QCAM MONTHLY Abe's legacy and the Yen - September 2020
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September 2020
QCAM MONTHLY
QCAM Insight ++ Economy and Interest Rates ++ FX Markets ++ FX Analytics
QCAM Products and Services ++ QCAM Profile
Page 1 QCAM Insight
Abe’s legacy and the Yen
Page 3 Economy and Interest Rates
Page 5 FX Markets
Page 9 FX Analytics
Page 17 QCAM Products and Services
Page 18 QCAM Profile
www.q-cam.com
QCAM Insight
Abe’s legacy and the Yen
Bernhard Eschweiler, PhD, Senior Economist
QCAM Currency Asset Management AG
Shinzo Abe leaves a mixed legacy. He broke the de- BoJ holds roughly half of the government debt and
flationary spiral, but failed to complete Japan’s re- keeps long-term government bond yields at zero. The
flation and made debt-monetization an accepted pol- fact that this has not resulted in run-away inflation
icy tool. The JPY gradually appreciated in recent shows that Abenomics has failed to overcome Japan’s
years and we believe will slowly strengthen further structural rigidities and re-invigorate the economy. So-
because the rest of the developed world is becom- ciety and economy remain introverted, the savings
ing more like Japan yet the JPY remains a net-sav- rate has even increased and the current account sur-
ings and safe-haven currency. plus is stubbornly high.
The decision of Shinzo Abe to step down as Japanese The JPY was part of Abenomics
PM was not a complete surprise and had little effect The equity market has welcomed Abenomics. After
on financial markets. Abe undoubtedly made history more than two decades of decline and stagnation the
but his legacy is mixed. Most importantly, Abe stopped Nikkei rallied nearly 150% since 2012. The JPY, how-
the deflationary spiral. After two decades of stagna- ever, was initially crushed by Abenomics with USDJPY
tion and decline, nominal GDP increased steadily since surging from around 80 in 2012 to 125 in 2015. This
2012, albeit at a moderate pace of 1.6% per year. In- was undoubtedly a deliberate side effect of the ag-
flation is low by international standards but no longer gressive monetary policy push. Since then, the JPY has
persistently negative and property prices started to gradually regained lost ground, thanks largely to the
rise again. rise of the current account surplus.
The biggest beneficiary of Abenomics is the corpo- Like its North-Asian neighbors, Japan managed to
rate sector, with profit margins roughly doubling be- control the medical impact of the Corona pandemic
tween 2012 and 2019. Female labor force participa- fairly well. However, the economic impact was severe,
tion rose significantly and unemployment fell from given Japan’s high export orientation. Going forward,
4.5% in 2012 to 2.5% in 2019, before climbing back the Japanese economy is likely to follow the rest of
to 3% in the wake of the Corona crisis. Abe managed the world in the recovery, but will probably not out-
to reduce the fiscal deficit from 8.6% of GDP in 2012 perform. The JPY has underperformed as risk senti-
to 3.3% of GDP in 2019 but failed to stop the debt ment recovered, but it has proven its safe-haven qual-
build-up with the debt-to-GDP ratio hitting 238% at ities, gaining 2.5% versus the USD year-to-date.
the end of 2019.
Most controversial is Abe’s push to subordinate JPY to strengthen gradually further
monetary policy to the fiscal policy agenda. Today, the Who will succeed Shinzo Abe as PM is still unclear.
1 | QCAM Monthly
However, we do not expect a major policy shift and The external surplus factor
we also think the JPY will slowly strengthen further. What has prevented Japan’s aggressive policy mix from
In our view, three forces support the JPY. First, the ending in runaway inflation is the high domestic sav-
monetary-fiscal policy mix of other major currencies ings rate and current account surplus. This is curse
is approaching Japanese standards. Second, Japan is and blessing at the same time but good news for the
likely to remain a large external surplus economy. Third,
JPY, especially versus currencies with large current ac-
the JPY’s safe-haven status is likely to remain in de-count deficits, like the USD. The current account sur-
mand. plus declined a bit in the first quarter, but is already
recovering. Yet, net foreign direct investment outflows,
Japanese policy approach is spreading which typically offset a large part of the current ac-
The Japanese government has responded aggressive- count surplus, have plunged and may not return to
ly to the crisis with the budget deficit expected to pre-crisis levels quickly.
