Founder

Olivier Desbarres

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4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

<p><strong>In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. </strong></p><p><strong>The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.</strong></p><p><strong>Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. </strong></p><p><strong>In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.</strong></p><p><strong>Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. </strong></p><p><strong>This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.</strong></p><p><strong>Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.</strong></p><p><strong>The Dollar NEER has weakened about 0.9% since 4<sup>th</sup> February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.</strong></p>

In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.The Dollar NEER has weakened about 0.9% since 4th February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.

Dollar’s Recent Weakness – Blip, Not New Trend

<p><strong>This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates</strong><strong>(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from the</strong><a href="https://www.bis.org/statistics/eer.htm" target="_blank" rel="noopener"><strong>BIS</strong></a><strong> (April 2019) and national central banks (see <em><a href="https://gallery.mailchimp.com/948838a86ce72ab6d8019a39d/files/15f4d8a9-56a4-46fd-9d78-607e5fd523e6/4X_Global_Research_Nominal_Effective_Exchange_Rates_Monthly_seasonal_patterns.pdf" target="_blank" rel="noopener">Nominal Effective Exchange Rates: Monthly seasonal patterns</a></em>, 10<sup>th</sup> January 2019). </strong></p><p><strong>A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. Identifying monthly seasonal patterns and why they may break down (significant changes in central bank or government policy, market positioning, macro data surprises and unexpected domestic events) can thus potentially augment investment returns and generate alpha.</strong></p><p><strong>Unsurprisingly the Covid-19 pandemic – a once-in-a-lifetime “black swan” event – and accompanying measures such as national lockdowns severely disrupted typical monthly seasonal currency patterns in 2020, particularly in March and June (the trough and peak in global risk appetite) but also in Q4, with a few exceptions (see <a href="https://www.smartkarma.com/insights/monthly-currency-seasonality-down-and-out" target="_blank" rel="noopener">Monthly currency seasonality: Down and out?</a>, 4<sup>th</sup> January 2021). </strong></p><p><strong>A number of emerging and developed market currencies continued to deviate from their 2010-2019 historical patterns in January 2021. In particular the “normally” strong Brazilian Real and to a lesser extent Colombian Peso and Polish Zloty depreciated. The Swiss Franc, contrary to history and in line with our forecast, also weakened slightly. The South African Rand depreciated 2.1%, five times as much as its 11-year historical average.</strong></p><p><strong>Conversely the “normally” weak Turkish Lira was the outperformer, with the NEER appreciating nearly 4%. Sterling, the Australian Dollar and Norwegian Krone also outperformed in January relative to their historical seasonal patterns. </strong></p><p><strong>However, and while early days, about 17 currencies, including the Dollar, Euro, Kiwi Dollar, Mexican Peso and most Asian currencies performed in line with their historical seasonality.</strong></p><p><strong>Based on 2010-19 data Thai Baht, Norwegian Krone, Hungarian Forint and Polish Zloty were strongest currencies in the month of February while Korean Won was the weakest.</strong></p>

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from theBIS (April 2019) and national central banks (see Nominal Effective Exchange Rates: Monthly seasonal patterns, 10th January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. Identifying monthly seasonal patterns and why they may break down (significant changes in central bank or government policy, market positioning, macro data surprises and unexpected domestic events) can thus potentially augment investment returns and generate alpha.Unsurprisingly the Covid-19 pandemic – a once-in-a-lifetime “black swan” event – and accompanying measures such as national lockdowns severely disrupted typical monthly seasonal currency patterns in 2020, particularly in March and June (the trough and peak in global risk appetite) but also in Q4, with a few exceptions (see Monthly currency seasonality: Down and out?, 4th January 2021). A number of emerging and developed market currencies continued to deviate from their 2010-2019 historical patterns in January 2021. In particular the “normally” strong Brazilian Real and to a lesser extent Colombian Peso and Polish Zloty depreciated. The Swiss Franc, contrary to history and in line with our forecast, also weakened slightly. The South African Rand depreciated 2.1%, five times as much as its 11-year historical average.Conversely the “normally” weak Turkish Lira was the outperformer, with the NEER appreciating nearly 4%. Sterling, the Australian Dollar and Norwegian Krone also outperformed in January relative to their historical seasonal patterns. However, and while early days, about 17 currencies, including the Dollar, Euro, Kiwi Dollar, Mexican Peso and most Asian currencies performed in line with their historical seasonality.Based on 2010-19 data Thai Baht, Norwegian Krone, Hungarian Forint and Polish Zloty were strongest currencies in the month of February while Korean Won was the weakest.

