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27 Feb 2013
Forex Flash: Flush out Trades Part 2 - Nomura
Saeed Amen, Strategist at Nomura writes that at the end of January he published a paper examining the fate of the popular year-ahead trades for the rest of the quarter.
he found that generally there was a reversal from the end of January until the start of April. Based on his performance analysis at the end of January, RON, INR and BRL were “popular” year end trades in 2013, while ZAR, JPY and GBP were “unpopular” in 2013. He writes, “Now, at the end of February, in particular because the rule has flagged some relatively large moves (RON is nearly 4% weaker vs USD), we ask whether it can help inform price action purely in March.”
He find that the trades that performed well in January, experience under performance in March. Conversely, poorly performing January trades outperform in March. Hence, he writes, the "flush out" phenomenon is not purely confined to February. Therefore, the model suggests there should be a continued flush out in "popular" January trades (i.e. RON, INR and BRL) and a come-back from "unpopular" (ie ZAR, JPY and GBP) January trades in March. He finishes by adding, “We also analysed whether February price action affects March, and on the margin, we found that large February moves continued on through March. Our March year-ahead fade basket has made on average 112bp each March since 1999.”
he found that generally there was a reversal from the end of January until the start of April. Based on his performance analysis at the end of January, RON, INR and BRL were “popular” year end trades in 2013, while ZAR, JPY and GBP were “unpopular” in 2013. He writes, “Now, at the end of February, in particular because the rule has flagged some relatively large moves (RON is nearly 4% weaker vs USD), we ask whether it can help inform price action purely in March.”
He find that the trades that performed well in January, experience under performance in March. Conversely, poorly performing January trades outperform in March. Hence, he writes, the "flush out" phenomenon is not purely confined to February. Therefore, the model suggests there should be a continued flush out in "popular" January trades (i.e. RON, INR and BRL) and a come-back from "unpopular" (ie ZAR, JPY and GBP) January trades in March. He finishes by adding, “We also analysed whether February price action affects March, and on the margin, we found that large February moves continued on through March. Our March year-ahead fade basket has made on average 112bp each March since 1999.”