Mixed macro signals cloud the outlook for most FX instruments – Month in Review: August 2021
Macroeconomic Environment Review
Currency markets continued to struggle for direction over the last month. The spread of the Delta variant plus disappointing economic data releases around the world led to increased uncertainty but also delayed Fed tapering expectations, leaving the US Dollar broadly range-bound. In our opinion, mixed signals will continue to dominate the near-term outlook with the elections in Germany, Japan and Canada potentially adding new uncertainties. As a result, we expect a continuation of range trading in the FX markets in the weeks to come and maintain a conservative macro view.
Looking at the Euro/Dollar, we hold a negative macro view on the Dollar based on its fundamentals (recent data disappointed and twin deficits persist). The Euro area has caught up on the vaccination progress and the economic recovery momentum. However, there are persistent risk factors burdening the Euro, namely the monetary/fiscal policy, China, Corona and the upcoming German election. On balance, we expect range trading in the near term.
Taking a look at the British Pound, the macroeconomic sentiment remains neutral but Business Sentiment has shifted negative for Sterling, while the technical outlook points to the downside. As a result, the overall outlook tilts negative for the Pound. The threat from the Delta variant seems to be easing and the crowded long GBP position has disappeared. Still, the GBP has come a long way since Brexit and the UK remains a deficit economy, limiting the upside potential.
Performance Review August 2021
Across the spectrum of our benchmark indices, our performance during August was rather positive. As a comparison, AENAON Syncro Currencies returned 1.12% last month, versus a 2.90% return for the US S&P 500 equities index, a 1.09% uptick for the Barclay Hedge Fund Index, a 0.10% gain for the Barclay CTA Index, a negative -0.27% return for the Currency Traders Index and a -0.06% downtick for the Systematic Traders Index.
Chart 1: Performance vs. Benchmark Indices – August 2021
You can always review AENAON Syncro Currencies’ updated factsheet at our Fundpeak link, with monthly performance updates and statistics since inception.
