Macro FX trading – Q2 2019 commentary

Instruments traded
FX spot
Asset classesFX
Investment styleDiscretionary (non-systematic), macro analysis
Quarterly return+4% after transaction costs but before service and performance fees
Quarterly daily return volatility1.07%
Average trades per week12 (since inception)

Market overview

The Q2 market story was one of an aggressive parallel move lower in global government bond yields, sparked by a deterioration in global trade, PMIs and other economic indicators – including collapsing market inflation expectations. 

Moreover, Trump introduced further tariffs on Chinese imports ahead of the June G20 meeting and threatened Mexico, too, if it did not succumb to his demands regarding immigration measures. The advent of tariffs being weaponised for a non-economic agenda proved particularly alarming for the US bond market. 

US rates moved to price-in 75 basis points (bp) of interest rate cuts for the remainder of 2019. At one point, almost 40bp of rate cuts were being assigned to the July 31 US Federal Reserve (Fed) meeting – before Fed Chairman, Jerome Powell, and St Louise Federal Reserve President, James Bullard, pushed back. US 10-year notes fell towards 2%. 

In Europe the larger government bonds moves were experienced by longer dated bond yields. Draghi provided the spark at the Sintra conference for an explosive move to -37bp for 10-year Bunds, as he indicated rate cuts and further Quantitative Easing. European and Swiss markets both moved to price cuts deeper into negative territory. 

Australia, Canada and New Zealand all witnessed new lows in market yields – only Norway bucked the trend with a rate hike in June.  In the UK, Brexit was postponed to October after parliament failed to sign off on deal or no deal.

Given the magnitude of rate moves, the general reaction in FX was muted as rates fell across the globe and policy maneuvers started to resemble a currency war amid a race to ever lower rates. The Japanese yen and Swiss franc and, at times, the US dollar attracted safe haven inflows – before the latter eventually moved lower on weaker data. GBP suffered a substantial decline as the market looked forward to more uncertainty and a more hardline Tory prime minister. The Australian dollar fell on the global trade outlook. 

Portfolio performance

12 month
Since inception (05.02.2015)

(Performance figures are net of transaction costs but before service and performance fees.)

The strategy benefited most from gains on short Australian dollar and long Swiss franc positions among other contributing positions. 


The immediate outlook for FX should be heavily dependent on upcoming US data: in the semiannual testimony on Wednesday 10 July and the subsequent 31 July US Fed meeting, Powell is expected to announce a 25bp cut and currently priced, down from around 40bp at its peak. 

US Fed guidance regarding the policy outlook to accompany any cut and the evolution of market gauges of inflation expectations will be key, and any reaction from Trump on the current US dollar policy will be on the radar. 

Close attention will be paid to the status, progress – or lack thereof – of the trade war 'truce' as a lack of resolution can weigh on trade and sentiment. 

In Europe, the appointment of Christine Lagarde points to a continuation of dovish policy – rate cuts and QE are expected at the September ECB meeting – and leads to speculation of a push for more fiscal action: much called for but ignored in equal measure by Germany during Draghi’s tenure. Thus, there will be much focus on upcoming speeches from the newly appointed commission and council heads.

In the UK, the new PM and their decisions will be in the spotlight, with the growing risk of a near-term general election. Commodity currencies are likely to be guided by the oil price, China trade developments and the path of the US dollar. 

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