surge by 11% of GDP this year while the BoJ boosted
its balance sheet 15% year-to-date. However, this is JPY remains a safe-haven
no longer exceptional. The US and the Euro-area bud- Finally, while the worst of the Corona crisis lies hope-
get deficits are expected to surge by 17% and 11% of fully behind, the next few years will probably remain
GDP respectively, while the Fed has almost doubled marked by increased uncertainty, especially geopolit-
the size of its balance sheet and the ECB boosted its ical tensions and trade conflicts. This plays to the JPY’s
balance sheet by more than a third. Moreover, inter- proven strength as a safe-haven currency and is fur-
est rates are converging around zero everywhere, ther increased by its reduced appeal as a funding cur-
which reduces the JPY’s appeal as a funding currency, rency for carry trades.
especially for carry trades.
Japan current account und foreign direct investment
% of GDP
9
8
7
6
5
4
3
2
1
0
-1
-2
-3 Current account balance Net FDI outflows
-4
Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20
Source: Bank of Japan and QCAM Currency Asset Management
QCAM Monthly | 2Economy & Interest Rates
Global economic activity continued to recover in an uncertainty. Overall, the pace of the recovery is
August and forecast revisions have broadly changed set to slow from here. China continues to lead the
to the upside. The recovery is now moving from the recovery followed by Europe and the USA, while
re-opening rebound to a second more cyclical South America and South Asia are lagging behind.
phase, which is still marked by significant corpo- Meanwhile, the fiscal costs of the pandemic keep
rate balance sheet and labor market distortions, rising.
while the course of the Corona pandemic remains
Real GDP growth1 Unemployment rate1 Inflation rate1 Current account2 Fiscal balance2 Public debt 2
2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020
Global 2.9 -4.5 n.a. n.a. 3.6 2.5 n.a. n.a. n.a. n.a. n.a. n.a.
Developed 1.7 -6.0 4.8 9.0 1.4 0.7 n.a. n.a. n.a. n.a. n.a. n.a.
USA 2.3 -5.0 3.7 9.5 1.8 1.0 -2.3 -2.5 -6.3 -24.0 108.7 140.0
Canada 1.7 -7.0 5.7 9.0 1.9 1.0 -2.0 -3.0 -0.3 -13.0 88.6 110.0
Euro-area 1.3 -7.0 7.6 9.0 1.2 0.5 3.0 3.0 -0.6 -12.0 84.1 105.0
Sweden 1.2 -5.0 6.8 8.0 1.7 0.5 3.9 3.5 0.4 -10.0 34.8 45.0
Switzerland 0.9 -4.0 2.3 3.5 0.4 -0.5 12.2 10.0 0.9 -8.0 39.3 47.0
UK 1.4 -9.0 3.8 6.5 1.8 1.0 -3.8 -4.0 -2.1 -13.0 85.4 104.0
Japan 0.7 -6.0 2.4 3.0 0.5 -0.2 3.6 3.0 -3.3 -15.0 238.0 270.0
Australia 1.8 -3.5 5.2 7.5 1.6 1.0 0.6 1.0 -3.9 -9.0 45.0 58.0
Emerging 3.7 -1.0 n.a. n.a. 5.0 3.5 n.a. n.a. n.a. n.a. n.a. n.a.