<p><strong>Media and analyst reports focussing on the scope for further US Dollar weakness and Emerging Market currency outperformance have continued to proliferate in the past month. </strong></p><p><strong>The consensus view is still seemingly that a Democratic administration will fuel large US twin deficits and expectations of higher domestics inflation while Fed will keep rates on hold, eroding the value of Dollar assets. At the same time a pick-up in global confidence, economic growth and risk appetite will benefit EM and commodity currencies.</strong></p><p><strong>While the “safe-haven” Dollar weakened sharply and EM currencies outperformed in the wake of the US elections on 3<sup>rd</sup> November recent facts tell a different story. Since 10<sup>th</sup> December the Dollar Nominal Effective Exchange Rate (NEER) and GDP-weighted baskets of developed and EM currencies have been broadly flat according to our calculations. </strong></p><p><strong>Central European and Latin American currencies, which outperformed in November, have underperformed in past five weeks. Emerging Asian currencies, including the Chinese Renminbi, have done little since 10<sup>th</sup> December pointing to still active central bank FX management. This price action has broadly tallied with our near-term view that EM currencies will be “<em>prone to sharp sell-offs (even if short-lived)</em>”.</strong></p><p><strong>Our analysis suggests that the steepness of the US Treasury yield curve rather than inter-country yield spreads matters more for the Dollar.</strong></p><p><strong>However, we think central banks and sovereign wealth funds’ diversification out of Dollars into other reserve currencies, including Euro, Sterling, and Canadian, Australian and Kiwi Dollars, between May and early December was the main driver of Dollar depreciation.</strong></p><p><strong>Dollar NEER’s stability since 10<sup>th</sup> despite a further 2.7% gain in the S&amp;P 500 suggests this diversification process has stalled, which we think is partly due to stretched valuations. At the same time price action points to a rotation out of the Euro into Sterling.</strong></p><p><strong>We stick with our view that Dollar depreciation may not resume for another couple of months and will in any case not be as broad based as in November/early-December with markets paying greater attention to domestic factors, including valuations.</strong></p>

Media and analyst reports focussing on the scope for further US Dollar weakness and Emerging Market currency outperformance have continued to proliferate in the past month. The consensus view is still seemingly that a Democratic administration will fuel large US twin deficits and expectations of higher domestics inflation while Fed will keep rates on hold, eroding the value of Dollar assets. At the same time a pick-up in global confidence, economic growth and risk appetite will benefit EM and commodity currencies.While the “safe-haven” Dollar weakened sharply and EM currencies outperformed in the wake of the US elections on 3rd November recent facts tell a different story. Since 10th December the Dollar Nominal Effective Exchange Rate (NEER) and GDP-weighted baskets of developed and EM currencies have been broadly flat according to our calculations. Central European and Latin American currencies, which outperformed in November, have underperformed in past five weeks. Emerging Asian currencies, including the Chinese Renminbi, have done little since 10th December pointing to still active central bank FX management. This price action has broadly tallied with our near-term view that EM currencies will be “prone to sharp sell-offs (even if short-lived)”.Our analysis suggests that the steepness of the US Treasury yield curve rather than inter-country yield spreads matters more for the Dollar.However, we think central banks and sovereign wealth funds’ diversification out of Dollars into other reserve currencies, including Euro, Sterling, and Canadian, Australian and Kiwi Dollars, between May and early December was the main driver of Dollar depreciation.Dollar NEER’s stability since 10th despite a further 2.7% gain in the S&amp;P 500 suggests this diversification process has stalled, which we think is partly due to stretched valuations. At the same time price action points to a rotation out of the Euro into Sterling.We stick with our view that Dollar depreciation may not resume for another couple of months and will in any case not be as broad based as in November/early-December with markets paying greater attention to domestic factors, including valuations.

