Momentum Models Flip Bearish on EUR/CHF and Bullish on NZD/USD

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 progressed +0.5% WoW having stumbled for the first time in seven weeks in last week’s report.
• Performance over the past three months remains positive with equities driving the average return higher (+5.9%).
• Since our last update, momentum models have flipped slightly bearish on the FTSE-100, become slightly less bullish on JGBs, and now signal EUR/CHF downside as well as NZD/USD upside.

Latest Signals

Equity momentum models flipped slightly bearish on the FTSE-100 as the one-month lookback model reverts to a ‘sell’ signal (Chart 1 and Table 1). Equity momentum models remain bullish on the S&P 500, Nikkei and DAX.

Meanwhile, rates momentum models became less bullish on JGBs. Elsewhere, they are heavily bearish US rates, alongside bunds and gilts.

Within FX, momentum models flipped slightly bearish on EUR/CHF and slightly bullish on NZD/USD while they also became more bearish on AUD/USD (Chart 2 and Table 2).

Model Performance

Momentum models progressed +0.5% WoW after last week’s negativity proved the first in seven weeks. This week’s strength was led by rates (+1.4% WoW) with equities (+0.3% WoW) following, but by some distance. Performance over the past three months remains positive (equity: +5.9%; rates: +2.2%; FX: +0.3%).

Our Views

The S&P 500 is now up over 16% this year, with 6pp coming since the start of June. Dominique believes the rally has to go, at least for the next few months when looking at a range of her favourite macro indicators. Liquidity is doing little to change her tune, either. She continues to expect a July and November Federal Reserve hike.

Turning to Europe, Henry notes that European Central Bank (ECB) speaker tone has followed the more hawkish shift in forecasts in his ECB monitor. The speakers are rallying behind the need to hike, with July now a given, and September looking increasingly likely. He continues to see value in positioning for 6M fwd 1Y EUR OIS rising further.

Shifting to Asia, Bert expects CNH’s underperformance to continue, but not significantly against USD. Instead, he sees value in using CNH as a funder with long IDR/CNH his preferred expression in Asia.

*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past 3 months, you buy, otherwise, you sell (note I use excess returns).

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.

Ben Ford is a Researcher at Macro Hive. Benjamin studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

Photo Credit: depositphotos.com

(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.)