Market Leadership

Global FX Monthly – Views You Can Use

By: Mark McCormick, Mazen Issa, Ray Ng

September 14, 2022 - 1 Minute

Close up of a US One Hundred Dollar Bill

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What's the view over the next month?

The global backdrop remains supportive of continued USD strength, especially against the likes of EUR and GBP. The one caveat is that there's scope to selectively lean against the USD in pockets of EM/G10. EM has outperformed G10 recently, and prospects of peak inflation and Fed terminal rate pricing have provided some carry interest. It's too early to pile into carry, given growth worries and macro volatility, but we do see value in some places, like being short EURMXN.

Market Themes: Diverging financial conditions, recession risks, FX vol

We see three market themes ahead:

Inflation and Fed terminal rate pricing: There is growing evidence that inflation is peaking, which should ease macro vol as terminal rate exploration starts to ease. It's still too early in that process to declare victory, leaving markets focused on upcoming data releases.
Regional growth variations: China and European growth remain wobbly, where the latter sits at the whims of the winter weather season.
Ongoing terms of trade shock: While commodity prices have seemingly peaked, for Europe, the local terms of trade shocks continue to pass through to the growth outlook. In turn, regional divergences will be a key FX theme through Q4.

FX forecast updates, market factors, and macro model suggestions

We upgraded our USD forecasts, maintaining EUR and GBP weaknesses through Q4. That dovetails with performance across our Macro Ranking Scorecard Index overlay strategies, where the terms of trade and growth factors have dominated performance over the past 6m, and EUR, GBP score poorly. We also like leaning against JPY strength, especially against European crosses, as a hedge to peak inflation, growth wobbles, and relative terms of trade.

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Disclaimer

This material is intended to provide commentary on securities markets discussed herein. Not Advice: The information contained in this material is for informational purposes only and is not intended to provide professional, investment or any other type of advice or recommendation, or to create a fiduciary relationship. Neither TD Securities (USA) LLC (“TD Securities USA”) nor any of its affiliates (collectively, “TD”) makes any representation or warranty, express or implied, regarding the accuracy, reliability, completeness, appropriateness or sufficiency for any purpose of any information included in this material. Certain information may have been provided by third-party sources and, while believed to be reliable, has not been independently verified by TD, and its accuracy or completeness cannot be guaranteed. You should not make an investment decision in reliance on this material, which is intended to provide only brief comments on the topics addressed and is based on information that is likely to change without notice. Further, this material does not include risk factors or other material information necessary to make an investment decision and does not take into account your investment objectives or financial condition. You should obtain your own investment, tax, accounting, and legal advice, as appropriate, in order to assist them in deciding whether to enter into any securities transaction. Not Securities or Derivatives Research: This material has not been produced, reviewed or approved by TD’s securities or derivatives research departments, and is not subject to the independence and disclosure standards applicable to securities and derivatives research reports. The views of the author may differ from others at TD, including TD securities or derivatives research analysts. Not Independent: The views expressed in this material may not be independent of the interests of TD. TD may engage in conflicting activities, including principal trading before or after posting this material, market making, lending, or the provision of investment banking or other services involving issuers and securities referred to in this material. TD may have a financial interest in the securities discussed in this content, including, without limitation, an option, right, warrant, future, long or short position in the security. Not An Offer or Solicitation: Nothing contained in this material is, or should be construed as, an offer, a solicitation of an offer or an invitation to buy or sell any security, and it is not intended for distribution in any jurisdiction where such distribution would be contrary to law. Risk of Loss: Securities transactions involve risk of loss and are subject to the risks of fluctuating prices and the uncertainty of dividends, rates of return and yield. You should weigh potential benefits against the risks. Past performance is no indicator of future performance and the materials are not intended to forecast or predict future events. Not a Valuation: This material is not an official valuation of any security or transaction mentioned herein. Any pricing information provided is indicative only and does not reflect a level at which TD may be prepared to execute a trade; nor is it intended to demonstrate actual results that may be achieved by any transaction.

Mark McCormick
Director and Global Head of FX Strategy, TD Securities

Biography

Mark helps to manage the bank’s research efforts for the major foreign exchange markets, along with developing the analytical framework used for market analysis, forecasts and trade ideas across different asset classes. Before joining the bank, he worked as a Global Macro Strategist at Credit Agricole Corporate and Investment Bank in New York.

Mazen Issa
Director and Senior FX Strategist, TD Securities

Biography

Mazen covers all aspects of G10 FX strategy. Previously, he was a Senior Macro Strategist based in Toronto where his coverage had a particular emphasis on Canada. Before joining TD Securities in 2010, Mazen spent several years at BCA Research in Montreal as part of the Global Fixed Income Strategy team. In that role, he was responsible for providing macro analysis and investment recommendations for the developed markets.

Ray Ng
FX Quant Strategist, TD Securities

Biography

Ray is a FX Quantitative Strategist spearheading the development of our systematic trading framework for the development of cross-asset strategies. Prior to joining TD, Ray worked at National Bank as a FO quant researcher/developer on a multi-asset quant desk. Ray has an MsC and a Ph.D. in computational condensed matter physics and completed his post-doc all at McMaster University.

Market Leadership

Global FX Monthly – Views You Can Use

What's the view over the next month?

Market Themes: Diverging financial conditions, recession risks, FX vol

FX forecast updates, market factors, and macro model suggestions

Disclaimer

Biography

Biography

Biography

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