Macro FX trading Q2 2021 commentary

Macro FX trading Q2 2021 commentary

SaxoSelect Commentaries

Saxo Bank

Instruments tradedFX spot
Asset classesFX
Investment styleDiscretionary (non-systematic), macro analysis
Quarterly return-9.42% (net of all fees)
Annualised volatility19.9%
Average trades per week

Market overview

This quarter the market was broadly dominated by the Fed’s response to heightened inflation prints and concerns for a negative money market interest rate ,and its subsequent hike in short term borrowing rates (reverse repo agreements), signaling rise in interest rates hike earlier than expected.  

US rate curves bear flattened (short term rates increased in comparison to long term interest rates) aggressively, lending the USD a powerful bid even though markets rate across the globe likewise priced in sooner hikes in sympathy with the stronger USD.

The AUD, NZD, GBP, CAD rate curves led the pack in terms of hikes with EUR, CHF and JPY less responsive in reaction.  Metals were hit hard, both industrial and precious, alongside rate sensitive equities in line with flatter curves.  

Strategy performance (after transaction costs but before service and performance fees)

Since inception (February 2015)183.3%

The strategy made a loss of 9.42 pct during Q2 2021. To start the quarter long GBP sharply retraced March gains, mean reverting lower before regaining its composure in subsequent months.  USD likewise declined sharply in April both against the JPY and EUR as US interest rates reversed lower after hitting extremes into the end of March hitting USD longs.  The CAD gained after the Bank of Canada bought forward rate hike forecasts on an improving outlook. 


Best-performing positions


Worst-performing positions

USD/JPY -2.37%


The June Fed’s hawkish shift continues to resonate across markets as short term rates continue to rise, having previously priced that the Fed  would stay behind the curve allowing inflation to rip and the USD to fall, to now pricing a Fed that is way ahead of the curve threatening to derail a global recovery with divergent responses from other central banks (hawkish RBA, RBNZ, dovish ECB, BOE).  

Long-dated US rates, in contrast have plummeted 50+ basis points from the March highs hitting 1.25% on 10 year US Treasuries in response to the hawkish Fed, a short speculative market, concerns about a weakness in China, stalling G10 data and more recently the spread of the Delta virus variant and the economic impact it might have particularly in countries where vaccination penetration is low and re-openings vulnerable.   

Extra uncertainty has been introduced by the failure of OPEC+ to agree a path for production hikes as the UAE hold out for a more favorable deal initially resulted in new cycle highs for Brent and WTI before falling back. The outcome and subsequent moves for oil and its impact on nominal and real rate curves, reflation trades and respective currencies are being closely monitored by the strategy manager. 

Looking ahead, economic data will be key as will changes in the dynamic of US money markets (Treasury General Account, REPO), the scale of forthcoming fiscal stimulus and corresponding government debt issuance in the US, and in Europe, the German elections taking place in September. The delta variant is on policymaker’s radar. Stances by central banks look set to continue to vary and broader risk markets continue to take their cue from changes in liquidity conditions and the shape of rate curves. 


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