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Momentum Models Pared EUR/USD and GBP/USD Bullishness
- 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 were poor over the past week, on average, despite a positive outing in rates (+0.3% WoW).
- Performance is poor over a three-month horizon, too. The models we track have lost 1.4%, on average. Equity momentum models (-4.5%) have fared worst.
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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 were poor over the past week, on average, despite a positive outing in rates (+0.3% WoW).
- Performance is poor over a three-month horizon, too. The models we track have lost 1.4%, on average. Equity momentum models (-4.5%) have fared worst.
- Since our last update, momentum models have become more supportive of the S&P 500 and Bunds, while they have pared EUR and GBP (vs USD) bullishness, and AUD bearishness.
Latest Signals
Equity momentum models shift net-bullish on the S&P 500 and net-bearish on FTSE-100 while they remain bullish on the Nikkei and DAX (Chart 1 and Table 1).
Meanwhile, rates momentum models flipped net-bullish on Bunds and have remained net-bearish US rates, and bearish on Gilts.
Within FX, momentum models have pared EUR/USD and GBP/USD bullishness, and AUD/USD bearishness, and flipped net-bearish on USD/CAD and net-bullish on NZD/USD (Chart 2 and Table 2).
Model Performance
Negative momentum model performance returned, the models we track delivered -0.5% WoW, on average, despite a positive outing in rates (+0.3% WoW). Performance is poor over the past three months, too, having lost 1.4%, on average. Equity momentum models (-4.5%) have proven the worst performers, while FX (-0.3%) has fared better.
Our Views
Attention is fast turning to the upcoming June Federal Reserve (Fed) meeting. The market is well-priced for a pause, but Dominique doesn’t share the sentiment; she believes the market is underpricing the risk of a 25bp Fed hike on the back of the April non-farm payrolls and CPI.
Henry believes the Bank of England (BoE) will follow in their footsteps. Having correctly called for this week’s 7:2 vote for a 25bp hike, he expects the same-sized move follows on 22 June. Further afield, he believes the market is probably underpricing the prospects for BoE cuts to begin before year-end.
Turning to Asia, Richard’s latest G10 FX Weekly believes JPY should find its feet and positively perform in the coming months, especially on a recession or increased geopolitical tensions.
*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).