China 6.1 2.0 3.6 4.0 2.9 2.0 1.0 1.5 -6.3 -12.0 52.0 64.0
India 4.2 -9.0 n.a. n.a. 4.5 5.0 -1.1 0.0 -7.9 -12.0 72.2 85.0
Russia 1.3 -4.0 4.6 6.5 4.5 3.5 4.1 1.0 1.9 -6.0 13.9 19.0
Brazil 1.1 -7.0 11.9 15.0 3.7 3.0 -2.7 -1.0 -6.0 -16.0 89.5 105.0
Source: OECD, IMF World Economic Outlook and QCAM estimates 1) In percent 2) In percent of GDP
OECD business and consumer confidence
102
Business confidence Consumer confidence
101
100
Index Ø = 100
99
98
97
96
2000 2005 2010 2015 2020
Source: OECD and QCAM, the last observations are QCAM estimates based on other surveys
3 | QCAM MonthlyInterest Rates
Interest Rate Level Overview
Short Term Interest Rate (3month OIS) Long Term Interest Rate (10year Swap)
Current 1M ago 3M ago 12M ago Ø 3 years Current 1M ago 3M ago 12M ago Ø 3 years
USD 0.07% 0.07% 0.05% 1.84% 1.58% 0.66% 0.52% 0.68% 1.38% 2.14%
EUR -0.47% -0.47% -0.47% -0.51% -0.40% -0.20% -0.23% -0.09% -0.27% 0.48%
JPY -0.04% -0.04% -0.07% -0.11% -0.06% 0.06% 0.01% 0.05% -0.08% 0.15%
GBP 0.05% 0.05% 0.06% 0.68% 0.53% 0.39% 0.30% 0.43% 0.56% 1.14%
CHF -0.73% -0.73% -0.73% -0.94% -0.75% -0.37% -0.44% -0.38% -0.66% -0.03%
AUD 0.12% 0.15% 0.14% 0.83% 1.08% 0.81% 0.75% 0.90% 1.11% 2.06%
CAD 0.24% 0.24% 0.24% 1.68% 1.33% 1.02% 0.93% 1.01% 1.57% 2.10%
SEK -0.04% -0.04% -0.03% -0.23% -0.30% 0.33% 0.31% 0.39% 0.17% 0.84%
RUB 4.12% 4.13% 4.83% 6.98% 6.82% 6.12% 5.89% 6.01% 7.83% 7.81%
BRL 1.63% 1.51% 1.87% 4.77% 4.87% 7.52% 6.78% 7.51% 7.73% 9.24%
CNY 2.47% 2.30% 1.81% 2.70% 2.70% 3.03% 2.85% 2.36% 3.12% 3.28%
TRY 12.25% 8.92% 7.87% 17.22% 17.10% 11.29% 11.74% 10.45% 14.77% 14.46%
INR 3.76% 3.74% 3.80% 5.31% 5.68% 4.94% 4.61% 4.52% 4.95% 6.06%
3-month Libor
8%
6%
4%
2%
0%
EUR USD GBP CHF JPY
-2%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: Bloomberg, QCAM Currency Asset Management, as of September 2nd, 2020
QCAM Monthly | 4FX Markets
FX Performance vs. PPP
The USD slide stalled in the first half of August and Speculative positions suggest that the USD is over-
then regained some momentum after the US Fed sold, but low interest rate spreads are raising hedg-
inflation target announcement. Risk-sensitive cur- ing activity versus the USD. FX volatilities have re-
rencies like the GBP gained the most, but even the mained muted. PPP estimates have not changed
JPY held up well. The improving risk sentiment was much but the overvaluation of the USD against
generally positive for Emerging Markets although most currencies has narrowed.
trouble cases like the TRY have not regained ground.
Overview
Performance1 Purchasing Power Parity2
Current
Exchange
Rate YTD 1M 12M 5 years PPP Neutral Range Deviation3
EURUSD 1.185 5.51% 0.48% 7.96% 5.46% 1.29 1.15 - 1.43 -8%
USDJPY 106.170 -2.22% 0.31% 0.03% -11.63% 95.62 84.8 - 106.5 11%
GBPUSD 1.333 0.49% 1.75% 10.36% -12.95% 1.58 1.41 - 1.76 -16%
EURCHF 1.080 -0.49% 0.31% -0.56% -0.82% 1.10 1.04 - 1.16 -2%
USDCHF 0.912 -5.66% -0.16% -7.89% -5.94% 0.88 0.78 - 0.98 4%
GBPCHF 1.215 -5.21% 1.59% 1.65% -18.14% 1.27 1.15 - 1.38 -4%
CHFJPY 116.460 3.64% 0.48% 8.61% -6.04% 92.46 81.6 - 103.4 26%
AUDUSD 0.733 4.31% 2.53% 9.08% 4.25% 0.78 0.68 - 0.87 -6%
USDCAD 1.307 0.67% -2.61% -1.91% -1.54% 1.21 1.12 - 1.30 8%
USDSEK 8.723 -6.70% -0.58% -11.18% 3.63% 7.9 6.98 - 8.82 10%
EURSEK 10.335 -1.55% -0.10% -4.10% 9.28% 8.67 8.13 - 9.21 19%
USDRUB 75.409 21.55% 1.51% 12.93% 12.41% 51.54 43.5 - 59.6 46%
USDBRL 5.368 33.55% 3.17% 28.72% 43.27% 3.2 2.64 - 3.77 68%
USDCNY 6.830 -1.89% -2.28% -5.06% 5.88% 6.52 6.33 - 6.72 5%
USDTRY 7.385 24.12% 5.71% 26.98% 150.83% 4.45 3.52 - 5.37 66%
USDINR 73.265 2.86% -2.21% 1.76% 10.73% 8.07
68.49 63.5 - 73.5 7%-1
1 Performance over the respective period of time, in percent
2 Purchasing power parity (PPP) is estimated based on the relative development of inflation rates in two currency markets;
the neutral range is determined by ± 1 standard deviation of the historical variation around the PPP value.
