CTA Strategy Trading – August 2017

As we exit the summer period into the second half of 2017, developments in the financial markets will take a lead from central bank action. Consequently, the central bank rhetoric has a direct impact on the direction of interest rates. The impact on the US 10-Year treasury yield is a decreasing trend which is likely to continue as inflation levels surprised to the downside. In the Eurozone which experienced an appreciation in the common currency, this will lead to pressure on their inflationary targets. We anticipate a repeat of the situation in other parts of the developed world. Scenarios are occurring whereby central banks can delay their action towards interest rate policy normalization. Signal strategies are commonly pushed around in this environment, therefore our CTA strategy trading processes were challenged.

Equities Elevated by Earnings

The technical picture for global equities has blurred this past month with only US equities still being spurred by corporate earnings. The market rally in the US remains on an upward trend as companies continue to report second quarter numbers that have exceeded expectations. This momentum though is declining in pace in the US, but across the Atlantic European bourses cannot find their footing. The message from the ECB continues on a normalization of monetary policy in the short term. Consequently, this is a contributing factor to the equity market woes. As a consequence to this hawkish stance from the central bank the Euro developed a strong appreciating trend that looks to continue.

Central Banks impacting Currencies

When analyzing the G-10 currencies by their respective valuations over the past month there are two standout currencies. These two large gainers by some margin were the Canadian Dollar and Euro respectively. An unexpected rate hike contributed to a substantial upward trend of the Canadian Dollar against other G-10 currencies. The positive momentum in the Canadian equity market also had a consequential impact on the domestic currency. As a result the Canadian Dollar soared. CTA strategy trading signal anticipated future rate hikes needed to cool the economy. In the Eurozone the common currency showed its resilience against the other currency majors. As with the Bank of Canada and the Canadian Dollar, it was the messaging forth coming from the ECB which boosted the Euro.