The Latest in Forex News & Analysis.

On the Daily: Now On Substack

By Aahan Menon | October 11, 2021 4:58 pm | 0 Comments

This will be our last post on this forum. Starting this week, we will be publishing our On the Daily blog via Substack. You can find the link by clicking here. Our commentary will be updated on Substack daily to provide our readers a consistent and high-quality free resource.

In the meantime, here are our updated models and monitors. Let us start with our tracking of global economic momentum:

Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Finally, we look at our Trading Tools Report to analyze whether commodity positions are attractive in the immediate term. We find an asymmetric opportunity to the upside here:

 

Recall:

  • Trading Range:  These ranges represent a trading bank within which a currency should trade based on multiple market factors. If we are long- prices above the upside range indicate the asset is expensive, and prices below the downside range suggest that they are cheap and vice versa if we are short.
  • Year-to-Date Returns: This is the price performance of a given currency over the current calendar year, in percentage terms. We also compare the current price to the 52-week high and low for reference.
  • Price Momentum: This looks at cumulative rolling returns for a selected lookback period.  Positive momentum is good if we are long and bad if we are short. 
  • Implied Volatility Discount/Premium:  This tells us what the market expects in volatility relative to the history of volatility. If we are long a currency, we typically want market implied volatility to be higher than historical volatility and vice versa if we are short.

We hope to see you on Substack!

On the Daily

By Aahan Menon | October 8, 2021 6:12 pm | 0 Comments

Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

  1. Global Economic Momentum remains approximately around its mean of 50%. The most notable incremental development is US NFP today, which was a mixed report. Private payrolls continued to be strong, but government hiring remained muted, potentially reflecting constraints imposed by the debt ceiling and seasonality.
  2.  Global Policy remains tilted marginally hawkish, as many central banks move towards tighter monetary conditions. The most recent NFP is unlikely to deter the Federal Reserve from its path. However, the Bank of Japan recently downgraded its outlook on the Japanese economy, cementing the case that they might be in “QE forever. “ This is likely to exacerbate the policy divergence between USD and JPY (which we highlighted starting January), implying that JPY could continue to weaken much more as the Fed begins to remove accommodation starting next month.
  3. Global Market Trends continue to favor risk-on exposures, albeit favoring inflation-linked assets versus others- i.e., commodities currently have strong market trends supporting them.

Here is our updated monitor & models. Let us start with our tracking of global economic momentum:

To add to this picture, here are our global economic cycle, forecast models. A level of 50 implies growth at the local mean, above 50 indicates accelerating economic growth, and below 50% indicates slowing growth:

Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Finally, we look at our Trading Tools Report to analyze whether commodity positions are attractive in the immediate term. We find an asymmetric opportunity to the upside here:

Recall:

  • Trading Range:  These ranges represent a trading bank within which a currency should trade based on multiple market factors. If we are long- prices above the upside range indicate the asset is expensive, and prices below the downside range suggest that they are cheap and vice versa if we are short.
  • Year-to-Date Returns: This is the price performance of a given currency over the current calendar year, in percentage terms. We also compare the current price to the 52-week high and low for reference.
  • Price Momentum: This looks at cumulative rolling returns for a selected lookback period.  Positive momentum is good if we are long and bad if we are short. 
  • Implied Volatility Discount/Premium:  This tells us what the market expects in volatility relative to the history of volatility. If we are long a currency, we typically want market implied volatility to be higher than historical volatility and vice versa if we are short.

Until next week!

On the Daily: Migrating to Substack

By Aahan Menon | October 4, 2021 12:19 pm | 0 Comments

Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

We won’t update our commentary today, but here are our updated monitor & models. Let us start with our tracking of global economic momentum:

To add to this picture, here are our global economic cycle, forecast models. A level of 50 implies growth at the local mean, above 50 indicates accelerating economic growth, and below 50% indicates slowing growth:

Additionally, we offer a sliver of our tracking of high-frequency global growth indicators:

Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Until tomorrow!

