fx quant and positioning weekly - seb quant and positioning weekly karl steiner ... the risk of a...

FX Quant and Positioning WeeklyKarl Steiner

Global Macro & FX Research

Twitter:@karlsteiner_

December 19, 2016

You can also find our research materials at our website: www.mb.seb.se. This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional investors only. Information and

opinions contained within this document are given in good faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liability is accepted

for any direct or consequential loss resulting from reliance on this document. Changes may be made to opinions or information contained herein without notice.

We wish all our readers a happy holiday!

Next FX Quant and Positioning Weekly

will be published January 2, 2017

Main conclusions

Speculative FX positioning

• Short JPY has become quite a crowded trade as

speculators massively added to their already very

large net short JPY position – increasing the risk of a

squeeze and sharp correction.

• The net long USD positon is now the only one above its yearly average but we expect a pause or

ease over the X-mas and year end.

Short-term values

• EUR/SEK short-term fair value is impacted more than usually by its rate spread factor which makes the rate

decision from the Riksbank on Wednesday extra

interesting.

• EUR/NOK trades above its short-term fair value as

there seems to have been a risk premium attached to NOK due to worries about low liquidity over the coming

holidays. Thus a correction to STFV might be delayed

until after the holidays and year end.

Scandie economic data & events

This week there are three major events:

• Swedish NIER survey on Tuesday, Swedish

Riksbank rate decision on Wednesday and

Swedish Retail sales on Thursday

• The surprise in NIER Manufacturing confidence

and retail sales are good predictors for the daily

change in EUR/SEK.

• The most reliable pattern around Riksbank is a

follow-through pattern in NOK/SEK the day after rate decisions: Delivering 10 out of the last

11 times with an expected return of +0.4%.

Economic data surprises

• The surprise index for EUR is still at an elevated level

while the US index began to normalize last week. A

continued normalization of the US index should weigh

on the USD.

2016-12-19 | FX QUANT AND POSITIONING WEEKLY 2

| FX QUANT AND POSITIONING WEEKLY

Speculative FX positioningIMM data from CFTC’s Commitment of traders report (Dec 7-13)

2016-12-19

Short JPY a crowded trade• Second week with large decrease of the net JPY

position leading to the largest net short JPY position

since mid-Dec 2015.

• The change is mostly due to speculators adding plenty

of short JPY contracts (see next page) which increases

the risk of a short squeeze and a sharp corretion.

USD only ccy with an above average position• The net long USD position held by speculators increased

for a sixth straight report but is now beginning to look

quite stretched (94th percentile/1.5 st dev).

• Expect a slowdown or even a correction lower during the

upcoming X-mas and year end weeks.

EUR & GBP net short positions decreased • Second largest increase in the net EUR position in at

least a year’s time entirely due to speculators cutting

down on short EUR contracts.

• This indicates that there were lot of speculators exiting

positions taken with expectations of a dovish ECB at

their rate decision Dec 8.

-150000

-100000

-50000

0

50000

100000

150000

200000

250000

300000

350000

AUD CAD CHF EUR GBP JPY MXN NZD Net

USD

Net positions this week and last

Previous

Current

-4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

Net

USD

EUR AUD MXN CAD GBP NZD CHF JPY

Net position deviation from average

Previous

Current

Speculative FX positioningIMM data from CFTC’s Commitment of traders report (Dec 7-13)


Current Previous Change Current Change Max Min Max Min

AUD 13,473 20,871 -35% 37 21 59,540 -36,267 59,540 -76,851

CAD -21,869 -18,158 -20% 24 19 26,259 -66,819 26,259 -70,327

CHF -25,288 -25,397 0% 2 62 10,867 -25,397 15,116 -26,444

EUR -87,513 -114,556 24% 43 98 -21,872 -161,047 52,991 -226,560

GBP -72,343 -77,238 6% 39 74 -13,619 -97,572 56,412 -97,572

JPY -63,429 -33,937 -87% 0 4 71,870 -63,429 71,870 -143,822

MXN -57,659 -54,066 -7% 29 38 -12,420 -89,342 90,203 -74,955

NZD -3,702 -3,952 6% 24 55 9,352 -9,139 20,693 -19,654

Net USD 318,330 306,433 4% 94 66 349,144 -72,441 448,675 -74,955

0-25th percentile 50-75th percentile

25-50th percentile 75-100th percentile

Source: CFTC. Percentile ranks calculated using data one year back.

1y 3yNet non-commercial positions Percentile ranks


Speculative positioningIMM data from CFTC’s Commitment of traders report (Dec 7-13)

2016-12-19

Oil

A third week when speculators added to their net long oil position. However, oil price is still

struggling at the upper resistance level.


Speculative positioningIMM data from CFTC’s Commitment of traders report (Dec 7-13)

2016-12-19

US 10y Bond

• Speculators added to their net short position in the US 10y government bond as yields continued to rise and

the bond price consequently to fall.

• Positioning is now the shortest ever by a small margin (-

268,395 versus -367,229 May 2010) while the yield is at

its highest level only since Sep 2014

GoldNet long position in Gold decreased for a sixth straight week.

