Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

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

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 the<a href="https://www.bis.org/statistics/eer.htm" target="_blank" rel="noopener"> BIS</a> (April 2019) and national central banks (see <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>, 10 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. However, significant changes in central bank or government policy, major domestic events (e.g. Brexit) and once-in-a-lifetime “black swan” events such as the Covid-19 pandemic January can break down even well established seasonal currency patterns. In emerging Asia interventionist central banks have in part eroded monthly currency seasonality.Unsurprisingly, typical monthly seasonal currency patterns broke down in 2020, with a few exceptions. In particular, when global risk sentiment collapsed in March and peaked in June only a handful of currencies moved broadly in line with their historical patterns. Historical seasonal patterns somewhat re-established themselves in Q3 (notably August) with domestic factors once again driving asset prices, including currencies. But the resurgence in Covid-19 cases and deaths in Q4 along with the re-imposition of national lockdowns once again contributed to a breakdown in historical seasonal patterns, albeit not as marked as in March or June.The Brazilian Real and Colombian Peso NEERs recorded the strongest average rates of appreciation in the month of January in 2010-2019, while the Turkish Lira and Russian Rouble were the weakest. About 15 NEERs traded broadly in line with their historical patterns in January 2020.However, the Covid-19 pandemic was still in its infancy and its impact on global economies and financial markets still modest. The risk is that many currencies, including the typically strong Swiss Franc, may in January 2021 continue to deviate materially from their 2010-2019 seasonal patterns in our view.

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 the BIS (April 2019) and national central banks (see Nominal Effective Exchange Rates: Monthly seasonal patterns, 10 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. However, significant changes in central bank or government policy, major domestic events (e.g. Brexit) and once-in-a-lifetime “black swan” events such as the Covid-19 pandemic January can break down even well established seasonal currency patterns. In emerging Asia interventionist central banks have in part eroded monthly currency seasonality.Unsurprisingly, typical monthly seasonal currency patterns broke down in 2020, with a few exceptions. In particular, when global risk sentiment collapsed in March and peaked in June only a handful of currencies moved broadly in line with their historical patterns. Historical seasonal patterns somewhat re-established themselves in Q3 (notably August) with domestic factors once again driving asset prices, including currencies. But the resurgence in Covid-19 cases and deaths in Q4 along with the re-imposition of national lockdowns once again contributed to a breakdown in historical seasonal patterns, albeit not as marked as in March or June.The Brazilian Real and Colombian Peso NEERs recorded the strongest average rates of appreciation in the month of January in 2010-2019, while the Turkish Lira and Russian Rouble were the weakest. About 15 NEERs traded broadly in line with their historical patterns in January 2020.However, the Covid-19 pandemic was still in its infancy and its impact on global economies and financial markets still modest. The risk is that many currencies, including the typically strong Swiss Franc, may in January 2021 continue to deviate materially from their 2010-2019 seasonal patterns in our view.

Monthly Currency Seasonality: Down and Out?

Market volatility has been reasonably subdued in recent weeks, despite acute event (and macro data) risk in the next four weeks, including of course US presidential elections on 3rd November, and a number of significant macro, policy and geopolitical developments.In the past month volatility in major developed and emerging market currencies versus the US Dollar has only risen materially in the high-yielding Turkish Lira and Mexican Peso and the low-yielding Polish Zloty, Korean Won and more surprisingly the Taiwan Dollar.However, this is not a case of more confident financial market participants finding their feet, in our view, but rather a reflexion of financial markets unable to see through the smoke and reluctant to pit themselves against their peers going into year-end and/or test monetary authorities’ resolve at time of acute uncertainty. S&amp;P 500 (realized) volatility has edged lower since its early September spike, with markets seemingly undecided whether a Trump or Biden victory will be a net positive for equities.For similar reasons the Dollar, Euro, Sterling, Yen and Swiss Franc have shown little directionality since late-July. Headwinds and tailwinds for these reserve currencies have either tended to cancel each other or simply fade, leaving market participants in two-minds and opting for the path of least regret. Back in November 2019 we correctly predicted that “global FX volatility would rise in coming weeks, with the potential for a volatility spike in mid-December”. We once again think the risk is biased towards FX volatility rising in coming weeks, particularly given the still very uncertain outcome of US elections to be held in just 26 days.We think the risk of higher volatility is most acute if US President Trump once again defies opinion polls to win or if a prolonged period of uncertainty ensues in the event of either candidate contesting the result of a very close election.Moreover, the odds Sterling volatility spiking higher in the next fortnight are high, in our view, whatever the outcome of UK-EU negotiations over a new trade deal which will likely reach a crescendo ahead of the European Council meeting on 15-16 October.