Dollar – Diversification, Rotation and Valuations

<p><strong>The United States’ post-war record GDP contraction in Q2 of 9.5% qoq and the Dollar’s recent depreciation have been making headline news but some perspective is required.</strong></p><p><strong>The US GDP contracted about 10.6% in H1 2020, far more than in China (+0.6%) and South Korea (-4.6%). However, of other economies which have so far released Q2 data – including the Eurozone’s four largest economies, Mexico and Singapore – all posted larger rates of contractions in H1 2020. The UK’s GDP likely shrunk more than twice as much whilst France (-19.0%) and Mexico (-18.3%) only fared only marginally better. </strong></p><p><strong>Moreover, GDP in the US outperformed in H1 2020 despite GDP growth in 2019 (+2.4%) being materially stronger than in Mexico (-0.1%), Italy (+0.3%), Germany (+0.6%), Singapore (+0.7%), the United Kingdom (+1.5%), France (+1.5%) and Spain (+2.0%). </strong></p><p><strong>How major economies will perform in Q3 in the context of a rise in the number of local or national covid-19 cases and some countries having (partially) frozen or re-tightened national lockdowns is up for debate. The outlook for Q4, which for Western countries will mean colder weather and a potential increase in covid-19 cases, is even more uncertain.</strong></p><p><strong>The Dollar’s depreciation in the past six weeks from a strong level is mainly due to successful central bank policies to address imbalances in its supply and demand and a cyclical rotation out of Dollars into other FX reserve currencies, including the Euro. </strong></p><p><strong>As a result, the share of Dollars in the world’s central bank FX reserves, which has hovered around 62% in the past two years, may have fallen slightly in recent months while the share of Euros (20%), Sterling (4.4%) and Swiss Franc (0.15%) may have increased marginally.</strong></p><p><strong>However, we do not think that FX price action in the past couple of months, including the Euro’s appreciation to multi-year highs, points to the beginning of a structural and permanent shift in the currency composition of central banks’ FX reserves. </strong></p><p><strong>In the same way that apocalyptic forecasts in the past about the Eurozone and Euro have failed to materialise, current forecasts of the Dollar’s demise as the world’s number one reserve currency are at best extremely premature, at worst unfounded in our view.</strong></p>

The United States’ post-war record GDP contraction in Q2 of 9.5% qoq and the Dollar’s recent depreciation have been making headline news but some perspective is required.The US GDP contracted about 10.6% in H1 2020, far more than in China (+0.6%) and South Korea (-4.6%). However, of other economies which have so far released Q2 data – including the Eurozone’s four largest economies, Mexico and Singapore – all posted larger rates of contractions in H1 2020. The UK’s GDP likely shrunk more than twice as much whilst France (-19.0%) and Mexico (-18.3%) only fared only marginally better. Moreover, GDP in the US outperformed in H1 2020 despite GDP growth in 2019 (+2.4%) being materially stronger than in Mexico (-0.1%), Italy (+0.3%), Germany (+0.6%), Singapore (+0.7%), the United Kingdom (+1.5%), France (+1.5%) and Spain (+2.0%). How major economies will perform in Q3 in the context of a rise in the number of local or national covid-19 cases and some countries having (partially) frozen or re-tightened national lockdowns is up for debate. The outlook for Q4, which for Western countries will mean colder weather and a potential increase in covid-19 cases, is even more uncertain.The Dollar’s depreciation in the past six weeks from a strong level is mainly due to successful central bank policies to address imbalances in its supply and demand and a cyclical rotation out of Dollars into other FX reserve currencies, including the Euro. As a result, the share of Dollars in the world’s central bank FX reserves, which has hovered around 62% in the past two years, may have fallen slightly in recent months while the share of Euros (20%), Sterling (4.4%) and Swiss Franc (0.15%) may have increased marginally.However, we do not think that FX price action in the past couple of months, including the Euro’s appreciation to multi-year highs, points to the beginning of a structural and permanent shift in the currency composition of central banks’ FX reserves. In the same way that apocalyptic forecasts in the past about the Eurozone and Euro have failed to materialise, current forecasts of the Dollar’s demise as the world’s number one reserve currency are at best extremely premature, at worst unfounded in our view.