Both the gold price and positioning has fallen quite largely

since peaking early July.

More than half the rise in both price and positioning Dec 2015-

Jun 2016 has been eliminated which should open up for some

two way traffic instead of just the sharp correction lower.

Short-term fair values


Standard Deviations

-3 -2 -1 0 1 2 3

EUR/CHF

NZD/USD

GBP/USD

AUD/USD

USD/NOK

USD/SEK

NOK/SEK

USD/CAD

USD/JPY

EUR/USD

EUR/SEK

EUR/NOK

Upside deviation today Upside deviation y-dayDownside deviation today Downside deviation y-day

Ccy StDev STFV Y-day close 19-Dec Correction potentia Trend

EUR/SEK 1.0 9.6516 9.7600 9.7863 -1.4% EUR/NOK 1.3 8.9616 9.0641 9.0391 -0.9% EUR/USD 0.5 1.0312 1.0451 1.0426 -1.1% GBP/USD -0.4 1.2636 1.2496 1.2413 1.8% NZD/USD -0.9 0.7047 0.6963 0.6937 1.6% AUD/USD -0.4 0.7338 0.7304 0.7261 1.1% USD/JPY 0.3 116.33 117.93 117.37 -0.9% USD/CAD 0.3 1.3294 1.3336 1.3372 -0.6% EUR/CHF -1.2 1.0810 1.0731 1.0709 0.9% Cross models

NOK/SEK 0.0 1.0770 1.0772 1.0824 -0.5% USD/SEK -0.1 9.3591 9.3392 9.3856 -0.3%

USD/NOK -0.1 8.6900 8.6726 8.6691 0.2%

SEB Short-term fair values

EUR/SEK STFV is highly driven by the rate spread factor while the equity factors contribution is virtually zero and

risk provides only a small impact.

EUR/NOK STFV has mostly governed mostly by the oil price factor lately but now both the oil and rate spread

factor indicates that NOK is trading too weak.

Short-term fair valuesScandies and their main drivers


Key Economic Scandie Indicators & Events


5.2

5.2

5.9

6.2

6.2

6.5

6.6

7.1

13.3

4 5 6 7 8 9 10 11 12 13 14

No event

Unemployment

Indust prod

PMI manufact

Retail sales

FX purch

GDP

Inflation

Norges Bank

Median range (figs)

Norwegian data ranked in importance based on the median range of EUR/NOK on the

release day

Swedish data ranked in importance based on the median range of EUR/SEK on the release day

5.2

5.6

5.7

5.7

6.0

6.2

7.3

7.5

9.4

4 5 6 7 8 9 10

No event

PMI manufact.

NIER survey

Retail sales

Unemployment

Industrial prod.

Inflation

GDP

Riksbank

Median range (figs)

Statistical relationship betweensurprise in data and FX (2012+)

DataStable

directionalindication

Correlation

SWE NIER Manufacturing

Opposite direction

69%-30%

SWE Retail SalesOpposite direction

76%-49%

NOR

Unemployment

Same direction

42%13%

Economic events & FXSwedish NIER and EUR/SEK

NIER Manufacturing surprise tend to drive EUR/SEK

• Surprise and EUR/SEK change in opposite direction 69% of the

time (correlation -0.3)

• If surprise is +/-2 index units or higher it tends to be a good

forecast for daily change in EUR/SEK

• Chart below illustrates the historical relationship and the table to

the right shows expected change given different outcomes


y = -0.4x + 0.5R2 = 0.5

-6

-4

-2

0

2

4

6

8

-10 -5 0 5 10 15

y =

EU

R/S

EK

da

ily

cha

ng

e (f

igs)

x = Surprise (index units)

EUR/SEK vs. Surprise in NIER Manufacturing

Outcome Surprise Exp EUR/SEK chg

97 -11 4.6

98 -10 4.3

99 -9 3.9

100 -8 3.5

101 -7 3.1

102 -6 2.8

103 -5 2.4

104 -4 2.0

105 -3 1.6

106 -2 1.3

107 -1

108 0

109 1

110 2 -0.3

111 3 -0.6

112 4 -1.0

113 5 -1.4

114 6 -1.8

115 7 -2.1

116 8 -2.5

117 9 -2.9

118 10 -3.3

119 11 -3.6

120 12 -4.0

Economic events & FXSwedish Retail sales and EUR/SEK

Retail sales surprise tend to drive EUR/SEK

• Surprise and EUR/SEK change in opposite direction 76% of the

time (correlation -0.5)

• If surprise is +/-0.5%-points or higher it tends to provide a

relatively good forecast for daily change in EUR/SEK

• Chart below illustrates the historical relationship and the table to

the right shows expected change given different outcomes


y = -1.5x - 0.1

R2 = 0.3

-15

-10

-5

0

5

10

15

-3 -1 1 3

y =

EU

R/S

EK

da

ily c

ha

ng

e (

fig

s)

x = Surprise (Actual - Expected)

