Macro FX Trading Q2 2017 Commentary

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Instruments traded:FX Spot
Asset Classes:FX
Investment Style:Discretionary (non-systematic), Macro analysis, Technicals
Quarterly Return:1.42% (net of service fee but gross of any applicable performance fee)
Q1 2017 daily return volatility:1.14% 
Average Trades per week:10.3 (since inception)

Market Overview

The second quarter of 2017 (Q2) was defined by European election outcomes, an initial move lower in global bond yields, the USD and another push lower in implied volatility accompanying ever more elevated assets. June however witnessed a significant shift in tone from the US Fed and the European Central Bank (ECB) regarding balance sheet reduction plans, with an eye on the US Fed’s third mandate of financial stability. This should set the tone for Q3.

In Europe, the Euro rallied as political risk and peripheral spreads fell following Emmanuel Macron’s win over Marine Le Pen to become the next French President, allowing Mario Draghi, President of the ECB, to subsequently signal Quantitative Easing (QE) tapering later in the year, with implications for European and indeed global yields.

In the UK, the GBP initially benefited from the announcement of a UK snap election, which was seen to bolster the Conservative Party’s (Tory) position ahead of Brexit debates. However, a disastrous Tory campaign benefitted their main opposition, the Labour Party, resulting in a hung parliament and a shift towards the left and anti-austerity. Gilts were vulnerable as a result of this political turmoil alongside a more hawkish Bank of England, and again set the tone for Q3.

In the US soft data, notably inflation readings, saw a sharp decline for the USD. Yet the US Fed signalled they will look through this and set out plans for quantitative tightening at the June 17 meeting, seemingly with an eye on rampant Facebook, Amazon, Netflix and Google (FANG) stock prices, amongst other assets and the generally supressed market volatility.

Portfolio Performance

April -3.3%
May +10.8%
June -5.3%.

The book had a positive quarter with gains on long euro positions after the first round of the French elections extending into May, when the book gained 10.8%. Some of those gains were given back after erratic moves in the final weeks of June with conflicting commentary from central banks.

Outlook

The second half of 2017 looks set to be an interesting period with increasing volatility across asset classes. This is anticipated on the back of Central Banks desire to remove some liquidity which has driven markets over recent years. Therefore, close attention will be paid to yields, risk and how the shape of the rate curves develop.

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