Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from the<a href="https://www.bis.org/statistics/eer.htm" target="_blank" rel="noopener"> BIS</a> (April 2019) and national central banks (see <a href="https://gallery.mailchimp.com/948838a86ce72ab6d8019a39d/files/15f4d8a9-56a4-46fd-9d78-607e5fd523e6/4X_Global_Research_Nominal_Effective_Exchange_Rates_Monthly_seasonal_patterns.pdf" target="_blank" rel="noopener">Nominal Effective Exchange Rates: Monthly seasonal patterns</a>, 10 January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. However, significant changes in central bank or government policy, major domestic events (e.g. Brexit) and once-in-a-lifetime “black swan” events such as the Covid-19 pandemic January can break down even well established seasonal currency patterns. In emerging Asia interventionist central banks have in part eroded monthly currency seasonality.Unsurprisingly, typical monthly seasonal currency patterns broke down in 2020, with a few exceptions. In particular, when global risk sentiment collapsed in March and peaked in June only a handful of currencies moved broadly in line with their historical patterns. Historical seasonal patterns somewhat re-established themselves in Q3 (notably August) with domestic factors once again driving asset prices, including currencies. But the resurgence in Covid-19 cases and deaths in Q4 along with the re-imposition of national lockdowns once again contributed to a breakdown in historical seasonal patterns, albeit not as marked as in March or June.The Brazilian Real and Colombian Peso NEERs recorded the strongest average rates of appreciation in the month of January in 2010-2019, while the Turkish Lira and Russian Rouble were the weakest. About 15 NEERs traded broadly in line with their historical patterns in January 2020.However, the Covid-19 pandemic was still in its infancy and its impact on global economies and financial markets still modest. The risk is that many currencies, including the typically strong Swiss Franc, may in January 2021 continue to deviate materially from their 2010-2019 seasonal patterns in our view.

This report updates the monthly seasonal patterns of 31 major Nominal Effective Exchange Rates(NEERs) going back to January 2010, using over two million daily data points with trade-weights derived from the BIS (April 2019) and national central banks (see Nominal Effective Exchange Rates: Monthly seasonal patterns, 10 January 2019). A number of factors can drive currency seasonality, including underlying seasonal patterns in balance of payment flows, the timing of public holidays and market liquidity. However, significant changes in central bank or government policy, major domestic events (e.g. Brexit) and once-in-a-lifetime “black swan” events such as the Covid-19 pandemic January can break down even well established seasonal currency patterns. In emerging Asia interventionist central banks have in part eroded monthly currency seasonality.Unsurprisingly, typical monthly seasonal currency patterns broke down in 2020, with a few exceptions. In particular, when global risk sentiment collapsed in March and peaked in June only a handful of currencies moved broadly in line with their historical patterns. Historical seasonal patterns somewhat re-established themselves in Q3 (notably August) with domestic factors once again driving asset prices, including currencies. But the resurgence in Covid-19 cases and deaths in Q4 along with the re-imposition of national lockdowns once again contributed to a breakdown in historical seasonal patterns, albeit not as marked as in March or June.The Brazilian Real and Colombian Peso NEERs recorded the strongest average rates of appreciation in the month of January in 2010-2019, while the Turkish Lira and Russian Rouble were the weakest. About 15 NEERs traded broadly in line with their historical patterns in January 2020.However, the Covid-19 pandemic was still in its infancy and its impact on global economies and financial markets still modest. The risk is that many currencies, including the typically strong Swiss Franc, may in January 2021 continue to deviate materially from their 2010-2019 seasonal patterns in our view.

Monthly Currency Seasonality: Down and Out?

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

USD is moving into more extreme oversold readings as the DXY meets our downside target of 90.50/sub 90 that sets the stage for a USD tactical low at a time when we find the equity rally in Asia frothy and overbought. Pinpointing a USD low is our focus that will front run an equity peak and commence a pullback cycle in Asia.