3 Deviation of the current spot rate from PPP, in percent.
Source: Bloomberg, QCAM Currency Asset Management, as of September 2nd, 2020
5 | QCAM MonthlyPurchasing Power Parity
EURUSD EUR/USD USDJPY USD/JPY
250
1.4
200
1.2
1.0 150
0.8 100
1990 1995 2000 2005 2010 2015 2020 1990 1995 2000 2005 2010 2015 2020
EURCHF EUR/CHF USDCHF USD/CHF
1.8 2.5
1.6
2.0
1.4
1.5
1.2
1.0
1.0
1990 1995 2000 2005 2010 2015 2020 1990 1995 2000 2005 2010 2015 2020
GBPUSD GBP/USD EURSEK EUR/SEK
2.0 11
1.8 10
1.6 9
1.4 8
1.2 7
1990 1995 2000 2005 2010 2015 2020 1990 1995 2000 2005 2010 2015 2020
AUDUSD AUD/USD USDCAD USD/CAD
1.1 1.6
1.0 1.5
0.9 1.4
0.8 1.3
1.2
0.7
1.1
0.6
1.0
0.5
1990 1995 2000 2005 2010 2015 2020 1990 1995 2000 2005 2010 2015 2020
PPP Spot Neutral Range
Source: Bloomberg, QCAM Currency Asset Management, as of September 2nd, 2020
QCAM Monthly | 6FX Spot vs Forwards
FX Forwards Level and Premium
Current Forward Level Premium p.a.
Exchange
Rate 1M 3M 12M 1M 3M 12M
EURUSD 1.185 1.1856 1.1872 1.1947 0.82% 0.78% 0.82%
USDJPY 106.170 106.1255 106.0519 105.5510 -0.49% -0.44% -0.57%
GBPUSD 1.333 1.3331 1.3334 1.3352 0.25% 0.19% 0.18%
EURCHF 1.080 1.0799 1.0794 1.0773 -0.27% -0.26% -0.26%
USDCHF 0.912 0.9108 0.9093 0.9018 -1.09% -1.04% -1.06%
GBPCHF 1.215 1.2142 1.2125 1.2041 -0.85% -0.86% -0.89%
CHFJPY 116.460 116.5207 116.6377 117.0553 0.61% 0.60% 0.50%
AUDUSD 0.733 0.7328 0.7329 0.7329 0.10% 0.09% 0.03%
USDCAD 1.307 1.3064 1.3063 1.3062 -0.08% -0.07% -0.02%
USDSEK 8.723 8.7199 8.7145 8.6885 -0.45% -0.40% -0.39%
EURSEK 10.335 10.3386 10.3454 10.3801 0.37% 0.39% 0.42%
USDRUB 75.409 75.6539 76.1028 78.3799 3.66% 3.64% 3.89%
USDBRL 5.368 5.3733 5.3854 5.4361 1.23% 1.31% 1.24%
USDCNY 6.830 6.8436 6.8698 6.9958 2.11% 2.33% 2.38%
USDTRY 7.385 7.4610 7.6430 8.6447 11.53% 13.80% 16.82%
USDINR 73.265 74.0001 74.0047 74.0280 11.65% 3.99% 1.02%
Historical Spot Performance and Current Forward Premium vs. the US Dollar
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
1 year historical spot performance 1 year current forward premium
-30%
EUR JPY GBP CHF AUD CAD SEK RUB BRL CNY TRY INR
Source: Bloomberg, QCAM Currency Asset Management, as of September 2nd, 2020
7 | QCAM MonthlyFX Volatility
Historical vs. Implied Volatility
Current Historical Volatility 1 Implied Volatility 2
Exchange
Rate Current 1M 12M Ø 5 years Current 1M 12M Ø 5 years
EURUSD 1.185 6.47% 6.41% 4.96% 7.12% 7.90% 7.68% 6.34% 7.67%
USDJPY 106.170 6.31% 6.47% 6.83% 8.21% 8.28% 7.40% 7.78% 8.61%
GBPUSD 1.333 8.05% 8.58% 6.21% 9.24% 9.33% 8.90% 14.05% 9.51%
EURCHF 1.080 4.75% 4.84% 4.07% 4.45% 5.40% 4.90% 5.60% 5.65%
USDCHF 0.912 6.98% 6.33% 7.07% 6.99% 7.66% 7.25% 6.69% 7.45%
GBPCHF 1.215 7.69% 8.64% 7.39% 8.96% 8.00% 7.98% 14.00% 9.21%
