The USD declined significantly over the last four weeks with the biggest gains for the SEK and the JPY, while AUD, CAD and NZD lagged behind. EM currencies were on balance stronger as well but with more dispersions.
Net long speculative USD positions declined from historical highs with the biggest turnaround in the JPY position to long. Short-term interest rates continued to move lower except for JPY rates, which have reached the level of CHF rates. The cost of forward hedging versus the USD is no longer declining and remains partic- ularly expensive for JPY and CHF. Actual and im- plied FX volatilities were mixed but on balance rel- atively stable and close to their historical averages with USDJPY well above. PPP estimates continue to move against the USD as US inflation remains more resilient and the USD continues to be over- valued versus all major currencies.
The positioning signals from each component are aggregated into an overall positioning score for each currency pair.
The Macro component consists typically of eco- nomic growth, balance of payments, fiscal and mon- etary policy and in some cases commodity funda- mentals. The positions are either discretionary or model driven.
The Business Sentiment component is a rule- based framework built on business surveys. The Technical component consists primarily of the technical analysis of daily exchange rates (trend following and mean reversion).
The summary table below and the following pag- es show the QCAM strategy framework and the positioning for the major currency pairs actively covered by QCAM. The tables break each of the three strategies into subcomponents with an indi- cation of the current impact. The charts show the respective exchange rate with past QCAM posi- tions and their scale.
There have been few position changes since the last QCAM MONTHLY. The discretionary Macro positions remained all unchanged (neutral except for long JPY). The Macro oil price model went long CAD. Business Sentiment moved to short EUR and neutral USDJPY and USDCHF with the balance of all Business Sentiment positions slightly long USD. Technical went long EUR and JPY and neutral GBP and CAD with the balance of all Technical positions now short USD. The balance of all positions is slightly short USD with the biggest longs in JPY and CAD and the biggest short in GBP. The overall EUR position is short versus the CHF and slightly short versus the SEK.
We kept the Macro position at neutral. The EUR could get a boost from a cease-fire deal in the Ukraine and stepped-up European defense and in- frastructure spending as well as fading US excep- tionalism and more than previously expected Fed rate cuts. But we view the likelihood of such events We kept the Macro position at neutral. The EUR could get a boost from a cease-fire deal in the Ukraine and stepped-up European defense and in- frastructure spending as well as fading US excep- tionalism and more than previously expected Fed rate cuts. But we view the likelihood of such events as still very uncertain while the risk of a tariff con- flict with the US still looms high. Business Senti- ment moved from moderately long to short EUR while Technical shifted from short to slightly long EUR with the balance of all strategy positions slight- ly short EUR as well.