Warnings About US Economy and Dollar Overblown

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

<p><a href="https://www.smartkarma.com/entities/u-s-dollar-index-usdx" target="_blank" rel="noopener" data-smartkarma-citation="entities:26018:1">Dollar Index (DXY) (DXY CURNCY)</a> met the 97 downside target. 96.80 pivot support under pressure but the level to stage a tactical rally but must align with risk appetite to SPX 3,250.</p><p>USD oversold readings to set up USD bounce trades in AUD, MXN, KRW and THB with a USD/IDR base support at 13,600. CAD 1.33 a BIG turn pivot and Euro in our reduce zone.</p><p>DXY break below 96.80 after a bounce attempt would signal a deeper USD decline toward 95 and then 94. Use bounces to sell the USD near 98.00 with resistance at 98.50. DXY pivot resistance lies at 99.</p><div><div><div><div><div><div><div><div id="yiv2996278629gmail-yiv3658291188gmail-yiv9742648315gmail-yiv5624468980gmail-m_4468220696712104532gmail-yiv5112448996"><div><div><div><div><div><div><div><div><div><div><div><div><div><div><div><div><div><div><div><div><div id="yiv2996278629gmail-yiv3658291188gmail-yiv9742648315gmail-yiv5624468980gmail-m_4468220696712104532gmail-yiv5112448996gmail-yiv6811246325gmail-yiv4082147025gmail-yiv4110810990gmail-yiv0913237361gmail-yiv3060099744gmail-yiv2860260500gmail-yiv4109843974gmail-yiv2018778062gmail-yiv9173876582gmail-yiv4253852595gmail-yiv1542896479gmail-yiv1621362345gmail-yiv0845341188gmail-yiv9298635091gmail-m_1047025307398745624m_6741543500358858430gmail-yiv0656061377gmail-m_-6893113923657684192gmail-yiv2644965660gmail-m_-2000241312407700058gmail-m_-8559198208616140989gmail-yiv2954370071"><div><div><div><div><div><div><div><div><div><div><div><div><div><div>USD will remain under pressure (post bounce) with a risk on equity stance into mid June ahead of the June 22-27 cycle timeline.</div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div></div>

Dollar Index (DXY) (DXY CURNCY) met the 97 downside target. 96.80 pivot support under pressure but the level to stage a tactical rally but must align with risk appetite to SPX 3,250.USD oversold readings to set up USD bounce trades in AUD, MXN, KRW and THB with a USD/IDR base support at 13,600. CAD 1.33 a BIG turn pivot and Euro in our reduce zone.DXY break below 96.80 after a bounce attempt would signal a deeper USD decline toward 95 and then 94. Use bounces to sell the USD near 98.00 with resistance at 98.50. DXY pivot resistance lies at 99.USD will remain under pressure (post bounce) with a risk on equity stance into mid June ahead of the June 22-27 cycle timeline.

USD Bounce Support with Sell a Bounce Macro Stance

Canada

The Canadian dollar is the official currency of Canada. 

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CAD (USDCAD CURNCY)

Dollar’s Recent Weakness – Blip, Not New Trend

In past 2 months range-bound USD and Asian currencies, pull-back prone EM currencies and buoyant equities have performed in line with our forecast....

Olivier Desbarres

Currency Seasonality’s Slow Comeback?

Identifying currencies' monthly seasonal patterns and why they may break down can potentially generate alpha. Seasonal patterns broke down in 2020...

Olivier Desbarres

Dollar – Diversification, Rotation and Valuations

Consensus view remains that USD will depreciate and EM currencies outperform. But that's not been the case in past 5 weeks as reserve...

Olivier Desbarres

Warnings About US Economy and Dollar Overblown

The United States’ post-war record GDP contraction in Q2 of 9.5% qoq and the Dollar’s recent depreciation have been making headline news but some...

Olivier Desbarres

USD Bounce Support with Sell a Bounce Macro Stance

Dollar Index (DXY) (DXY CURNCY) met the 97 downside target. 96.80 pivot support under pressure but the level to stage a tactical rally but must...

Thomas Schroeder

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