CHFJPY 116.460 6.32% 6.28% 4.37% 7.18% 7.38% 7.15% 6.23% 8.07%
AUDUSD 0.733 8.89% 11.13% 6.57% 9.19% 10.75% 10.25% 7.78% 9.42%
USDCAD 1.307 5.86% 7.95% 5.11% 7.21% 7.03% 6.43% 5.70% 7.40%
USDSEK 8.723 8.17% 9.29% 6.88% 8.75% 9.90% 9.88% 8.28% 9.17%
EURSEK 10.335 4.77% 5.44% 5.30% 5.79% 5.90% 5.80% 5.65% 6.38%
USDRUB 75.409 12.71% 12.32% 9.16% 14.00% 15.12% 13.85% 10.55% 14.15%
USDBRL 5.368 19.40% 22.82% 11.85% 15.08% 20.63% 19.30% 13.38% 15.77%
USDCNY 6.830 3.51% 3.80% 6.05% 4.59% 6.50% 5.58% 6.17% 5.50%
USDTRY 7.385 8.95% 7.69% 11.59% 14.68% 19.21% 14.94% 17.11% 15.71%
USDINR 73.265 5.10% 5.27% 6.36% 5.63% 7.18% 6.18% 6.62% 6.49%
1 2
Realised 3-month volatility (annualised) Market implied 3-month volatility (annualised)
QCAM Volatility Indicator3
30%
25%
historical volatility in percent
20%
15%
10%
5%
0%
2004 2008 2012 2016
3
The QCAM volatility indicator measures general volatility in global FX markets; the indicator is based on historical volatility
of the main exchange rates, which are weighted by trading volume.
Source: Bloomberg, QCAM Currency Asset Management, as of September 2nd, 2020
QCAM Monthly | 8FX Analytics
QCAM has developed an analytical framework to the technical analysis of daily exchange rates (trend
take scalable exchange rate positions. The QCAM following and mean reversion). We also consider
exchange rate strategy for each currency pair has speculative futures positions and the deviation of
three principle components: exchange rates from purchasing power parity.
• Macro The summary table below and the following pag-
• Sentiment es show the QCAM strategy framework and the
• Technical positioning for the major currency pairs actively
covered by QCAM. The tables divide each of the
The positioning signals from each component three strategies into subcomponents with an indi-
are aggregated into an overall positioning score for cation of the current impact. The charts show the
each currency pair. This score is used for the dy- respective exchange rate with past QCAM posi-
namic exposure management. tions and their scale.
The Macro component consists typically of eco-
nomic growth, balance of payments, fiscal and mon- Current positioning
etary policy and in some cases commodity funda- The EURUSD position remains the strongest call
mentals. with all three strategies long EUR. Strategy posi-
The Sentiment component is a rule-based frame- tions in other currency pairs are more mixed and
work built on economic sentiment surveys and com- leave positions mostly closer to neutral with a short
plemented with risk sentiment estimates. USD bias. The USD is generally oversold, which
The Technical component consists primarily of could trigger corrections in the short-term.
