any further rebalancing to be unhedged, strengthening USDJPY. We believe the Republican sweep of Congress makes it very likely that HIA 2.0 will be passed (Homeland Investment redux?}. Following the 2005 HIA, USD/JPY rose from 102 to 117 (Chart 20). Given US corporate exposure is heavily concentrated in European and Asian countries (including Japan), flows out of these currencies into USD would be the most pronounced. Trade: We recommend buying a 6m USD/JPY digital call for 10% spot ref: 108.95). The strike aligns with our end-2017 USD/JPY forecasts of 120, and with a 10% entry level provides a 10 to 1 return. The risks to the trade are a decline in risk sentiment, a retreat from the US Treasury’s “strong dollar” policy by the new administration, and/or a failure of the US to meet already high expectations for significant fiscal easing. EM sovereign credit has more downside Our bullish dollar + bearish US rate view leaves us bearish on EM. In our view, Mexico, Brazil and Colombia (longer duration low spread foreign currency bonds) are especially vulnerable, while the higher yield and lower duration of lower quality and shorter EM bonds will be more defensive. A review of the taper tantrum (May 2013) shows that: 1) EM underperformed UST at the start; 2) BBB sovereigns underperformed the most, and had not yet recovered in a year; and 3) BB and B-rated bonds recovered to beat USTs 8- 10 months later. This time, we expect a sharp selloff with an eventual recovery. Our bearish view on LatAm credits in particular is driven by 1) positioning in LatAm is heavier than in EMEA or Asia — watch outflows from IG crossover investors who will rethink their EM IG investments; 2) their exposure to commodities and 3) vulnerability to a potential decline in US trade. Our choice of the basket is fairly obvious - Mexico is clearly the most vulnerable to NAFTA and a decline in remittances, uncertainty on the pace of the economic recovery and debt dynamics are extremely challenging in Bra