Macro FX trading Q2 2022 commentary
| Instruments traded | FX spot |
| Asset classes | FX |
| Investment style | Discretionary (non-systematic), macro analysis |
| YTD return | 13% ( 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 | 20% |
| Average trades per week | 12 |
Market overview
Q2 2022 brought gains spread across the quarter. April was the best performer as the book captured decent gains in the USD versus EUR and JPY, with US yields spiking higher alongside global inflation. The Fed hiked rates in June and there are indications of more hikes in their forecasts.
Meanwhile in Europe, the central banks are alarmingly reluctant to take the necessary steps to calm runaway inflation. The commodity block was caught between higher rates and risk-off moves in equity markets, the latter prevailing to send commodity-risk currencies CAD, AUD and NOK lower.
The CHF started Q2 on the back foot, only to revisit before the surprise 50 bp Swiss National Bank hike in mid-June taking CHF rates to -0.25 percent.
Strategy performance (net of fees)
| Since inception (February 2015) | 175% |
Best-performing positions
| EUR/USD | 7.2% |
| USD/ JPY | 3.6% |
| GBP/USD | 1.5% |
| EUR/CHF | 1.4% |
| EUR/JPY | 1.2% |
Worst-performing positions
| AUD/USD | -1.6% |
| USD/CAD | -1.1% |
| EUR/NOK | -1.1% |
| USD/NOK | -1.1% |
| USD/CHF | -0.4% |
Outlook
Europe is in a perfect storm as interest rates lag the US Fed hikes, while energy procurement looks extremely challenged with gas prices spiking and winter in view. Meanwhile, weakening credit markets continue on a path of enhanced volatility.
Asian export markets remain weak, the net sum being the disappearance of European trade surpluses. The US continues to have better shelter against energy shocks alongside a stronger employment situation. As a result, the USD remains strong alongside the CHF.
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.
The Chinese economy as always is high on the radar as it confronts ongoing Covid issues. A change of leadership in the UK is forthcoming so uncertainty prevails before we find out what path any new cabinet might take.
Interest rate market volatility is extreme as markets grapple with both sky-high inflation and the prospect of stagflation; such instability often leads to rising volatility in other asset classes such as FX.