Market volatility has been reasonably subdued in recent weeks, despite acute event (and macro data) risk in the next four weeks, including of course US presidential elections on 3rd November, and a number of significant macro, policy and geopolitical developments.In the past month volatility in major developed and emerging market currencies versus the US Dollar has only risen materially in the high-yielding Turkish Lira and Mexican Peso and the low-yielding Polish Zloty, Korean Won and more surprisingly the Taiwan Dollar.However, this is not a case of more confident financial market participants finding their feet, in our view, but rather a reflexion of financial markets unable to see through the smoke and reluctant to pit themselves against their peers going into year-end and/or test monetary authorities’ resolve at time of acute uncertainty. S&amp;P 500 (realized) volatility has edged lower since its early September spike, with markets seemingly undecided whether a Trump or Biden victory will be a net positive for equities.For similar reasons the Dollar, Euro, Sterling, Yen and Swiss Franc have shown little directionality since late-July. Headwinds and tailwinds for these reserve currencies have either tended to cancel each other or simply fade, leaving market participants in two-minds and opting for the path of least regret. Back in November 2019 we correctly predicted that “global FX volatility would rise in coming weeks, with the potential for a volatility spike in mid-December”. We once again think the risk is biased towards FX volatility rising in coming weeks, particularly given the still very uncertain outcome of US elections to be held in just 26 days.We think the risk of higher volatility is most acute if US President Trump once again defies opinion polls to win or if a prolonged period of uncertainty ensues in the event of either candidate contesting the result of a very close election.Moreover, the odds Sterling volatility spiking higher in the next fortnight are high, in our view, whatever the outcome of UK-EU negotiations over a new trade deal which will likely reach a crescendo ahead of the European Council meeting on 15-16 October.

Event Risk and Market Volatility: Partners in Crime

Managing Director

Elan Gore

TMI Data Science

TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade & traditional media.  Our proprietary software, TMI Machine, is a text-mining platform designed with the buy-side & capital markets professional in mind, text-mining the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income & individual equities.  TMI provides custom leading indicators and systematic trading strategies, operating at the nexus of linguistics & statistics drawing on vast experience in investment banking and hedge fund settings in senior quantitative and fundamental roles.  

TMI Data Science was founded by Elan Gore, an award-winning Senior Global Basic Materials Equity Analyst & China Economist with 15 years of experience in North American hedge funds & institutional managers; and Alessandro Porrino, Ph.D., an Algorithmic Trading Analyst and Programmer with 10 years of front-office experience ranging from complex FX option pricing to auto-hedging strategies at Bank of America Merrill Lynch and Standard Chartered.  Mr. Gore holds an MBA in Finance from New York University Stern School of Business, and Mr. Porrino holds a Ph.D. in Systems Engineering from Brunel University London.

Cross Asset Strategy

<ul>
<li>Friday saw a notable spike in JPY vols on news of President Trump's positive COVID-19 test</li>
<li>Aside from traditional risk-off JPY reflex, this move followed weeks of "election hedge" discussions with multiple strategists pointing to cheap Yen-complex vols as screening most attractively in the event of prolonged US election turmoil</li>
<li>JPY has been gently trending higher for months, as CFTC data shows asset manager net speculative positioning at multi-year highs; while not egregious, JPY spec positioning now screens roughly +1x STDEV above normal</li>
<li>Last month our text mining saw fading bullishness on JPY, but our diffusion index has moved higher in the past month as we see a sharp decline in discussions of negative JPY drivers in the global financial media</li>
<li>On a short-term basis, there are many convenient excuses to be long JPY into the US elections, as the currency is persistently undervalued in real effective terms, historically outperforms during risk-off phases, JPY vols remain acceptably low (debatable after Friday), and optimism on Japan has lingered through the Suga transition thus far</li>
<li>Mid- and longer-term, Suga's pro-consumer reforms focused on price cuts in telecom &amp; pharma may require elevated fiscal stimulus to counter potentially accelerated deflationary optics, pressuring JPY; and the traditional USD/JPY risk function appears to be eroding as evidenced in JPY/equities correlations</li>
<li>We suspect continued JPY upside risks to year-end, but renewed equity-friendly pressure on JPY may resume in 2021</li>
</ul><div class="content-highlight">TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. </div>


