far bigger in H2, as the Fed exit debate heats up. The worst performers in May are mostly G10 currencies, both high beta and low beta.

The AUD sell-off looks overdone. For now the AUD/USD looks like a falling knife; we start with a more cautious long in AUD/NZD. The peripheral debt rally-a…

National Australia Bank - "We issued a short AUD/NZD trade recommendation on March 25th at 1.2525, initially targeting 1.20. We are now taking profit on the trade at 1.2058 but will look to re-enter a short position as early as next Tuesday following the RBA’s rates decision.

The cross has come a long way since March and technical indicators such as the daily RSI suggest the currency is marginally ‘overbought’. What’s more, speculative net long positions are much larger in NZD relative…

Westpac - "We have sold AUD/NZD at 1.2560, targeting 1.2300 with a trailing stop-loss initially at 1.2690. We will also sell another unit at 1.2590 if that’s reached.

Our main rationale is fundamental. We expect the RBNZ to start tightening around year end while the RBA appears to be on hold pending further economic information, further easing a possibility.

(...) Further, relative commodity prices have moved significantly in the NZD’s favour recently, with the supply-induced boost…

UBS - "Sterling is likely to be the biggest mover in the week ahead. On Wednesday, Bank of England Monetary Policy Committee minutes are released while, separately, the UK Budget may announce a review of the central bank's inflation target. We expect this will cause the pound to weaken.

(...) This week's key points are:



- dollar bulls should check the FOMC's new forecasts

- PMI data key for euro in the week ahead

- new BoJ leadership approved, still buy USDJPY…

Societé Generale - "One has the choice between a brutal long USD position across the board or trading relative values, e.g. NOKSEK, AUDNZD or EURGBP. Weighting the decision between this core portfolio allocation in USD and relative positioning is likely to become tricky.

In a lower level of volatility, we typically see a greater dispersion as currencies can be driven by a different motor (interest rate, fx policy, terms of trades…). We are reaching extremes in some of the crosses.…

UBS - "Yen weakness remains the dominant theme of FX markets as the BoJ is pressed to deliver, but the Fed should grab the limelight next week as the FOMC meets for the first time this year. With 2013 getting off to a strong start, markets will be sensitive to any hints of a policy shift which may bring forward the normalization schedule. The RBNZ is expected to leave rates unchanged. On the data front, payrolls and manufacturing ISM and Q4 GDP feature in the US. In Europe final PMIs are…

National Australia Bank - "AUD: The near term fate of the AUD predictably resides with Tuesday’s RBA decision. Given that the AUD/USD rate has traded within a narrow 1.0288-1.0490 during November to date, RBA inaction seems certain to produce an upside range break. In contrast a cut will merely push the AUD back down into the range, but not through the bottom. RBA aside, the biggest prospect for a meaningful decline in the currency before year end is if US fiscal cliff negotiations fail to…

UBS - "The risk of the Fed raising its bond purchases further towards year end remains a threat to the dollar. But given other central banks are easing policy or likely to do so in Q4'12, we don't want to chase the greenback lower from current levels. Instead we prefer the yen as a funding currency amongst the majors and the Swiss franc as a funding currency in Europe. Moreover, we think the Australian dollar amongst commodity currencies remains at risk from renewed easing by the RBA and…