What Are Our Trading Models Telling Us on EUR/USD and GBP/USD?

We’ve developed a new series of trading models based on positioning and momentum data. These provide a useful balance to our fundamental-based views. We update the models for EUR/USD and GBP/USD and find the following:  

EUR/USD 

• Over the past three months, following the positioning of small investors has performed the best – delivering a return of 6.5%. Currently, this model is giving a ‘sell’ signal (Chart 1).

• The real money positioning model; has flipped to ‘sell’ from ‘buy’, and the hedge model continues to give a ‘sell’ signal.  
• As for flow signals, we find it is profitable to be contrarian and do the opposite of the direction of flows. These models are currently giving ‘buy’ signals. 
• Elsewhere, our risk reversal and momentum models continue to give ‘sell’ signals.  
• Overall, the weight of models is giving ‘sell’ signals.

GBP/USD

• Over the past three months, like with the euro, we find following small investor positioning has performed best – delivering returns of 12%. Currently, the model is giving a ‘neutral’ signal (Chart 2). 
• The flow models are giving ‘sell’ signals on balance.
• Our risk reversal models suggest that going against the bias of riskies is best and these models are giving ‘buy’ signals. Meanwhile, the momentum models continue to give ‘sell’ signals.
• Overall, the models are giving conflicting signals, so are neutral on balance.

Together, these suggest playing for EUR/USD downside appears more attractive than playing for GBP/USD downside.

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.)