SNB may soon come under pressure

We have previously argued that the Swiss National Bank has become slightly more tolerant of modest currency strength, given that the sheer scale of previous FX intervention has dented the central bank’s appetite for further balance sheet expansion. The top-left chart,...

Harbinger for Polish Slowdown

On the back of signs that Germany and the eurozone are slowing, we highlight the risk of a drawdown in Polish economic growth. Although Poland is ostensibly a domestic demand-driven economy, it is still highly trade dependent (exports + imports are above 100% of GDP)...

Czech koruna: Pausing for Breath

Since we highlighted the potential of CE3 markets in July 2017 in light of the global reflation trend, our preferred trade – short EURCZK – has made a modest 2.8%. Even after this relatively anaemic rally, we believe that the koruna will now take a breather. As a...

Cost of FX Hedging Pushing Yen Higher for Now

One of the strongest performers against the USD lately has been the yen, with USDJPY now probing 15-month lows. One of the main drivers has been the surging cost of FX hedging (assume rolling 1 year FX forwards). The top-left chart shows the pick-up for a yen investor...

Vulnerabilities in Europe

Sentiment in Europe has soared to its highest level since 2001. However, in Europe as elsewhere, such lofty sentiment should be taken as a warning for markets, not a green light. As we can see from the top-left chart, previous peaks in economic sentiment have...

EUR: Tactically Overbought; Macro Headwinds

Macro headwinds are building up for long EURUSD positions in addition to signs that EURUSD is becoming very overbought technically. A few weeks ago we noted that EURUSD sentiment was one of the most bullish (contrarian indicator) among the 50 major FX pairs we track....

EURGBP: Deteriorating Rate Differentials

(from our Weekly Update of 14th February 2017) Rising inflation in the eurozone is driving real rates lower, widening the rate differential between the EUR and other DM currencies. We look at risk-adjusted real-rate differentials by dividing real-rate differentials by...

Smaller Impact on USD from Fed Rate Rises

(from our Tactical of 31st May) We have long argued of a dovishly leaning Fed with Janet Yellen at the helm. The market eventually got the Fed’s message.  The total hikes priced in over the next 6 months were stable at around 80-90 bps for the last 2 years of...
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