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BNP Paribas FX Momentum Summary

Core Content Overview

BNP Paribas FX Momentum is a strategy that evaluates the strength of bullish or bearish trends in G10 currencies using a scoring system ranging from -100 to +100. The strategy incorporates not only exchange rate momentum but also the momentum of relative interest rates and equity markets to provide a more comprehensive view of currency trends.

Key Momentum Scores

• USD FX Momentum: Bearish momentum has moderated, with the overall score increasing to +45. This is driven by strong USD rates and equity momentum.
• GBP FX Momentum: Has turned more bullish, rising from +29 to +41. The improvement is attributed to a more positive rates momentum.
• JPY FX Momentum: Has declined to -32, primarily due to increasingly negative JPY rates and equity momentum.
• NZD FX Momentum: Moderated slightly but remains the most bearish in the G10 space with a score of -70.

Strategy Methodology

The strategy uses two moving averages to identify trends in exchange rates. A bullish trend is indicated when the shorter moving average is above the longer one, and a bearish trend when it is below. The momentum score is a combination of the momentum in exchange rates, interest rates, and equity markets, which helps in assessing the overall trend strength more accurately than relying solely on exchange rates.

Portfolio Returns

The strategy involves a portfolio of equally-weighted baskets of each G10 currency, with position sizes determined by momentum scores and a 10% volatility target. The portfolio is indexed to 1 January 2010 and has historically provided a Sharpe ratio of 0.79 since 2002.

Key Charts

• Chart 1: USD FX momentum turns less bearish.
• Chart 2: GBP momentum driven by rates momentum.
• Chart 3: JPY momentum more negative.
• Chart 4: NZD momentum still very bearish.

Strategy Contacts

Legal and Regulatory Information

• The document is non-independent research for UK FCA rules and is a marketing communication under MiFID II.
• It does not constitute investment research and is not subject to any independence requirements.
• The information may contain back-tested performance data and is not indicative of future results.
• BNPP may have conflicts of interest due to its involvement in investment banking and other services related to the mentioned entities.
• The document is intended for professional clients and is strictly confidential.

US Disclosures

• Options: Complex instruments that may involve a high degree of risk. Only sophisticated investors should consider them.
• ETFs: May involve currency, geopolitical, credit, and interest rate risks. BNPP may have multiple interests in the companies involved.
• Securities: Some may be unregistered and are restricted securities under Rule 144A or Regulation S.
• The report may be distributed only to qualified institutional buyers or major institutional investors in the US.

UK and France Disclosures

• In the UK, the document is communicated by BNP Paribas London Branch, which is authorised and regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
• In France, the report is produced and/or distributed by BNPP SA and BNPP Arbitrage, both authorised and supervised by the European Central Bank (ECB) and Autorité de Contrôle Prudentiel et de Résolution (ACPR).

Additional Information

• All charts are sourced from Macrobond and BNP Paribas.
• The strategy is based on public sources and may not be independently verified.
• The document is not an offer to sell or a solicitation of an offer to purchase any financial instrument.
• No liability is accepted for any use of the information contained in the document.

Disclaimer

• The information is for informational purposes only.
• Past performance is not indicative of future results.
• The indicative prices may vary significantly from those obtained from other sources.
• The document is subject to change and may be discontinued at any time.