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FX Momentum Strategy Summary - 13 February 2018

Core Content

This document outlines the FX Momentum strategy by BNP Paribas, focusing on the performance and trend analysis of G10 currencies as of 13 February 2018. The strategy measures the strength of a currency's bullish or bearish trend using a score ranging from -100 to +100, where a higher score indicates a stronger bullish trend.

Key Currency Momentum Trends

• GBP (British Pound): The GBP momentum has turned more bullish. Higher UK yields are sending a strong bullish signal for the GBP, indicating potential for further appreciation.
• USD (US Dollar): USD FX momentum remains bearish, but the score has become less extreme following a recent recovery in the USD. The equity and rates components remain very bullish, suggesting continued support for the USD despite the bearish momentum.
• NOK (Norwegian Krone): NOK momentum is now the most bullish among the G10 currencies, with a score of +41. This indicates a strong upward trend for the NOK.
• SEK (Swedish Krona): SEK momentum has turned bearish, signaling a potential decline in value.
• CHF (Swiss Franc): CHF momentum has shifted from bullish to neutral, with the score declining to +4, suggesting a weakening trend.

Strategy Overview

• The FX Momentum strategy evaluates the trend strength of currency pairs using a combination of exchange rate momentum, relative interest rate momentum, and relative equity market performance.
• A trend is identified when the shorter moving average is above the longer moving average, indicating a bullish trend, or vice versa for a bearish trend.
• The strategy involves an equally-weighted basket of major currency pairs, with position sizes determined by momentum scores and a 10% volatility target.
• The strategy has historically provided a Sharpe ratio of 0.79 since 2002, indicating a reasonable risk-adjusted return.

Chart Details

• Chart 1: GBP momentum turns more bullish.
• Chart 2: USD bearish FX momentum less extreme.
• Chart 3: Bullish NOK trend strengthens.
• Chart 4: SEK momentum turns bearish.

All charts are sourced from Macrobond and BNP Paribas.

FX Strategy Contacts

Legal and Regulatory Information

• The document is non-independent research and constitutes a marketing communication.
• It is intended for Professional Clients and Eligible Counterparties under MiFID II.
• The information is not investment research and may not be relied upon as authoritative.
• It does not constitute an offer to sell or issue securities, nor a solicitation of an offer to buy.
• The strategy may involve high risk and volatility, and is subject to conflicts of interest.
• The document contains performance data based on back-testing and is for illustrative purposes only.
• It may include references to restricted securities and is not suitable for all investors.
• The document is for the use of intended recipients only and may not be distributed without prior consent.

Additional Information

• Online Resources: BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• Bloomberg Sources: Fixed Income Research BPFR, G10 Interest Rate Research BPBS, BNP Paribas Strategy Website, Emerging Markets Research BPFR, Market Economics BPEC
• Legal Disclaimer: The information and opinions in this document are based on public sources and may not be accurate or complete. BNPP and its affiliates do not guarantee the accuracy or completeness of the information. No liability is accepted for any loss arising from the use of this document.
• United States Disclosures: The document may contain information about options and ETFs that are not suitable for all investors. It is not intended for distribution to U.S. persons unless they are institutional investors or major U.S. institutional investors.