Overview¹
Macro Sentiment Technical Comment
EURUSD + + + The long EUR position continues to rest on all three
strategy components
USDJPY – 0 – Macro and Technical remain long JPY
and Sentiment is expected to follow
EURCHF 0 + +
Sentiment and Technical are both negative CHF
versus EUR and USD. Our Macro view is neutral
USDCHF – + + EURCHF and consequently long CHF vs USD
GBPUSD 0 + + Sentiment and Technical remain long GBP
but we prefer a neutral Macro position
EURSEK + – – The Macro interest rate model went short SEK but
we prefer an overall neutral stance
USDCAD + 0 – The Macro oil price model is long USD but overall
we prefer a neutral position
¹ The signs relate to the first currency of the exchange rate pair
Source: QCAM Currency Asset Management
9 | QCAM MonthlyEURUSD
The EUR got another boost from the Fed inflation but we believe that the loss of stronger economic
target announcement but more broadly started to growth and higher interest rates plus a faster wid-
loose momentum amid mounting long EUR posi- ening fiscal deficit will remain USD negative.
tions. There is the risk of a near-term correction,
FX Factors EUR Impact Comment
Macro Current Account Balances + Euro-area surplus has declined but remains positive vs. US
deficit
Fiscal Balances + US deficit has widened faster than Euro-area deficit
Interest Rate Differentials 0 USD-EUR rate differential to remain small
Oil prices 0 Oil prices seen in range after recent recovery
Sentiment Economic Sentiment + Euro-area surveys have rebounded more strongly from
initially weaker levels, but momentum is fading
Risk Sentiment + The US election is the main uncertainty but Euro-area debt
sustainability is not assured either
Technical Price Action + Price developments are EUR positive
Spec Positions – Large USD oversold positions create correction risks
PPP Valuation + EUR undervaluation has declined by half
EURUSD and QCAM Strategic Positioning
1.4
1.3
1.2
1.1
2012 2014 2016 2018 2020
Short EUR Long EUR Neutral Signal Strength
Source: Bloomberg, QCAM Currency Asset Management
QCAM Monthly | 10USDJPY
We favor the JPY from a Macro perspective on strong rona cases creates some uncertainty, but the levels are
BoP fundamentals and the decline in carry flows. This low in comparison to other major economies and we
view is supported by the Technical side and we expect expect that the outbreak will be contained (see also
that the Sentiment side will follow as well as on the main story).
back of improving economic surveys. The rise in Co-
FX Factors JPY Impact Comment
Macro Current Account Balances + Surplus lower on declining trade but already recovering
FDI Flows + Net outflows have plunged and are unlikely to rebound
quickly to offset the current account surplus
Interest Rate Differentials 0 The drop in interest rate differentials and higher uncertainty
have decimated the carry trade
Sentiment Economic Sentiment 0 Latest surveys show less pessimism in Japan
Risk Sentiment + Uncertainty continues to undermine carry appetite
Technical Price Action – Price action remains long JPY
Spec Positions 0 Only small net long JPY positions
PPP Valuation + USDundervaluation
JPY overvaluation unlikely
unlikely to correct
to reverse quickly
quickly
USDJPY and QCAM Strategic Positioning
120
110
100
90
80
2012 2014 2016 2018 2020
Short USD Long USD Neutral Signal Strength
Source: Bloomberg, QCAM Currency Asset Management
11 | QCAM MonthlyEURCHF
The CHF lost some ground versus the EUR as risk sen- mostly to the sideline. On balance we expect EURCHF
timent improved and Euro-area concerns faded. The to remain in a range between 1.07 and 1.09.
SNB was selling CHF in early August but then moved
FX Factors CHF Impact Comment
Macro Current Account Balances + Surplus likely to remain stable
Capital Flows (Safe Haven) 0 Inflows easing on reduced Euro concerns
Interest Rate Differentials 0 No significant change expected
SNB Policy Intervention – SNB intervention to slow CHF appreciation, if we get close to
1.05 again
Sentiment Economic Momentum 0 Swiss recovery moves in line with Euro-area
Risk Factors 0 Euro-related concerns have receded
Technical Price Action + The move above 1.08 supports the EUR again
Spec Positions 0 Close to neutral
PPP Valuation – CHF unlikely to correct overvalued position significantly soon
EURCHF and QCAM Strategic Positioning
1.15
1.10
1.05
2016 2017 2018 2019 2020
Short EUR Long EUR Neutral Signal Strength
Source: Bloomberg, QCAM Currency Asset Management
QCAM Monthly | 12USDCHF
The CHF has reached its long-term fair value around nals, that also favors the CHF versus the USD. Un-
0.90. The direction of USDCHF depends currently like the EUR, however, the CHF is not significantly
mostly on EURUSD. Given the still strong EUR sig- overbought and, thus, faces less correction risk.