Friday saw a notable spike in JPY vols on news of President Trump's positive COVID-19 test
Aside from traditional risk-off JPY reflex, this move followed weeks of "election hedge" discussions with multiple strategists pointing to cheap Yen-complex vols as screening most attractively in the event of prolonged US election turmoil
JPY has been gently trending higher for months, as CFTC data shows asset manager net speculative positioning at multi-year highs; while not egregious, JPY spec positioning now screens roughly +1x STDEV above normal
Last month our text mining saw fading bullishness on JPY, but our diffusion index has moved higher in the past month as we see a sharp decline in discussions of negative JPY drivers in the global financial media
On a short-term basis, there are many convenient excuses to be long JPY into the US elections, as the currency is persistently undervalued in real effective terms, historically outperforms during risk-off phases, JPY vols remain acceptably low (debatable after Friday), and optimism on Japan has lingered through the Suga transition thus far
Mid- and longer-term, Suga's pro-consumer reforms focused on price cuts in telecom &amp; pharma may require elevated fiscal stimulus to counter potentially accelerated deflationary optics, pressuring JPY; and the traditional USD/JPY risk function appears to be eroding as evidenced in JPY/equities correlations
We suspect continued JPY upside risks to year-end, but renewed equity-friendly pressure on JPY may resume in 2021
TMI Data Science utilizes Natural Language Processing to build custom leading indicators using unstructured data sourced from the global financial, trade &amp; traditional media. Our proprietary software text-mines the global media to discern and quantify nuanced qualitative shifts in press coverage as they apply to macroeconomics, equity indexes/ETFs, commodities, currencies, fixed income &amp; individual equities. 

TMI Snapshots: JPY Vols Jump On Trump News, Evidence A Convenient US Election Hedge Is Crowding Fast

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

<div>DXY rise is gaining traction after the Euro broke below 1.18 trendline support per our fade call from 1.20 to 1.15. Used Euro/JPY as our short vehicle to capture a Euro pullback.</div><div></div><div>We are alert to Euro shakeout risk given overly bullish positioning and watching momentum below trendline. This would surprise the dollar bears if positioning is squeezed.</div><div></div><div>DXY rally call from 92 to 95.00/80 in what is touted as a counter trend bounce sequence with risk of a sharper rise in October on risk aversion and support stemming from bull divergence. Macro posture is to sell the USD into October strength.</div><div></div><div>Gold is seeing a c wave decline tied to a stronger USD and questions over QE.  We view weakness as a buying opportunity near 1,850 and 1,800. Gold is expected to be able to shrug off a stronger dollar with market volatility becoming the primary driver in October. </div>

DXY rise is gaining traction after the Euro broke below 1.18 trendline support per our fade call from 1.20 to 1.15. Used Euro/JPY as our short vehicle to capture a Euro pullback.We are alert to Euro shakeout risk given overly bullish positioning and watching momentum below trendline. This would surprise the dollar bears if positioning is squeezed.DXY rally call from 92 to 95.00/80 in what is touted as a counter trend bounce sequence with risk of a sharper rise in October on risk aversion and support stemming from bull divergence. Macro posture is to sell the USD into October strength.Gold is seeing a c wave decline tied to a stronger USD and questions over QE.  We view weakness as a buying opportunity near 1,850 and 1,800. Gold is expected to be able to shrug off a stronger dollar with market volatility becoming the primary driver in October. 

