Macro FX trading Q4 2022 commentary
| Instruments traded | FX spot |
| Asset classes | FX |
| Investment style | Discretionary (non-systematic), macro analysis |
| YTD return | 22% (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 volatility | 19% |
| Average trades per week | 12 |
Market overview
The return of the strategy for Q4 2022 was a small gain of 0.2 percent, most of it attributed to GBP/USD and USD/CHF positions, while the biggest detractors were the short positions on GBP and long CAD.
The commodity currencies CAD and AUD lagged, underperforming and impacted by oil prices falling hard mid-quarter.
The CNH currency played an important role in December as China flagged the first of many highly significant policy changes in an attempt to stabilise and reverse an economy in dire straits. The policy changes came through fast, with the exit from zero-COVID enacted in the new year taking the crown and re-opening implications for both China and the global economy.
The GBP currency has been impacted amid the political turmoil over the appointment of Liz Truss as prime minister and the controversial ‘mini-budget’ proposal. However, the currency made some recovery with the replacement of Liz Truss by Rishi Sunak, the latter steadying the currency by flagging austere financial management. The moves in GBP currency gave a flat performance for the quarter.
During the European Central Bank (ECB) hawkish meeting it was indicated that a series of 50 basis point (bp) rate hikes is possible.
Bank of Japan surprised the market in a policy statement on Tuesday. The central bank said it will allow yields on 10-year government bonds to move up or down within 50 bp around its 0 percent target, wider than the previous 25-point band. This move is leading to higher rates and a higher JPY, which generated negative performance for the strategy during the quarter.
Strategy performance (net of fees)
| Since inception (February 2015): | 197% |
Best-performing positions
| USD/CHF | 4.3% |
| EUR/USD | 3.1% |
| AUD/USD | 1.0% |
| USD/CAD | 0.4% |
| EUR/CHF | 0.2% |
Worst-performing positions
| EUR/CAD | -4.2% |
| GBP/USD | -3.5% |
| EUR/GBP | -0.7% |
| EUR/JPY | -0.5% |
| CAD/JPY | -0.1% |
Outlook
The ECB is looking for a series of near-term interest rate hikes on the back of high core inflation and their outlook for higher wages which, along with lower energy prices and forthcoming fiscal expansion, could support the EUR currency.
The UK faces its own set of challenges with still-high inflation and strikes across multiple industries, which puts pressure on the GBP currency.
Fiscal expansion across the global economy could exert upward pressure on resources as Europe, Japan and other countries spend to build up their military as well as industrial capability in the wake of supply chain and security challenges that arose during the past years due to COVID-19 impacts and the Russia-Ukraine war.
A key influence on economies and markets will be the trajectory of the China re-opening and other ongoing aggressive policy moves.