Macro

Macro FX trading Q3 2022 commentary

SaxoSelect Commentaries
Instruments tradedFX spot
Asset classesFX
Investment style Discretionary (non-systematic), macro analysis
YTD return22% (net of trading costs, service fee and performance fee - considering a performance fee for investing since inception but, since your performance fee will depend on your point of entry, your net returns will vary too).
Annualised volatility20%
Average trades per week13

Market overview 

Aggressive tightening cycles set by global central banks was the main trading theme for this third quarter of 2022. The Federal Reserve, European Central Bank (ECB) and Bank of England all raised interest rates in Q3. The strategy was well-positioned and took profits in short positions in EUR and GBP against long positions in USD and CHF, among others. This was due to a combination of factors such as widening rate differentials, terms of trade and sentiment, which worked against both the UK and the continental economies.

Despite Japan’s decision on unilateral currency intervention to strengthen the yen, it continued to depreciate against the dollar and USD/JPY kept going up. Japan now remains the only major economy in the world to keep negative interest rates as most other major central banks aggressively raised interest rates to fight inflation.

The UK government’s unfunded tax cuts aimed at benefitting high earners panicked the market and caused the collapse of GBP/USD. The UK gilt yield skyrocketed with the terminal UK policy rates climbing to 6.3 percent at the peak. In an unexpected change, the policy is being reversed in an attempt to stop the GBP from going down in value further. 

Strategy performance (net of fees)

Since inception (February 2015)
 197%

Best-performing positions

EUR/USD4.4%
EUR/CHF3.0%
GBP/USD2.3%
GBP/CHF1.7%
USD/JPY1.3%

Worst-performing positions

AUD/JPY-0.5%
USD/CAD-0.3%
AUD/USD -0.1%
EUR/GBP-0%
EUR/NOK-0%

Outlook

The rise in both nominal and real US rates and the USD took its toll in Q3, both on risk assets as well as on the purchasing power of currencies. 

The UK economy is in the spotlight and it remains to be seen what is enacted of the original budget proposal that was initially put forward by the Cabinet. The Bank of England’s limited intervention in October is expected to give further insight. 

In Q3 the focus is on central banks and how they will respond to continued high inflation. Additionally, it will be interesting to see how the situation in Ukraine develops vis-a-vis energy supply given oil and gas (among other commodities, hard and soft) remain the key input to prices and terms of trade.  

Gas prices collapsed and oil is significantly off its highs, pushing OPEC+ to discuss potential substantial cuts. Therefore there is a possibility for oil price volatility in the upcoming period.

Key US data and the November Fed meeting are on the market’s radar, along with the October ECB meeting regarding potential hikes (either 75 bps or 50 bps). Another thing on the watchlist is the midterm elections in November where the Democrats are expected to retain the Senate but lose the House, which can lead to a potential change in fiscal spending. 

Disclaimer

Any information found in this document, including performance information and statistics are subject to change. You can find the latest updated pricing information on the description page for each available portfolio. In providing this material Saxo Bank has not taken into account any particular recipient’s investment objectives, special investment goals, financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail a risk and may result in both profits and losses, and all capital is at risk. In particular investments in leveraged products, such as but not limited to foreign exchange, derivatives and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financial advisors in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment or entering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither a comprehensive disclosure of risks nor a comprehensive description of such risks. Any expression of opinion may not reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent).


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.