Positioning Trading Model Update: Hedge Fund Signal Bullish USD/JPY

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 positioning models are giving ‘buy’ signals for the euro, and hedge funds have recently flipped to ‘buy’ for USD/JPY.

The Latest Signals

EUR/USD – hedge fund signal is a ‘buy’

• All the positioning models are either giving ‘buy’ or ‘neutral’ signals for the euro. Following hedge funds positioning has been the most profitable strategy in recent months, and hedges are currently (relatively) long (Table 1).
• Both momentum and risk reversal models are giving mixed signals. The better performing models are giving ‘sell’ signals though.

USD/JPY – hedge fund signal switched to ‘buy’

• Our positioning models are either giving a ‘buy’ or ‘neutral’ signal for USD/JPY (Table 2). Again, following hedge funds has generally delivered good signals of late, and the model has recently switched from ‘sell’ to ‘buy’.
• Momentum models have not performed well over the past month, and they are actually giving conflicting signals.

GBP/USD – mainly ‘sell’ signals, but poor performance of late

• Positioning models have not worked well for GBP/USD of late. In general, they are giving ‘sell’ signals.
• Both risk reversal and momentum models have not performed well either.

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, 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.)