FX Factors CHF Impact Comment
Macro Current Account Balances + Surplus likely to remain stable
Capital Flows (Safe Haven) 0 No impact as long as markets remain in risk-on mode
Interest Rate Differentials + Substantially reduced differential detracts bond market
flows and increases USD hedging
SNB Policy Intervention 0 SNB not expected to intervene vs. USD
Sentiment Economic Momentum 0 Swiss economy moving in line with global recovery
Risk Factors 0 CHF holding up well vs. USD despite risk-on environment
Technical Price Action – Technicals have shifted to long USD
Spec Positions +
Modestly long CHF positions likely to stay in range
PPP Valuation 0 CHF at fair value
USDCHF and QCAM Strategic Positioning
1.02
1.00
0.98
0.96
0.94
0.92
2016 2017 2018 2019 2020
Short USD Long USD Neutral Signal Strength
Source: Bloomberg, QCAM Currency Asset Management
13 | QCAM MonthlyGBPUSD
The GBP continued to benefit from the USD slide tent current account deficit, the possibility that
and risk-on sentiment even though its fundamen- policy rates move negative, a surging fiscal deficit
tals are not better. The reopening of the Corona and the risk that a free-trade deal with the EU may
lockdown and better business surveys were prob- fail leave the GBP vulnerable. The GBP should un-
ably the main GBP supporters. However, a persis- derperform in any return to risk aversion.
FX Factors GBP Impact Comment
Macro Current Account Balances 0 US and UK twin deficits both seen deteriorating
Interest Rate Differentials 0 USD and GBP interest rates are about equal
Oil Price 0 The lift from the recent oil price recovery has stalled
Sentiment Economic Sentiment + Although surveys have improved further, the UK economy
is at risk to underperform also due to final BREXIT outcome
Risk Sentiment – Remaining risk that a free-trade deal with the EU could fail
Technical Price Action + Technicals have shifted from neutral to positive
Spec Positions 0 Net positions are close to flat
PPP Valuation + Unlikely to mean revert soon, PPP trend may deteriorate as
well
GBPUSD and QCAM Strategic Positioning
1.7
1.6
1.5
1.4
1.3
1.2
2012 2014 2016 2018 2020
Short GBP Long GBP Neutral Signal Strength
Source: Bloomberg, QCAM Currency Asset Management
QCAM Monthly | 14EURSEK
The SEK rally has stalled and the Macro interest On the other side, Sentiment and Technical have
rate model went short SEK. However, the Riksbank turned positive SEK, leaving an overall mixed (neu-
is not expected to return to negative interest rates. tral) position.
FX Factors SEK Impact Comment
Macro Current Account Balances 0 Positive, but similar to Euro-Zone
Interest Rate Differentials – The Macro interest model has shifted short SEK but a return
to negative interest rates seems unlikely
Sentiment Economic Momentum + Surveys have switched in support of the SEK
Risk Factors 0 Risk perceptions concerning Sweden's different Corona
strategy have faded
Technical Price Action – Technicals have switched back to long SEK
PPP Valuation + SEK undervaluation unlikely to reverse quickly
EURSEK and QCAM Strategic Positioning
11.0
10.5
10.0
9.5
9.0
8.5
2010 2012 2014 2016 2018 2020
Short EUR Long EUR Neutral Signal Strength
Source: Bloomberg, QCAM Currency Asset Management
15 | QCAM MonthlyUSDCAD
After stalling in July, the CAD has caught up with the USD on fading oil price momentum. Otherwise, we
USD decline in August and changed the Technical po- see no outstanding fundamental factors to take a po-
sition. The Macro oil-price model has shifted to long sition either way.
FX Factors CAD Impact Comment
Macro Current Account Balances 0 Canada's current account deficit moves similar to the US
current account deficit
Oil Prices 0 Oil price recovery expected to flatten
Interest Rate Differentials 0 USD and CAD interest rates likely to stay close together
USD DXY Trend + The CAD benefitted from USD weakeness but correction
possible
Sentiment Economic Sentiment 0 The improvement in business confidence in Canada has
caught up with the US
Risk Sentiment 0 No specific Canadian risks, global risk factors dominating
Technical Price Action – Long-term trend still pointing to CAD weakness
Spec Positions 0 Short CAD position has shifted to neutral
PPP Valuation + CAD undervaluation unlikely to correct quickly
USDCAD and QCAM Strategic Positioning
1.4
1.3
1.2
1.1
1.0
2012 2014 2016 2018 2020
Short USD Long USD Neutral Signal Strength
Source: Bloomberg, QCAM Currency Asset Management
QCAM Monthly | 16QCAM Products and Services
Our edge derives from a focus on professional currency management, the absolute transparency and the careful ex-
amination of risk. It is our mission to offer our clients innovative transparent solutions, in a thoughtful and risk-con-
trolled environment, and to surpass investment goals.
