20180206-法国巴黎银行-Latam_FX__Digging_into_DTCC_database__insightful_takeaways_14页_448kb

Latin America FX Strategy Summary

Core Content Overview

This report presents a detailed analysis of the FX positioning and market dynamics in Latin America, leveraging data from the DTCC database and integrating insights from the Asia FX Strategy team. The goal is to provide a comprehensive view of FX market behavior, identify potential market moves, and support strategic decision-making in the region.

Key Findings and Insights

FX Positioning Analysis

• Methodology Update: The report shifts from using z-scores to a non-parametric approach to better capture FX positioning, especially in non-normally distributed markets.
• USDBRL: The positioning score is near neutrality, after dropping below the 10th percentile following the outcome of former President Lula's trial.
• USDCLP: The positioning score has recovered from the start of the year lows.
• USDCOP: The positioning score has fallen in line with the peso's outperformance.
• USDPEN: Positioning remains broadly unchanged around neutrality levels.
• USDARS: The score remains above the 90th percentile, but this has not yet led to a peso rally.

NDF Liquidity and Market Activity

• NDF Volumes: Increases in NDF market activity can signal potential FX moves, though they may also result in false triggers due to the nature of the data.
• Brazil: A special feature was used to calculate "net volume" by subtracting the first future volume, thereby reducing noise from non-delta trades.
• Mexico: An increase in the put strike gap at the start of 2017 and 2018 suggested a reversal of the peso's poor performance, while an increase in the call strike gap in June 2017 indicated a slowdown in the peso's rally.

Option Market Analysis

• Strike Gaps: The volume-weighted strike gaps for calls and puts are used to gauge market positioning and anticipate FX movements.
• USDBRL: A significant increase in the put strike gap at the beginning of 2018 suggested bullish bets on a recovery, while the call strike gap increased before Lula's trial, indicating hedging against an unfavorable outcome.
• USDMXN: The put strike gap increased at the start of 2017 and 2018, reflecting a shift in market sentiment.

Call/Put Ratio Analysis

• Call/Put Ratio: The ratio between call and put premia was analyzed for USDBRL and USDMXN, but it was found to be less insightful compared to strike gaps in predicting market moves.

Strategies in Place

• USDCLP: Maintained a long position due to a substantial divergence between market and BEER model fair values.
• USDPEN: Short position is held based on the same reasoning as USDCLP.
• USDCOP: Short position was recently closed, as the strategy had been overextended.
• BRL: A long allocation is maintained due to a robust external sector and expectations of a weak US dollar.
• MXN: Currently flat, with focus on rate strategies and using the peso as a hedge against political and NAFTA risks.
• ARS: No positions are held at the moment due to macro vulnerabilities and tighter external conditions, though potential re-entry is considered if there is an overshooting.

Conclusion and Tools

• DTCC Database: Offers valuable insights into FX positioning and market dynamics, though it requires careful interpretation due to potential noise and false signals.
• Monitoring Approach: The report recommends systematic monitoring of NDF activity and option strike gaps in conjunction with other indicators such as BEER and FEER models, risk appetite, pension fund activity, and EM flow dynamics.
• Comprehensive Strategy Tool: The DTCC database is now integrated into the Latam FX strategy toolbox, enhancing the ability to anticipate market moves and assess positioning.

Important Contacts

• Gabriel Gersztein: Head of GM Latin America Strategy & Commodity Quant Strategy
  Email: gabriel.gersztein@br.bnpparibas.com
  Phone: +55 11 3841 3421

• Gustavo Mendonca: FX & IR Latin America Strategy
  Email: gustavo.mendonca@br.bnpparibas.com
  Phone: +55 11 3841 3445

• Samuel Castro: FX & IR Latin America Strategy
  Email: samuel.castro@br.bnpparibas.com
  Phone: +55 11 3841 3492

• Marcelo Carvalho: Head of Emerging Markets Research, Latam
  Email: marcelo.carvalho@br.bnpparibas.com
  Phone: +55 11 3841 3418

Legal Notice

• This document is a marketing communication and not investment research.
• It does not constitute an offer to sell or issue any financial instrument.
• No independent research has been conducted in accordance with legal requirements.
• Confidentiality: The information is provided on a strictly confidential basis and may not be shared without prior consent.
• Conflict of Interest: BNPP may have financial interests in the instruments discussed and may engage in transactions inconsistent with the views expressed in the document.
• Performance Data: Any performance data is based on back-testing and is for illustrative purposes only. It does not guarantee future results.
• Options and ETFs: Options are complex instruments suitable only for sophisticated investors. ETFs carry risks such as tracking error, currency risk, and credit risk. BNPP may have conflicts of interest related to these instruments.

U.S. Disclosures

• Options: Not suitable for all investors. May involve a high degree of risk.
• ETFs: Carry risks including tracking error, currency risk, and geopolitical risk.
• Securities: Some may not be registered under U.S. securities laws and are considered "restricted securities."
• Distribution: The report may only be distributed to qualified institutional buyers or non-U.S. persons as defined under applicable regulations.

Important Disclaimer

• No Guarantee: The information and opinions are based on public sources and may not be accurate or complete.
• No Liability: BNPP disclaims any liability for any loss arising from reliance on the document.
• No Advice: This document does not provide investment, tax, or legal advice. Recipients are advised to consult independent professionals before making any investment decisions.