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BNP Paribas FX Momentum Summary (6 February 2018)

Core Content

BNP Paribas FX Momentum is a strategy that measures the strength of a currency's bullish or bearish trend using a score between -100 and +100. The strategy combines the momentum of exchange rates, relative interest rates, and relative equity market performance to assess the overall trend of each currency.

Key Currency Momentum Scores

• USD Momentum: Stabilised at negative levels, with an overall score of +33 on the -/+100 scale. This is due to positive USD rates and equity momentum.
• NOK Momentum: Turned more bullish, increasing from +16 to +29. The improvement is attributed to a significant increase in NOK rates momentum.
• NZD Momentum: Remains the most bearish in the G10, with a score of -81. The FX component is increasingly negative.
• CAD Momentum: Moderated this week but remains bullish at +23.

Strategy Overview

• The strategy uses two moving averages to identify trends. A bullish trend is indicated when the shorter moving average is above the longer one.
• It incorporates three components: FX rates, interest rates, and equity market performance.
• The strategy has historically provided a Sharpe ratio of 0.79 since 2002 when trading a basket of major currency pairs.
• Portfolio returns are determined by equally-weighted baskets of each G10 currency, with position sizes based on momentum scores and a 10% volatility target.

Charts and Data Sources

• Chart 1: USD rates and equity momentum are very bullish.
• Chart 2: NOK rates momentum turns neutral.
• Chart 3: NZD momentum is extremely bearish.
• Chart 4: CAD momentum is less bullish.
• All charts are sourced from Macrobond and BNP Paribas.

FX Strategy Contacts

Legal and Disclosure Notes

• This document is non-independent research and is a marketing communication under MiFID II.
• It is not investment research and should not be relied upon as such.
• It may contain "Research" as defined under MiFID II unbundling rules, which is only available to certain firms.
• No investment, financial, legal, or tax advice is provided.
• Past performance is not indicative of future results.
• BNP Paribas may have conflicts of interest and may engage in transactions inconsistent with the views expressed.
• No liability is accepted for any use of the document or its content.
• Indicative prices are based on internal models and may differ from other sources.
• ETFs and options discussed may involve significant risks and are only suitable for certain investors.
• U.S. and UK disclosures apply, with restrictions on distribution and use.

Additional Information

• Online Resources: BNP Paribas Global Markets Website: www.globalmarkets.bnpparibas.com
• Bloomberg Codes: Fixed Income Research BPFR, G10 Interest Rate Research BPBS, BNP Paribas Strategy Website, Emerging Markets Research BPFR, Market Economics BPEC
• Legal Disclaimer: The document is for information purposes only and may not be reproduced or distributed without prior written consent.