USD is moving into more extreme oversold readings as the DXY meets our downside target of 90.50/sub 90 that sets the stage for a USD tactical low at a time when we find the equity rally in Asia frothy and overbought. Pinpointing a USD low is our focus that will front run an equity peak and commence a pullback cycle in Asia.

Dollar Asia Oversold with Turn Risk Signals

Media coverage of Emerging Market currencies tends to oscillate between the very bearish and very bullish, with little differentiation between low and high-yielding currencies or between regional blocks let alone between the dozens of currencies still referred to, rightly or wrongly, as “emerging”. Price action in 2019 only partially vindicates this approach.News articles about the November EM currency rally and the long list of factors supporting further outperformance next year have been rife.EM currencies, particularly high-yielders, materially outperformed in the fortnight following the US elections thanks in part to a pick-up in portfolio inflows. The prevailing view was/is that a less conflictual Biden presidency will be a net positive for global trade and commodity prices. EM currencies appreciated further following news on 23rd November that the more affordable Astra Zeneca vaccine was up to 90% effective and Trump’s announcement that he would allow the transition of power to President-elect Biden.However, in the past two weeks a GDP-weighted basket of EM currencies (excluding the Chinese Renminbi) has appreciated only 0.9% versus the Dollar and underperformed a basket of developed market currencies (+1.3%). Moreover, high yielding EM currencies (+1.1%) have only marginally outperformed low-yielding EM currencies (+0.7%). Domestic and regional factors over-and-above “global risk appetite” have arguably contributed to the outperformance of Central European and Latam currencies and the more mixed (read subdued) performance of high-yielding EM and Asian currencies. One explanation is that some of these EM currencies are already pricing in a lot of “good” news.The consensus forecast is seemingly that EM currencies will outperform both the Dollar and developed market currencies going forward. The long list of supporting factors includes i) cheap EM valuations, ii) EM currencies’ yield advantage, iii) the benefits to EM of further Dollar depreciation and iv) a rebound in global economic growth. We sympathise with this view, albeit with some important caveats. One is that more interventionist Asian central banks may stop their currencies from fully joining any EM currency party in 2021. Moreover, we would split the next 13 months into three timelines.

Media coverage of Emerging Market currencies tends to oscillate between the very bearish and very bullish, with little differentiation between low and high-yielding currencies or between regional blocks let alone between the dozens of currencies still referred to, rightly or wrongly, as “emerging”. Price action in 2019 only partially vindicates this approach.News articles about the November EM currency rally and the long list of factors supporting further outperformance next year have been rife.EM currencies, particularly high-yielders, materially outperformed in the fortnight following the US elections thanks in part to a pick-up in portfolio inflows. The prevailing view was/is that a less conflictual Biden presidency will be a net positive for global trade and commodity prices. EM currencies appreciated further following news on 23rd November that the more affordable Astra Zeneca vaccine was up to 90% effective and Trump’s announcement that he would allow the transition of power to President-elect Biden.However, in the past two weeks a GDP-weighted basket of EM currencies (excluding the Chinese Renminbi) has appreciated only 0.9% versus the Dollar and underperformed a basket of developed market currencies (+1.3%). Moreover, high yielding EM currencies (+1.1%) have only marginally outperformed low-yielding EM currencies (+0.7%). Domestic and regional factors over-and-above “global risk appetite” have arguably contributed to the outperformance of Central European and Latam currencies and the more mixed (read subdued) performance of high-yielding EM and Asian currencies. One explanation is that some of these EM currencies are already pricing in a lot of “good” news.The consensus forecast is seemingly that EM currencies will outperform both the Dollar and developed market currencies going forward. The long list of supporting factors includes i) cheap EM valuations, ii) EM currencies’ yield advantage, iii) the benefits to EM of further Dollar depreciation and iv) a rebound in global economic growth. We sympathise with this view, albeit with some important caveats. One is that more interventionist Asian central banks may stop their currencies from fully joining any EM currency party in 2021. Moreover, we would split the next 13 months into three timelines.

