Momentum Models Remain Max Bullish GBP/USD, We Are 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 0.5% over the past week, with equity models down 2.1% WoW, FX models down 0.1% WoW, and rates models up 0.1% WoW.
• All momentum models are down over a three-month timeframe, with equity models the best performing (-0.3%).

Market Implications

• Momentum models remain max bullish GBP/USD, while we argue the opposite – last week we initiated bearish GBP/USD positioning and remain short the pair in addition to liking GBP/CAD downside.

Latest Signals

Equity momentum models have shifted slightly. Momentum models are less bullish the S&P 500, Nikkei, and Dax, and have flipped from slightly bullish to slightly bearish the FTSE (Chart 1).

Rates momentum model signals are little changed – momentum signals in the US rate futures are unchanged (modestly bullish US 5y and 10y, modestly bearish the US long bond), and remain very bearish JGBs and very bullish bunds. UK gilts have shifted – flipping from slightly bearish to slightly bullish. Dominique now expects one insurance cut this year, likely after the election in November or December. Additionally, we retain a tactical short position in the January 2025 Fed Funds contract.

Turning to FX, momentum models have shifted slightly – EUR/USD, USD/JPY, and EUR/CHF are unchanged (all slightly bullish), and GBP/USD remain very bullish. EUR/NOK is more bullish, and EUR/SEK has flipped from slightly bearish to slightly bullish. AUD/USD has flipped from slightly bullish to slightly bearish, NZD/USD is more bearish while USD/CAD is more bullish.

Model Performance

• Momentum models were down 0.5% over the past week, with equity models down 2.1% WoW, FX models down 0.1% WoW, and rates models up 0.1% WoW.

(Charts 1 and 2: blue bar is last week’s signal; orange bar is this week’s signal.)

(Charts 3 to 5: orange bars are average returns of CTA model over past three months by asset, black dot is change over the past week).

*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).

Richard Jones writes about FX and rates markets for Macro Hive. He has traded and invested in interest rate and FX market portfolios spanning three decades, both on the buy-side and sell-side.

(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.)