 

On the Daily: Migrating to Substack

By Aahan Menon | October 1, 2021 11:10 am | 0 Comments

Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

We won’t update our commentary today, but here are our updated monitor & models. Let us start with our tracking of global economic momentum:

To add to this picture, here are our global economic cycle, forecast models. A level of 50 implies growth at the local mean, above 50 indicates accelerating economic growth, and below 50% indicates slowing growth:

Additionally, we offer a sliver of our tracking of high-frequency global growth indicators:

Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Until next week!

On the Daily: Migrating to Substack

By Aahan Menon | September 30, 2021 12:20 pm | 0 Comments

Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

In the meantime, here are our latest updates:

  1. Global Economic Momentum remains roughly unchanged. A slew of data over the last 48 hours contributed to a drop in economic surprises in the US. Initial and continuing claims were higher than expected, and Chicago PMI’s weaker than expected. In Japan, financial data was broadly weaker than expected, but not enough to move economic momentum meaningfully lower. In the UK, mortgage approvals came higher than expected, but home prices were more vulnerable. Finally, in China, we saw a bounce in PMI’s, which allowed global economic momentum to remain flat.
  2. Global Central Bankers will be speaking today at the ECB’s Forum on Central Banking. Thus far, ECB’s Lagarde has spoken, mainly stressing the unusual nature of inflation today and its likelihood to be transitory. However, she also addressed the risks to this view. We think that after a brief period of EU inflation-outperformance, we are likely to see the inflation trend back down, i.e., we are roughly on the same side as the ECB on this subject.
  3. Finally, markets over the last month remain in a risk-off pricing mode, with the dollar rallying over the week and month. However, we see a broad-based risk-off in markets, a dynamic which we think is potentially unsustainable due to the poor returns offered on dollar-cash assets. Therefore, we believe there will be a rotation into risk once again, given the supportive economic backdrop.

Stay tuned for updates on our Substack launch! In the meantime, here are our data monitors. Let us start with our tracking of global economic momentum:

To add to this picture, here are our global economic cycle, forecast models. A level of 50 implies growth at the local mean, above 50 indicates accelerating economic growth, and below 50% indicates slowing growth:

Additionally, we offer a sliver of our tracking of high-frequency global growth indicators:

Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Until tomorrow!

On the Daily: Migrating to Substack

By Aahan Menon | September 29, 2021 9:22 am | 0 Comments

Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

In the meantime, here are our latest updates:

  1. Global Economic Momentum turned lower as US Economic Momentum turned lower due to a big miss in Consumer Confidence data. Today, we receive the US pending home sales, which is also a robust pro-cyclical indicator, but our economic forecast implies substantial first differentials through 2021.
  2. Today, we will receive a significant signal on global monetary policy and liquidity, with central bankers from the ECB, Fed, BOJ & BOE all speaking at the ECB’s policy panel discussion. Markets will primarily be using this opportunity to evaluate the divergent stances on the nature of global inflation.
  3. Markets have taken the last month on the chin, with global risk assets having a tough time. However, global commodities and bond markets are sending a more risk-on signal than equities, and given the fundamental backdrop, we expect global stocks to follow suit.

Stay tuned for updates on our Substack launch! In the meantime, here are our data monitors. Let us start with our tracking of global economic momentum:

To add to this picture, here are our global economic cycle, forecast models. A level of 50 implies growth at the local mean, above 50 indicates accelerating economic growth, and below 50% indicates slowing growth:
Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Until tomorrow!

