Momentum Models EUR/USD Short Bias Increases, Bund Flips Bearish

When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.

Summary

• Momentum models were down -0.1% over the past week, with equity models up +0.4% WoW, FX models down -0.3% WoW, and rates models down -0.2% WoW.
• Momentum models are up +1.0% in aggregate over a three-month time frame, with equity models the best performing (+2.9%).

Market Implications

• Momentum models are long USD across all major pairs. We remain short USD vs EUR, JPY and CAD (target: 6%, stop: -3%).

Latest Signals

Equity momentum model signals were mostly unchanged. The S&P 500, DAX and FTSE signals remain very bullish, with the Nikkei signal flipping to modestly bearish from modestly bullish (Chart 1).

Rates momentum model signals are more bearish. Signals in the US 5Y and 10Y along with JGBs remained very bearish. The US long bond signal remained modestly bearish. The bund signal flipped to very bearish from very bullish, while gilts shifted to very bearish from modestly bearish (Chart 1).

FX momentum models saw small shifts. Most notably, EUR/USD shifted to very bearish from modestly bearish. Other USD pairs are unchanged – USD/JPY and USD/CAD are modestly bullish, while GBP/USD, AUD/USD and NZD/USD remain modestly bearish. In the EUR crosses, EUR/CHF is unchanged (very bullish), EUR/SEK has shifted to very bearish from modestly bearish, and EUR/NOK flipped to modestly bearish from modestly bullish (Chart 2).

Model Performance

• Momentum models were down -0.1% over the past week, with equity models up +0.4% WoW, FX models down -0.3% WoW, and rates models down -0.2% WoW.

*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past three months, you buy, otherwise, you sell (note I use excess returns).

(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.)