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BNP Paribas FX Momentum Summary

Core Content

BNP Paribas FX Momentum is a strategy that evaluates the strength of currency trends using a scoring system ranging from -100 to +100. The scores are derived from analyzing the momentum of exchange rates, interest rates, and equity markets. This strategy is used to guide investment decisions in the FX market.

Key Currency Momentum Scores (27 February 2018)

• USD: The USD FX momentum score has become more bearish, declining to +32 on the -/+50 scale. Despite this, rates and equity markets continue to signal bullish trends for the USD.
• EUR: The EUR FX momentum score remains very bullish, but the rates and equity components are neutral or bearish, indicating a divergence in signals.
• GBP: GBP momentum remains very bullish at +35, driven by FX and rates, although equity momentum is bearish.
• NOK: NOK has the most bullish momentum in the G10 group at +50, while NZD is the most bearish with a score of -73.

Methodology

The momentum score is calculated using two moving averages:

• A bullish trend is identified when the shorter moving average is above the longer one.
• The strategy also incorporates the momentum of interest rates and equity markets to better assess the strength of currency trends.

The overall momentum score for each currency is a sum of three components (FX, rates, and equities) and ranges from -100 to +100. For some currencies, individual components are scored on a -/+50 scale, while the overall score uses the full -100 to +100 range.

Portfolio Returns and Strategy Performance

The FX momentum strategy has historically delivered a Sharpe ratio of 0.79 since 2002, based on trading an equally-weighted basket of major currency pairs.

FX Strategy Contacts

Legal and Regulatory Information

• The 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 is intended for Relevant Persons, including Professional Clients and Eligible Counterparties.
• No guarantee of accuracy or completeness is provided.
• No liability is accepted for any loss arising from the use of this document.
• Confidentiality is maintained, and the document may not be distributed without prior consent.
• The document may include back-tested performance data, which is not indicative of future results.
• Past performance is not indicative of future performance.

Additional Information

• The strategy may involve conflicts of interest, as BNPP may engage in transactions inconsistent with the views expressed.
• Options and ETFs discussed in the document are complex and may involve significant risk.
• The document may contain restricted securities not registered under US Securities Laws.
• U.S. disclosures state that the document is for institutional investors and that transactions must be executed through BNPPSC.
• UK and France disclosures mention the legal entities involved and their regulatory status.
• Germany disclosures refer to BNPP S.A. Niederlassung Deutschland as the distributor.

Sources

• All charts are sourced from Macrobond and BNP Paribas.
• The strategy is detailed in Introducing BNP Paribas FX Momentum.