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BNP Paribas FX Momentum Summary

Core Content

BNP Paribas FX Momentum is a tool used to assess the strength of a currency's bullish or bearish trend, providing a score between -100 and +100. The score is derived from a combination of FX exchange rate momentum, relative interest rates, and relative equity market performance. The strategy uses two moving averages to identify trends: a bullish trend is indicated when the shorter moving average is above the longer one, and a bearish trend when the longer moving average is above the shorter.

The document highlights the current momentum scores for various G10 currencies as of 30 January 2018, emphasizing the divergences between FX components and broader market indicators.

Key Momentum Scores

• USD FX component: Extremely bearish at a score of -81 (on a -/+100 scale).
• NZD momentum: Most bearish in the G10 space, with a score of -81.
• CHF momentum: Slightly bullish at +14, indicating a less bearish FX component.
• CAD momentum: Remains the most bullish in the G10 space with a score of +41.

Strategy Overview

• The strategy involves an equally-weighted basket of G10 currencies, with position sizes determined by momentum scores and a 10% volatility target.
• It is indexed to 1 January 2010.
• Since 2002, the strategy has delivered a Sharpe ratio of 0.79, based on trading a basket of major currency pairs.

Supporting Information

• Chart 1 shows the USD FX component at extremely bearish levels, similar to September 2017.
• Chart 2 highlights the NZD momentum as the most bearish in the G10 group.
• Chart 3 and Chart 4 show the momentum scores for NZD and CAD, respectively, incorporating FX, interest rate, and equity market data.
• The overall momentum scores for other currencies are also presented in separate charts, with detailed descriptions of their trends.

Legal and Disclosure Notes

• The document is non-independent research and constitutes a marketing communication.
• It is intended for professional clients and eligible counterparties under MiFID.
• BNP Paribas may have conflicts of interest due to its involvement in trading, underwriting, or advisory roles related to the mentioned currencies or financial instruments.
• The document does not constitute investment research and is not subject to the independence requirements of investment research.
• No assurance is given that any transaction will be executed at the indicated terms or prices.
• The information is for informational purposes only and may not be relied upon as authoritative.
• The document may include simulated performance data and is not a guarantee of future results.
• All information is subject to change without notice and is based on BNP Paribas' internal models and public sources.

Contacts

• Strategists:

  • Alexander Jekov, FX Strategist, BNP Paribas London branch
  • Natalie Rickard, FX Strategist, BNP Paribas London branch
  • Michael Sneyd, CFA, Global Head of FX Strategy & Cross-Asset Strategist
  • Sam Lynton-Brown, FX Strategist
  • Daniel Katzive, CFA, Head of FX Strategy North America
  • Mirza Baig, Head of FX & IR Asia Strategy
  • Gabriel Gersztein, Head FX & IR Latam Strategy
  • Others listed with their respective roles and contact details.

• Production:

  • Barbara Consuelo, London
  • Amanda Grantham-Hill, London
  • Anna McLauchlin, London
  • Varghese Joseph, New York

Online Resources

• BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• Bloomberg Research Codes:
  • Fixed Income Research: BPFR
  • G10 Interest Rate Research: BPBS
  • Emerging Markets Research: BPFR
  • Market Economics: BPEC

Disclosures

• Options: Complex instruments with high risk, suitable only for sophisticated investors.
• ETFs: May involve tracking error, currency, geopolitical, and credit risks.
• Securities: May be restricted and only available to Qualified Institutional Buyers (QIB) or non-US persons under Regulation S.
• Confidentiality: Information is provided on a confidential basis and may not be copied or distributed without prior consent.
• Liability Disclaimer: BNP Paribas and its affiliates disclaim all liability for any use of the document or its content.

Jurisdictional Information

• United States: Disclosures related to options and ETFs are provided.
• UK: Document is communicated by BNP Paribas London Branch, authorized by ECB, ACPR, and PRA.
• France: Report is produced and/or distributed by BNP Paribas SA and BNP Paribas Arbitrage, authorized by ECB and ACPR.
• Germany: Distributed by BNP Paribas S.A. Niederlassung Deutschland, authorized and supervised by ECB and ACPR.
• Belgium: Report is distributed by BNP Paribas Fortis SA/NV, authorized and supervised by ECB and National Bank of Belgium.
• Ireland: Distributed by BNP Paribas S.A., Dublin Branch.
• Italy: Distributed by BNP Paribas Italian Branch, authorized by ECB, ACPR, and AMF.
• Netherlands: Distributed by BNP Paribas Fortis SA/NV, Netherlands.