On the Daily: Migrating to Substack

By Aahan Menon | September 28, 2021 11:10 am | 0 Comments

Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

In the meantime, here are our latest updates:

  1. Global economic momentum edged marginal higher yesterday, on the back of US Consumer Durable Goods data. Yet, the disconnect between risk markets and economic momentum seems to be persistent. As we have said previously, we continue to think this divergence is likely due to options activity going into options expiry and end-of-quarter. Therefore we believe allocations should be consistent with fundamental momentum.
  2. Looking at global central banks, yesterday, ECB’s Lagarde came forth with another dovish message, telling markets to look past “transitory: inflation pressures in the EU. This is in contrast with the Fed and BOE, who have decidedly taken a more hawkish tilt. This dynamic isn’t a surprise to us, and we have been making the case that central bank divergences would be the primary driver of FX moves post-COVID since the depths of the COVID-19 crisis in 2020.
  3. Aggregating all these developments, markets remain mixed. Commodities seem to have found life recently, and global stock markets remain weak. The dollar remains in a substantial uptrend quarterly, and international bond markets continue to remain under pressure. The overall mix of asset markets continues to point to the global economy being in an expansionary environment. Therefore we continue to think risk-on exposure is the best way to go.

Stay tuned for updates on our Substack launch! In the meantime, here are our data monitors. Let us start with our tracking of global economic momentum:

Additionally, we show our high-frequency tracking of US Growth indicators:

Next, we offer our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into significant regions or Blocs. We offer the evolution of these Currency Blocs over time:

Until tomorrow!

On the Daily: Migrating to Substack

By Aahan Menon | September 27, 2021 10:30 am | 0 Comments

Welcome back to On the Daily, FXDD’s daily research blog. Recently we took a brief break to reorganize some of our internal models and methods to enhance our research process. In addition to updating our models, we are updating our content delivery services. In the coming weeks, On the Daily will be migrating to Substack. You can find the link by clicking here.

In the meantime, here are our latest updates:

  1. Global economic momentum trended upwards over the last week further, after a worrying flirtation with lower levels. This retracement has come primarily due to US economic momentum edging higher.
  2. With regards to global monetary policy, recent developments have been decidedly hawkish. The Bank of England has opened the door to a potential rate hike this year, and the Federal Reserve has lined up its taper initiation for as early as November. In this environment, we have typically seen the dollar bid, and today is no different.
  3.  Looking at the global market monitor, despite the current turmoil, our indicator tells us that the trend continues to favor “risk-on” assets, predominantly a global basket of stocks. Despite difficulties in performance on a month-over-month basis, we continue to think that US stocks are likely to be a strong performer during global liquidity withdrawal.

Stay tuned for updates on our Substack launch! In the meantime, here are our data monitors. Let us start with our tracking of global economic momentum:

Next, we show our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 20+ currency pairs into major regions or Blocs. We show the evolution of these Currency Blocs over time:


Until tomorrow!

 

On the Daily

By Aahan Menon | September 10, 2021 4:29 pm | 0 Comments

Welcome back to FXDD’s On the Daily- our daily research updates on markets and economies. We will hold off on our commentary today, pending updates over the weekend to our models. Here’s what we have been watching in economic and financial data over the last 24 hours. Let us start with our tracking of global economic momentum:

Next, we show our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 48 currency pairs into major regions or Blocs. We show the evolution of these Currency Blocs over time:

Until tomorrow!

On the Daily (awaiting ECB)

By Aahan Menon | September 9, 2021 4:22 pm | 0 Comments

Welcome back to FXDD’s On the Daily- our daily research updates on markets and economies. We will hold off on our commentary today pending the results of the ECB meeting; nonetheless, here are our data updates. Here’s what we have been watching in economic and financial data over the last 24 hours. Let us start with our tracking of global economic momentum:

Next, we show our Market Environment Monitor, which aggregates the growth and inflation signals from major global investment markets to tell us what the current market environment is, i.e., expansion, inflation, deflation, or stagflation:

Finally, we show our proxy for capital flows using our Currency Bloc Monitor, which aggregates exchange rate moves across 48 currency pairs into major regions or Blocs. We show the evolution of these Currency Blocs over time:

Until tomorrow!

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