Cross-Asset Strategist & Quantitative Analyst, Pennock Idea Hub

Cam Hui

Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as a quantitative equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989.

Cross-Asset Strategist & Quantitative Analyst

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Pennock Idea Hub

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Cross-Asset & Quantitative Research

Thematic (Sector/Industry)

As we look ahead to the FOMC meeting next week, it may be the start of a synchronized global easing cycle. The ECB signaled a dovish tone last week at its meeting. The EURUSD exchange rate weakened, and the USD Index strengthened. From a technical perspective, the USD has broken out on an inverse head and shoulders formation on the daily chart, with an upside measured target of about 99.10. Conversely, the EURUSD has broken down in a head and shoulders, with a downside target of about 110.The USD outlook appears bullish on multiple time frames. It is forming a possible bullish cup and handle pattern on the weekly chart, with an upside target of 107.70–108.00 on a breakout. The trade-weighted USD has also formed a possible cup and handle pattern that stretches back to 2002, with bullish implications.The global nature of the seemingly co-ordinated central bank easing begs the question of whether monetary policy is inadvertently starting a cycle of competitive devaluation. Is this how a currency war starts?What does that mean for U.S. equity investors? The global economy is sputtering and global central bankers are entering an easing cycle, which could spark a currency war. Under such a scenario, U.S. equities remain attractive on a relative basis.Recessions are bull market killers. Of the major global economies, the U.S. is the least likely to fall into recession, which is positive. The S&amp;P 500 and NASDAQ 100 made fresh highs last week, commodity price inputs are low, the labour market is strong, liquidity is plentiful and the Fed has made it clear it wants to support further expansion. This is bullish for investors who are not afraid of the normal equity risk 10% drawdowns that occur virtually every calendar year.However, the risk of a round of central bank easing interpreted as currency war, which leads to greater protectionism, is rising. This may create some bumpiness in equity returns, but the longer-term outlook remains positive. Even if other economies slow into stagnation or recession, central bankers are on alert and stand ready to provide sufficient liquidity to limit contagion effects.One way of mitigating the de-globalization effect is to tilt toward U.S. equities with greater domestic exposure, by either holding a greater weight in mid and small caps or underweight sectors with large foreign exposure, like the technology stocks.

As we look ahead to the FOMC meeting next week, it may be the start of a synchronized global easing cycle. The ECB signaled a dovish tone last week at its meeting. The EURUSD exchange rate weakened, and the USD Index strengthened. From a technical perspective, the USD has broken out on an inverse head and shoulders formation on the daily chart, with an upside measured target of about 99.10. Conversely, the EURUSD has broken down in a head and shoulders, with a downside target of about 110.The USD outlook appears bullish on multiple time frames. It is forming a possible bullish cup and handle pattern on the weekly chart, with an upside target of 107.70–108.00 on a breakout. The trade-weighted USD has also formed a possible cup and handle pattern that stretches back to 2002, with bullish implications.The global nature of the seemingly co-ordinated central bank easing begs the question of whether monetary policy is inadvertently starting a cycle of competitive devaluation. Is this how a currency war starts?What does that mean for U.S. equity investors? The global economy is sputtering and global central bankers are entering an easing cycle, which could spark a currency war. Under such a scenario, U.S. equities remain attractive on a relative basis.Recessions are bull market killers. Of the major global economies, the U.S. is the least likely to fall into recession, which is positive. The S&amp;P 500 and NASDAQ 100 made fresh highs last week, commodity price inputs are low, the labour market is strong, liquidity is plentiful and the Fed has made it clear it wants to support further expansion. This is bullish for investors who are not afraid of the normal equity risk 10% drawdowns that occur virtually every calendar year.However, the risk of a round of central bank easing interpreted as currency war, which leads to greater protectionism, is rising. This may create some bumpiness in equity returns, but the longer-term outlook remains positive. Even if other economies slow into stagnation or recession, central bankers are on alert and stand ready to provide sufficient liquidity to limit contagion effects.One way of mitigating the de-globalization effect is to tilt toward U.S. equities with greater domestic exposure, by either holding a greater weight in mid and small caps or underweight sectors with large foreign exposure, like the technology stocks.

Is This How A Currency War Begins?