Positioning Trading Model Update: Watching Small Investors in GBP/USD

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

• Looking at the best investors for each currency, we find our hedge fund models are giving mixed signals for EUR/USD, our real money model has a bias to ‘buy’ USD/JPY and our small investor model is giving a ‘sell’ signal for GBP/USD.

The Latest Signals

EUR/USD – Hedge Funds Signals Are Mixed

• Hedge fund positions continue to give the best signals for the euro and currently are giving a ‘buy’ and  ‘neutral’ signal (Table 1). We have found that going against hedge flows has been profitable, and based on that, we have a ‘sell’ signal. Therefore, hedge fund data is giving an overall ‘neutral’ signal for the euro.
• Our other positioning and risk reversal models are giving ‘sell’ signals, while our momentum models are starting to flip to ‘buy’

USD/JPY –  Real Money Have Bias for ‘Buy’, Rest Are Mixed

• For USD/JPY, we’ve found real money has generally given the best signals in recent months (Table 2). Currently, they are giving two ‘buy’ signals and now one ‘sell’ signal.
• The signals for hedge funds and small investors are now mixed.
• Momentum models have started to switch to ‘sell’ signals.

GBP/USD – Small Investors Give ‘Sell’ Signal

• Small investors have traded GBP/USD the best of late – last week we had mixed signals, this week they are all ‘sell’ signals.
• Hedge funds are giving ‘buy’ signals, while real money are giving ‘sell’ signals.
• Momentum models are starting to switch to ‘buy’.

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.)