For the past couple of quarters we have had a bullish view on the economy and risk markets. This has been reflected in our trade recommendations via carry exposure and short positions in the 'defensive' currencies USD, JPY and GBP.
We maintain an overall positive view on the market but we are reducing our risk exposure on the back of recent mixed activity data and a weakening risk/reward.
Close long EUR/CZK at 25.86 for a 2.3% profit and long RUB, AUD, NOK versus short USD at 100.64 for a 0.6% profit.
Less Attractive Risk/Reward
Aggressive monetary easing by the Federal Reserve and the Bank of Japan, low market volatility, and improving global growth have left us very bullish on FX carry since late last summer.
Performance has also been strong, with a simple majors basket (long three highest yielding versus short three lowest yielding) up 8% (14% annualised) since the September Fed meeting. Compared with 7% volatility this leaves the Sharpe Ratio at almost 2 for this period.
We remain bullish on FX carry for the medium term, as global money supply growth should remain high, as the US economy is healing (e.g. structural improvement in the housing market), and as we see only a low probability of a global recession. For the short term, however, we see the risk/reward as less attractive than it has been over the past few quarters. Mainly because of recent mixed activity data (i.e. increased risk of a mid-cycle slowdown) but also because the carry rally has already run far.
As a result, we take a 0.6% profit on our long ‘RUB, AUD, NOK versus short USD’ from 19 September (FX Trade Recommendation: Time to go long carry -- buy RUB, AUD, NOK against USD). We also recently took profit on our long RUB/CZK recommendation but still remain long carry via: (i) long TRY, MXN, HUF versus short USD (FX Top Trades 2013: How to position for the coming year, 5 December), (ii) short CHF/NOK (FX Trends: GBP and JPY to be left behind with worst policy mix, 22 March) and (iii) short USD/CNH (FX Top Trades 2013: How to position for the coming year, 5 December).
We also take a 2.3% profit on our long EUR/CZK recommendation from 5 November (Trade Recommendation Buy EUR/CZK on intervention risks). We continue to believe that the Czech koruna will soften in the coming year. However, it is also clear that the central bank is currently some distance from intervening in the FX market to weaken the CZK aggressively.
To Read the Entire Report Please Click on the pdf File Below.
We maintain an overall positive view on the market but we are reducing our risk exposure on the back of recent mixed activity data and a weakening risk/reward.
Close long EUR/CZK at 25.86 for a 2.3% profit and long RUB, AUD, NOK versus short USD at 100.64 for a 0.6% profit.
Less Attractive Risk/Reward
Aggressive monetary easing by the Federal Reserve and the Bank of Japan, low market volatility, and improving global growth have left us very bullish on FX carry since late last summer.
Performance has also been strong, with a simple majors basket (long three highest yielding versus short three lowest yielding) up 8% (14% annualised) since the September Fed meeting. Compared with 7% volatility this leaves the Sharpe Ratio at almost 2 for this period.
We remain bullish on FX carry for the medium term, as global money supply growth should remain high, as the US economy is healing (e.g. structural improvement in the housing market), and as we see only a low probability of a global recession. For the short term, however, we see the risk/reward as less attractive than it has been over the past few quarters. Mainly because of recent mixed activity data (i.e. increased risk of a mid-cycle slowdown) but also because the carry rally has already run far.
As a result, we take a 0.6% profit on our long ‘RUB, AUD, NOK versus short USD’ from 19 September (FX Trade Recommendation: Time to go long carry -- buy RUB, AUD, NOK against USD). We also recently took profit on our long RUB/CZK recommendation but still remain long carry via: (i) long TRY, MXN, HUF versus short USD (FX Top Trades 2013: How to position for the coming year, 5 December), (ii) short CHF/NOK (FX Trends: GBP and JPY to be left behind with worst policy mix, 22 March) and (iii) short USD/CNH (FX Top Trades 2013: How to position for the coming year, 5 December).
We also take a 2.3% profit on our long EUR/CZK recommendation from 5 November (Trade Recommendation Buy EUR/CZK on intervention risks). We continue to believe that the Czech koruna will soften in the coming year. However, it is also clear that the central bank is currently some distance from intervening in the FX market to weaken the CZK aggressively.
To Read the Entire Report Please Click on the pdf File Below.