Here are SocGen’s top 10 for the second half of this year. Verbatim.

1- Long USD, NOK and GBP vs CHF, SEK and EUR.

  • Easy money continues to support risk taking, but the FX carry trade needs to be selective, i.e. avoid trades where valuation is stretched (e.g. risk/reward in NZD/JPY isn’t great). This portfolio exploits central bank policy differentiation. An alternative is to be long USD, NOK and GBP vs JPY, CHF and EUR.

2. Keep short EUR/GBP to 0.78.

  • Maintain short EUR/GBP trade as UK economic recovery outpaces that in the euro area. Monetary policy divergence is widening. The ECB remains under pressure to ease as back-door QE has failed to boost growth and disinflationary pressures remain.

3. Mind the cable turning point

  • Buy GBP/USD 3M put strike 1.69 KO 1.7150. All the cable appreciation over the past year has stemmed from the premise that the healthy UK economy will ultimately force the MPC to hike rates sooner. Our economists now see the first hike in Q4 2014, but this is almost fully priced in (December meeting above 70bp). Long GBP positioning is stretched and our technical analysts warn that cable is at a turning point. A clear break of 1.70 (a massive technical and psychological resistance) would invalidate this scenario: cheapen your put options with a close topside KO.

4. Buy EUR/USD volatility vs EUR/GBP and cable vols.

  • The realised correlation between EUR/GBP and cable has become very negative, and extreme, by historical standards, as BoE fears have taken the lead. This theme is fatigued. Expect the correlation to return towards more normal levels.

5. Stay long NOK/SEK target 1.20 (and long USD/SEK).

  • This was already on our shopping list last December. The trade has done well and is set to deliver again in H2, as the Riksbank fights deflation risks. Norges Bank will be an earlier hiker. NOK will benefit from rising oil prices too.

6. Long AUD/NZD at 1.05-1.06.

  • NZD has appreciated sharply on the back of the RBNZ rate hike cycle, but plenty of good economic news and rate expectations are priced in. This is an Australasian RV trade to fade NZD overvaluation (by far the most extreme in G10).

7. Sell AUD/USD for China structural slowdown trade.

  • The over-valued AUD is vulnerable to China’s structural economic slowdown. The Australian economy has proven to be robust, but fiscal tightening and the need for domestic rebalancing will keep monetary policy on an easy setting.

8. Long USD/CAD target 1.15.

  • The Fed will eventually tighten and the Canadian housing market is slowing down to take its toll on the Canadian consumer. Both legs of the trade require considerable patience.

9. Contrarian hedge: Buy USD/JPY 6M put spread 1×1.5, strikes 99/95.

  • Most consensus trades (long dollar, short Treasury, short EM) have suffered again this year; a good, cheap contrarian trade can do wonders. Long USD/JPY remains a consensual trade as Japan still needs a weaker yen, but some factors raise the risk of a move towards 95. The BoJ is on hold until next year. The FX market (especially the sensitive USD/JPY) has lagged the lower re-anchoring of US forward rates. Risk is on; complacent investors may be surprised.

10. Long liquidity EM currencies in Q3.

  • Following capitulation in January, EM currencies have enjoyed a slow and fragile recovery. Fears of a renewed Treasury sell-off have made investors hesitant, and EMFX has dramatically lagged the downward repricing of the medium-term fed funds rate. We expect liquidity currencies such as TRY, ZAR, INR and IDR to do well in Q3. Q4 may be shakier, as QE comes to an end.