Emerging Market Currencies: Hopes and Realities

Much of the market focus in recent months has been on major reserve currencies, namely:<ul>
<li>The US Dollar which, contrary to bearish expectations and in line with our <a href="https://www.smartkarma.com/insights/warnings-about-us-economy-and-dollar-overblown" target="_blank" rel="noopener">benign Dollar view</a>, has treaded water in the past six weeks and since the Fed’s tweak on 27th August to its dual inflation and employment mandate; </li>
<li>The Euro’s rapid appreciation in July, its more prosaic performance in August and the first half of September and speculation that the European Central Bank would try to jawbone the currency weaker. Instead the ECB as its policy meeting on 10th September resorted to verbal intervention “light”, in line with our core scenario that <a href="https://www.smartkarma.com/insights/brazen-ecb-verbal-intervention-against-euro-unwarranted-and-unlikely" target="_blank" rel="noopener">Brazen ECB verbal intervention against Euro was unwarranted and unlikely</a> (9th September 2020).</li>
<li>Sterling’s collapse last week and only partial recovery in the past four trading sessions. We are sticking to our view that the UK economy and Sterling face four potential headwinds in coming months, including i) fiscal stimulus measures being unwound, ii) a no-deal Brexit, iii) higher taxes and iv) a further re-tightening of lockdown measures in coming months (see <a href="https://www.smartkarma.com/insights/uk-sterling-facing-potential-quadruple-whammy" target="_blank" rel="noopener">UK &amp; Sterling facing potential quadruple whammy</a>, 4th September 2020).</li>
</ul>Conversely, Asian currencies have seemingly fallen under the radar screen, for good reason. They have exhibited little directionality within very narrow ranges in the past month, particularly relative to high-yielding emerging market currencies. We think this is the result of Asian central banks’ ability and willingness to keep their currencies on a tight leash, in order to minimise their disinflationary impact and maintain export competitiveness while at the same time capping the cost to governments, corporates and households of servicing sizeable foreign-currency denominated debt.The Renminbi Nominal Effective Exchange Rate’s 2% appreciation in the past month, while unspectacular, is noteworthy and will be the topic of a forthcoming report.

Much of the market focus in recent months has been on major reserve currencies, namely:
The US Dollar which, contrary to bearish expectations and in line with our benign Dollar view, has treaded water in the past six weeks and since the Fed’s tweak on 27th August to its dual inflation and employment mandate; 
The Euro’s rapid appreciation in July, its more prosaic performance in August and the first half of September and speculation that the European Central Bank would try to jawbone the currency weaker. Instead the ECB as its policy meeting on 10th September resorted to verbal intervention “light”, in line with our core scenario that Brazen ECB verbal intervention against Euro was unwarranted and unlikely (9th September 2020).
Sterling’s collapse last week and only partial recovery in the past four trading sessions. We are sticking to our view that the UK economy and Sterling face four potential headwinds in coming months, including i) fiscal stimulus measures being unwound, ii) a no-deal Brexit, iii) higher taxes and iv) a further re-tightening of lockdown measures in coming months (see UK &amp; Sterling facing potential quadruple whammy, 4th September 2020).
Conversely, Asian currencies have seemingly fallen under the radar screen, for good reason. They have exhibited little directionality within very narrow ranges in the past month, particularly relative to high-yielding emerging market currencies. We think this is the result of Asian central banks’ ability and willingness to keep their currencies on a tight leash, in order to minimise their disinflationary impact and maintain export competitiveness while at the same time capping the cost to governments, corporates and households of servicing sizeable foreign-currency denominated debt.The Renminbi Nominal Effective Exchange Rate’s 2% appreciation in the past month, while unspectacular, is noteworthy and will be the topic of a forthcoming report.

Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen

<div>USD rally in EM and weaker Asia</div><div></div><div><div id="m_-8841900699006217197gmail-m_7605013189581079232gmail-m_8285946348967202929gmail-m_8373973972085014543gmail-m_-2046943345515987336gmail-m_-3271942345019488436gmail-m_-8601638028800490422gmail-m_-1818769555336737264gmail-m_-5743761364813671658gmail-yiv3262984144gmail-yiv8491179354gmail-m_6412183491036835368gmail-m_-8170848313530299977gmail-m_-1338021439201419136gmail-yiv0793626676gmail-yiv3658291188gmail-yiv9742648315gmail-yiv5624468980gmail-m_4468220696712104532gmail-yiv5112448996gmail-yiv6811246325gmail-yiv4082147025gmail-yiv4110810990gmail-yiv0913237361gmail-yiv3060099744gmail-yiv2860260500gmail-yiv4109843974gmail-yiv2018778062gmail-yiv9173876582gmail-yiv4253852595gmail-yiv1542896479gmail-yiv1621362345gmail-yiv0845341188gmail-yiv9298635091gmail-m_1047025307398745624m_6741543500358858430gmail-yiv0656061377gmail-m_-6893113923657684192gmail-yiv2644965660gmail-m_-2000241312407700058gmail-m_-8559198208616140989gmail-yiv2954370071">
<div>
US dollar – DXY second test on 92.60 was used to buy the greenback vs weaker EM and Asia units. The real action will be in EM FX on the TRY lead with ZAR and BRL in pursuit (we are long the USD vs ZAR and BRL with ZAR near a ST top). Risk lies with a stronger USD move if we see a risk off nudge and will catch the market very short the USD (squeeze). This aligns with an EEM top.</div>
<div></div>
<div>DXY bounce target at 95.00 and 95.80 just under 96 resistance. Euro 1.19 rally stall with a pullback target at 1.15. </div>
<div></div>
<div>USD longs in Asia focused in the weaker  group (THB, INR, MYR and KRW). Expect a floor to develop in TWD and PHP crosses into near term weakness (still pairs to short the USD post bounce).</div>
</div></div>

USD rally in EM and weaker Asia

US dollar – DXY second test on 92.60 was used to buy the greenback vs weaker EM and Asia units. The real action will be in EM FX on the TRY lead with ZAR and BRL in pursuit (we are long the USD vs ZAR and BRL with ZAR near a ST top). Risk lies with a stronger USD move if we see a risk off nudge and will catch the market very short the USD (squeeze). This aligns with an EEM top.

DXY bounce target at 95.00 and 95.80 just under 96 resistance. Euro 1.19 rally stall with a pullback target at 1.15. 

USD longs in Asia focused in the weaker  group (THB, INR, MYR and KRW). Expect a floor to develop in TWD and PHP crosses into near term weakness (still pairs to short the USD post bounce).


What Does USD Rally in EM Mean for Asian FX?

Malaysia

The Malaysian ringgit is the official currency of the Federation of Malaysia. 

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MYR (USDMYR CURNCY)

Monthly Currency Seasonality: Down and Out?

Covid-19 pandemic and national lockdowns in 2020 wreaked havoc with historical monthly seasonal patterns for developed and EM currencies. But what...

Olivier Desbarres

Dollar Asia Oversold with Turn Risk Signals

USD in Asia is moving into extreme oversold readings as the DXY meets our downside target that sets the stage for a USD tactical low to front run...

Thomas Schroeder

Emerging Market Currencies: Hopes and Realities

EM currencies appreciated vs USD and outperformed in fortnight following US elections but since then performance more differentiated. Consensus is...

Olivier Desbarres

Dollar, Euro & Sterling in Focus, Asian Currencies Under the Radar Screen

Much of the market focus in recent months has been on major reserve currencies, namely: The US Dollar which, contrary to bearish expectations and...

Olivier Desbarres

What Does USD Rally in EM Mean for Asian FX?

USD rally in EM and weaker Asia US dollar – DXY second test on 92.60 was used to buy the greenback vs weaker EM and Asia units. The real action...

Thomas Schroeder

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52-week Range

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