Risk off sentiment drives the greenback higher – Month in Review: September 2020
Macroeconomic Environment Review
After a series of positive months for the US equity markets, September was meant to be a time for correction as the S&P 500 saw a moderate decline of around 4%. I had voiced my concerns on whether the rally we were witnessing during the previous months could be sustained and it seems that investors shared my belief as they put pressure on the mainstream Wall Street markets during September. The first week of October, of course, almost erased the decline I just mentioned but it is my view that, as we come closer to the peak at 3,600 points, market participants will think twice over adding more bullish exposure to their portfolios with the US elections coming into our sights next month. We shall see…
Now turning our focus to the FX space, which is our primary concern, the US Dollar recovered across the board during September, with the Dollar Index (DXY) adding 2.8% before easing up. The recovery was evident against its major peers with Sterling taking most of the beating while the Japanese Yen withstood the pressure better than the rest. The driving forces behind the rally for the greenback had to do with: i) the surge in Covid-19 cases in many European countries which put pressure on their currencies, ii) the general risk aversion that followed on the back of the second wave of the pandemic hitting Europe and iii) the overstretched short positioning against the Dollar that couldn’t be sustained forever.
Looking ahead though, the bearish case for the Dollar doesn’t seem to change: the twin deficits in the US are a burden for any potential pickup in demand for the greenback and, while this remains the case, the Dollar will struggle to find any macroeconomic rationale to push it higher. At the same time, with US interest rates at their current levels there’s little stimulus to be found as any rate differential against the rest of the major currencies is almost non-existing. Finally, the US elections is the big “what if” at this point and only a clear victory for Trump might revive demand for the US currency as he will continue pursuing a domestic business-friendly policy – a scenario that seems ever less likely these days…
Portfolio & Programs’ Review
Starting this month’s review, you should have already noticed that we have changed the name of our program from “AENAON Syncro Algo” to “AENAON Syncro Currencies” – this decision was taken in order to differentiate this particular investment vehicle from the rest of the investment programs we are currently running. No other changes were made to the program, its systematic strategies or anything else, as this was merely a marketing-related tweak.
Moving forward, our performance against all of our benchmark indices during September was rather positive. As a comparison, AENAON Syncro Currencies returned +1.02% last month, versus a -3.92% return for the US S&P500 equities index, a -1.03% loss for the Barclay Hedge Fund Index, a -0.30% loss for the Barclay CTA Index, a +0.27% gain for the Currency Traders Index and a -0.42% decline for the Systematic Traders Index.
As we are now entering the final quarter of this unusual year, our flagship program remains consistently in positive territory as it has done throughout 2020. This month’s gains, amid a difficult to navigate environment, have allowed us to reduce the drawdown caused by last month’s correction by approximately 50% and have positioned us in a favorable place in order to finish the year strong. As such, we remain optimistic that the end of the year will be a positive one, allowing us to achieve a robust risk-adjusted performance for our investors.
You can always review AENAON Syncro Currencies’ updated factsheet at our Fundpeak link, with monthly performance updates and statistics since inception.