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Momentum Models Flip Net-Bearish on EUR/USD
- By Bilal Hafeez and Ben Ford
- Sign-up to discuss on Slack
- 2 min read
When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
Summary
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- Momentum models returns proved positive over the past week led by a positive outing in equities (+0.9% WoW).
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- However, performance is poor over a three-month horizon. The models we track have lost 1.4%, on average. Equity momentum models (-4.2%) have fared worst.
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- Since our last update, momentum models have returned less supportive of the S&P 500 and heavily bearish on the FTSE-100. Meanwhile, they have flipped net-bearish on the EUR/USD and net-bullish on USD/CAD.
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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 returns proved positive over the past week led by a positive outing in equities (+0.9% WoW).
- However, performance is poor over a three-month horizon. The models we track have lost 1.4%, on average. Equity momentum models (-4.2%) have fared worst.
- Since our last update, momentum models have returned less supportive of the S&P 500 and heavily bearish on the FTSE-100. Meanwhile, they have flipped net-bearish on the EUR/USD and net-bullish on USD/CAD.
Latest Signals
Equity momentum models are turning less bullish as bullish signals for the DAX were pared, signals for the S&P 500 flipped net-bearish, and bearish signals for the FTSE-100 intensified (Chart 1 and Table 1).
Meanwhile, rates momentum models flipped net-bullish on the US 5Y and pared bearish Gilt signals. They remain net-bullish on JGBs and Bunds.
Within FX, momentum models have flipped net-bearish EUR/USD, net-bullish USD/CAD and turned bearish on AUD/USD (Chart 2 and Table 2).
Model Performance
Momentum models delivered a positive week of returns led by equity momentum models (+0.9% WoW), with all four indices experiencing a positive week. However, over the past three months, performance has been poor; equity momentum (-4.2%) models fell most over the period, with rates (-1.3%) and FX (-0.1%) faring marginally better.
Our Views
The debt ceiling is on everybody’s mind with Republican and Democrat negotiating positions far apart. A market selloff could prove necessary to end the standoff. Dominique believes the standoff is likely resolved before it creates lasting damage to the economy or markets. Dominique and Mustafa are tracking the key developments.
Across the pond, Henry has his eye on UK employment. His view is that the unemployment rate could see MoM swings on participation rate change, but if the employment growth slips further (or turns negative), this could dominate the Bank of England’s tone.
*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).