FX Convictions – Profit protection adjustments

by: Roy Teo

  • We maintain our long USD versus JPY and long HUF versus EUR
  • …but we bring our stop losses (profit protection) closer to the current market level…
  • …so that we protect the positive performance so far

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160830-FX-Conviction-update-profit-protection-adjustments.pdf (84 KB)

Long USD versus JPY; profit protection adjustment

Since initiation on 23 August, our long USD versus JPY call has yielded 2% as financial markets have started to price in that Fed rate may hike sooner rather than later. Ahead of the US non-farm payrolls this Friday, we expect financial markets to buy the dollar on any dips.

160830-FX1  160830-FX2

Separately, the pressure for the Bank of Japan to step up its monetary stimulus program has increased with inflation in July declining to the lowest level since March 2015. Demand in the options market to hedge potential weakness in the JPY has surged in recent weeks. We expect the JPY to decline further as investors unwind speculative long JPY positions in the coming weeks. Exporters and domestic life insurers are likely to hedge their overseas receipts if the JPY weakens. As a result, the upside in USD/JPY will likely be limited. Our short term target is 107 and we have raised our stop loss (profit protection) from 99 to 101.

We keep in place our HUF long versus EUR

We also keep our HUF long versus EUR in our high conviction views in place. However, we have lowered our stop loss from 312 to 310 to protect the current positive performance. For more details please refer to our FX Convictions – Add HUF long versus EUR.