Positioning Trading Model Update: Bearish JPY, But Getting Mixed on GBP and EUR

Summary

• We regularly monitor investor positioning, but we are also now going one step further and using positioning and flow to generate direct trading signals.
• We look at trading models using hedge fund, real money and small investor positioning data as well as options markets and momentum data.

Market Implications

• Our latest update finds the strongest signals are for USD/JPY (‘buy’), but signals are mixed on GBP/USD and turning less bearish on EUR/USD

The Latest Signals

EUR/USD – Mainly ‘Sell’ Signals

• One more positioning/flow model flipped to ‘buy’ for the euro. In total, we have two ‘buy’ signals, two ‘neutral’ signals and five ‘sell’ signals. So still an overall ‘sell’ signal (Table 1).
• Over the past three months, the best performing model has been hedge fund flows (contrarian), which is currently giving a ‘sell’ signal.
• Most the momentum and sentiment models are giving ‘sell’ signals/

USD/JPY – ‘Buy’ Signals

• One flow model flipped to ‘buy’ from ‘sell’ – so all models are either ‘buy’ or ‘neutral’ (Table 2)
• The best performing model over the past three months has been to follow small investor positioning – currently a ‘buy’ signal.
• All the momentum models are giving ‘buy’ signals.

GBP/USD – Balanced between ‘buy’ and ‘sells’

• Our hedge fund positioning model flipped to ‘buy’. Across all the positioning models, we now have three ‘buy’ signals, two ‘neutral’ signals and four ‘sell’ signals. So a bias for ‘sell’ signals (Table 3)
• The best performing positioning/flow model over the past three months has been to follow small investor flows – currently, it is signalling ‘buy’
• Risk reversal models are giving a ‘buy’ signal, while momentum models are giving ‘sell’ signals.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)