Momentum Models Scale Back USD/JPY Bullishness

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 moved sideways over the past week. A positive rates (+0.3% WoW) outing battled poor equity (-0.4% WoW) and FX (-0.1% WoW) performances.
• Equity momentum models remain the best-performing model over a three-month timeframe (+5.9%).

Market Implications

• Momentum models are bullish EUR/CHF, as are we.

Latest Signals

Equity momentum models returned bearish on the FTSE-100, while they remain heavily bullish on the S&P 500, Nikkei, and DAX (Chart 1). John remains marketweight in equities, favouring companies that provide AI infrastructure with any selloffs in NVDA representing attractive buy opportunities.

Rates momentum models are unchanged. They remain bearish JGBs with an end to negative rates expected at next week’s BoJ meeting and bearish US rates ahead of a highly anticipated Fed meeting. Our rates PCA model is flagging 12 trades.

Turning to FX, momentum models remain bullish USD/JPY, but less so than last week. They also flipped heavily bullish on EUR/NOK – we think there will be value in turning short EUR/NOK, but patience is needed – and bearish on USD/CAD.

Model Performance

Momentum models declined -0.3% over the past week as poor outings for rates (-1.0% WoW) and FX (-0.2% WoW) outweighed a positive showing in equities (+0.7% WoW). Equities momentum models remain the only positive-performing model over the past three months (+6.9%), with rates and FX suffering (-0.6%).

*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).

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.

(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.)