Currency Overlay
Risks under control – opportunities in sight: QCAM Currency Overlay offers cus-
tomised solutions for individual needs and investment goals. Our Passive Over-
lay focuses on risk management, reduction of transaction costs and the custom-
er specific management of resulting cash flows.
Our Dynamic Overlay aims to generate returns based on QCAM´s proprietary
FX Analytics, embedded in a strict risk budgeting framework.
FX Best Execution
With larger foreign currency transactions, even a small difference in pricing leads
to a major impact on costs and revenues. While it is unattainable for most play-
ers to keep the full overview of the deals available in the market, independence
and transparency are essential. We carry out a Transaction Cost Analysis for our
clients to evaluate potential cost savings. Also, QCAM assists its clients in the
design of an optimal mulitbank-setup and conducts clients FX transactions trans-
parently, independently and in the client’s best interests.
Optimized Liquidity Management
QCAM’s Optimized Liquidity Management Strategy «OLM» enhances yield via
the use of the FX interbank swap-market. Also, we take advantage from excel-
lent conditions which we receive from our large pool of partner banks and high-
ly rated debtors for money market and currency transactions QCAM’s OLM strat-
egy has outperformed its peers for many years on a constant basis.
17 | QCAM MonthlyQCAM Profile
About us
Headquarters
QCAM Currency Asset Management AG is an independent financial servic-
es provider with a specific focus on currency and liquidity management. Zug, Switzerland
QCAM brings together a team of internationally experienced Currency and
Asset Management specialists, who are managing assets of institutional cli- Founded
ents of approx. USD 5 billion.
2005
Our core competences are Currency Overlay Services, FX Transaction
Execution according to „Best Execution“ principles, Currency/CTA invest-
Regulation
ments as well as Liquidity Management.
Long-standing customers of QCAM are pension funds, family offices, in- FINMA since 2007
vestment funds, companies, NGOs and HNWIs. SEC since 2014
Independent and Transparent
Interests directly aligned with those of our clients
Client focused solutions, tailored to each individuals requirements
Independent selection of suitable external services providers
No principal-agent conflicts
Transparent fee model – no hidden costs
Transparent reporting
QCAM MONTHLY Editorial Team
Bernhard Eschweiler, PhD Niko Haziiosifidis Felix Dietrich, PhD
Senior Economist Currency Overlay Quantitative Research
bernhard.eschweiler@q-cam.com niko.haziiosifidis@q-cam.com felix.dietrich@q-cam.com
Thomas Suter Antoinette Weiss Sabrina von Dach
CEO Business Management Business Management
thomas.suter@q-cam.com antoinette.weiss@q-cam.com sabrina.vondach@q-cam.com
QCAM Monthly | 18Legal Disclaimer
This report has been prepared and published by QCAM Currency
Asset Management AG. The analysis contained herein is based on
numerous assumptions. Different assumptions could result in ma-
terially different results. Although all information and opinions ex-
pressed in this document were obtained from sources believed to
be reliable and in good faith, no representation or warranty, ex-
press or implied, is made as to its accuracy or completeness. All
information and opinions indicated are subject to change without
notice. This document may not be reproduced or circulated with-
out the prior authorization of QCAM Currency Asset Management
AG. QCAM Currency Asset Management AG will not be liable for
any claims or lawsuits from any third parties arising from the use
or distribution of this document. This report is for distribution only
under such circumstances as may be permitted by applicable law.
Imprint
Content, concept, and layout:
QCAM Currency Asset Management AG, Zug
Editorial deadline: September 7th, 2020
Market data: September 2nd, 2020
QCAM Currency Asset Management AG
Guthirtstrasse 4
6300 Zug
Switzerland
T +41 55 417 00 50
info@q-cam.com
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