Much of the market focus in recent months has been on major reserve currencies, namely:<ul>
<li>The US Dollar which, contrary to bearish expectations and in line with our <a href="https://www.smartkarma.com/insights/warnings-about-us-economy-and-dollar-overblown" target="_blank" rel="noopener">benign Dollar view</a>, has treaded water in the past six weeks and since the Fed’s tweak on 27th August to its dual inflation and employment mandate; </li>
<li>The Euro’s rapid appreciation in July, its more prosaic performance in August and the first half of September and speculation that the European Central Bank would try to jawbone the currency weaker. Instead the ECB as its policy meeting on 10th September resorted to verbal intervention “light”, in line with our core scenario that <a href="https://www.smartkarma.com/insights/brazen-ecb-verbal-intervention-against-euro-unwarranted-and-unlikely" target="_blank" rel="noopener">Brazen ECB verbal intervention against Euro was unwarranted and unlikely</a> (9th September 2020).</li>
<li>Sterling’s collapse last week and only partial recovery in the past four trading sessions. We are sticking to our view that the UK economy and Sterling face four potential headwinds in coming months, including i) fiscal stimulus measures being unwound, ii) a no-deal Brexit, iii) higher taxes and iv) a further re-tightening of lockdown measures in coming months (see <a href="https://www.smartkarma.com/insights/uk-sterling-facing-potential-quadruple-whammy" target="_blank" rel="noopener">UK &amp; Sterling facing potential quadruple whammy</a>, 4th September 2020).</li>
</ul>Conversely, Asian currencies have seemingly fallen under the radar screen, for good reason. They have exhibited little directionality within very narrow ranges in the past month, particularly relative to high-yielding emerging market currencies. We think this is the result of Asian central banks’ ability and willingness to keep their currencies on a tight leash, in order to minimise their disinflationary impact and maintain export competitiveness while at the same time capping the cost to governments, corporates and households of servicing sizeable foreign-currency denominated debt.The Renminbi Nominal Effective Exchange Rate’s 2% appreciation in the past month, while unspectacular, is noteworthy and will be the topic of a forthcoming report.

Much of the market focus in recent months has been on major reserve currencies, namely:
The US Dollar which, contrary to bearish expectations and in line with our benign Dollar view, has treaded water in the past six weeks and since the Fed’s tweak on 27th August to its dual inflation and employment mandate; 
The Euro’s rapid appreciation in July, its more prosaic performance in August and the first half of September and speculation that the European Central Bank would try to jawbone the currency weaker. Instead the ECB as its policy meeting on 10th September resorted to verbal intervention “light”, in line with our core scenario that Brazen ECB verbal intervention against Euro was unwarranted and unlikely (9th September 2020).
Sterling’s collapse last week and only partial recovery in the past four trading sessions. We are sticking to our view that the UK economy and Sterling face four potential headwinds in coming months, including i) fiscal stimulus measures being unwound, ii) a no-deal Brexit, iii) higher taxes and iv) a further re-tightening of lockdown measures in coming months (see UK &amp; Sterling facing potential quadruple whammy, 4th September 2020).
Conversely, Asian currencies have seemingly fallen under the radar screen, for good reason. They have exhibited little directionality within very narrow ranges in the past month, particularly relative to high-yielding emerging market currencies. We think this is the result of Asian central banks’ ability and willingness to keep their currencies on a tight leash, in order to minimise their disinflationary impact and maintain export competitiveness while at the same time capping the cost to governments, corporates and households of servicing sizeable foreign-currency denominated debt.The Renminbi Nominal Effective Exchange Rate’s 2% appreciation in the past month, while unspectacular, is noteworthy and will be the topic of a forthcoming report.

Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen

Japan

The Japanese yen is the official currency of Japan. 

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JPY (USDJPY CURNCY)

Monthly Currency Seasonality: Down and Out?

Covid-19 pandemic and national lockdowns in 2020 wreaked havoc with historical monthly seasonal patterns for developed and EM currencies. But what...

Olivier Desbarres

Event Risk and Market Volatility: Partners in Crime

Market volatility has been reasonably subdued in recent weeks, despite acute event (and macro data) risk in the next four weeks, including of...

Olivier Desbarres

TMI Snapshots: JPY Vols Jump On Trump News, Evidence A Convenient US Election Hedge Is Crowding Fast

Friday saw a notable spike in JPY vols following widespread

Elan Gore

FX Risk Warnings and 1,850 Gold Buy Zone

DXY rise is gaining traction after the Euro broke below 1.18 trendline support per our fade call from 1.20 to 1.15. DXY rally call from 92 to...

Thomas Schroeder

Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen

Much of the market focus in recent months has been on major reserve currencies, namely: The US Dollar which, contrary to bearish expectations and...

Olivier Desbarres

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