Jean-Baptiste Berthon

Jean-Baptiste Berthon

Senior Strategist, Cross Asset Research

Lyxor Asset Management


Where Macro traders think US$ is going?

14 May 2018

Investment Partners

Risk appetite returned this week. The wage growth and inflation numbers released in the U.S. were strong enough to suggest continued growth, but below enough consensus to ease fear of a more aggressive monetary normalization. Rates were marginally up. Cyclical outperformed the defensive sectors. Oil prices continued to appreciate along with escalation risk in Middle East. EM markets enjoyed a respite. Hedge Funds returns were also positive, led by CTAs (on their long energy and bond positions) and by Merger funds, which benefitted from a rapid spread tightening across most large deals.

Since mid-April, the broad DXY dollar rallied +3.5%. Its drivers seem to have shifted. Inflation and growth differentials as well as its safe-haven status now matter more than capital flows and national accounts prospects. Given how pivotal the dollar is for many assets, we assessed how top-down strategies are now positioned on FX. We find that both CTAs and Macro funds recently turned long dollar.

CTAs turned net long U.S. dollar since mid-April. Their exposures are polarized. They are net long EUR, GBP and JPY. They are short CHF, AUD and CAD. They also hold substantial relative plays in other Scandinavian and EM currencies. Their overall margin to equity is low (around 10% vs. 15% in average), but they concentrate on FX, equities and energy. Amid mixed trend-following patterns, FX is a key contributor for now.

Macro funds had neutralized most of their dollar exposures back in mid-March. Like CTAs, they reinstated long dollar positions since mid-April. However, their allocation of risk across FX pairs widely differs. They are short EUR and GBP, they are long CAD and AUD commodity currencies, and they are neutral on CHF and JPY. Their dollar positions qualify as a “conviction call”, reflected by their FX gross exposure now close to their long-term average. We note that the bulk of their gross exposures concentrate on the EUR and GBP pairs.


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