Retail sales surprise vs EUR/SEK daily change

Retail sales y/y Surprise EUR/SEK chg

-0.3 -3.0 4.3

0.2 -2.5 3.6

0.7 -2.0 2.9

1.2 -1.5 2.1

1.7 -1.0 1.4

1.8 -0.9 1.3

1.9 -0.8 1.1

2 -0.7 1.0

2.1 -0.6 0.8

2.2 -0.5 0.7

2.7 0.0

3.2 0.5 -0.8

3.3 0.6 -0.9

3.4 0.7 -1.1

3.5 0.8 -1.2

3.6 0.9 -1.4

3.7 1.0 -1.5

4.2 1.5 -2.2

4.7 2.0 -3.0

5.2 2.5 -3.7

5.7 3.0 -4.4

Average range SEB expected 2.8

Economic events & FXRiksbank rate decision and EUR/SEK

Daily impact

• EUR/SEK has traditionally been highly volatile on days

when the Riksbank announces rates. However, the

daily range has been in a falling trend since peaking

Dec 2014.

• Average rise has been +6.3 while the average fall -5.4

figures.

Intraday impact

• 2015 it was quite clear that most action took place

the first 20 minutes which then was followed by

generally sideways trading. However, in 2016 there is

no real intraday pattern as changes, expect after the

Feb cut, has been relatively small.

The day after

• The day after Riksbank rate decisions there is a clear

follow-through pattern in NOK/SEK materializing 10 of

the past 11 times (omitting the Oct decision as Norges

Bank announced rates the day after).

• Expected return from a continuation position is 0.4%

(=average trade).


Range on Rix rate days

5.0

-3.8

Average fall

-5.4

Average rise

6.3

-30

-20

-10

0

10

20

30

-15

-10

-5

0

5

10

15

Feb-

12Ap

r-12

Jul-1

2Se

p-12

Oct

-12

Dec

-12

Feb-

13Ap

r-13

Jul-1

3Se

p-13

Oct

-13

Dec

-13

Feb-

14Ap

r-14

Jul-1

4Se

p-14

Oct

-14

Dec

-14

Feb-

15M

ar-1

5Ap

r-15

Jul-1

5Se

p-15

Oct

-15

Dec

-15

Feb-

16Ap

r-16

Jul-1

6Se

p-16

Oct

-16

EUR/SEK change in figsEU

R/SE

K ch

ange

in fi

gs

EUR/SEK change the day that Rix announced rates

0

5

10

15

20

25

30

0

5

10

15

20

25

30

Feb-

12

Apr-

12

Jul-1

2

Sep-

12

Oct

-12

Dec

-12

Feb-

13

Apr-

13

Jul-1

3

Sep-

13

Oct

-13

Dec

-13

Feb-

14

Apr-

14

Jul-1

4

Sep-

14

Oct

-14

Dec

-14

Feb-

15

Mar

-15

Apr-

15

Jul-1

5

Sep-

15

Oct

-15

Dec

-15

Feb-

16

Apr-

16

Jul-1

6

Sep-

16

Oct

-16

Dai

ly ra

nge

(fig

s)

Measure 2015+ 2010-2014

Sum of all trades 3.9% 3.6%

Average trade 0.4% 0.1%

Average gain 0.4% 0.6%

Average loss -0.3% -0.4%

Max gain 2.1% 0.9%

Max loss -0.3% -1.0%

Number of trades 11 30

Winning trades 10 20

Winning trade (%) 91% 67%

Day after follow-through pattern in NOK/SEK

| FX QUANT AND POSITIONING WEEKLY 13

Appendix: Speculative positions Percentile rank development

High beta currencies

Safe haven currencies

European currencies

USD vs. EUR

2016-12-19


Appendix: Speculative positions Speculative positions in AUD and CAD

AUD positioning vs. USD CAD positioning vs. USD

2016-12-19


Appendix: Speculative positions Speculative positions in CHF and EUR

CHF positioning vs. USD EUR positioning vs. USD

2016-12-19


Appendix: Speculative positions Speculative positions in GBP and JPY

GBP positioning vs. USD JPY positioning vs. USD

2016-12-19


Appendix: Speculative positions Speculative positions in MXN and NZD

MXN positioning vs. USD NZD positioning vs. USD

2016-12-19


Appendix: Speculative positions Speculative positions in USD – net aggregated and directly investible USD future

2016-12-19

USD future


Appendix: Speculative positions Speculative positions in Crude Oil and Gold

Crude Oil Gold

2016-12-19


Appendix: Speculative positions Speculative positions in S&P 500 & Nikkei

S&P 500 Nikkei

2016-12-19


Appendix: Speculative positions Speculative positions in US 10y Treasury notes

US 10y

2016-12-19


Appendix: Short-term fair values*Scandies

* Mail [email protected] for introduction to the models

2016-12-19


Appendix: Short-term fair values *USD

* Mail [email protected] for introduction to the models

2016-12-19


Appendix: Economic surprise indicesPercentile rank

Source: Macrobond and SEB

Current 52 week percentile

2016-12-19

-50-40-30-20-10 0 10 20 30 40 50

EUR

USD

CAD

SEK

GBP

JPY

NZD

AUD

NOK

CHF

Current week Current week Previous Previous


Appendix: Economic surprise indicesPercentile rank

Source: Macrobond and SEB

2016-12-19

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