Overlay – Rebalancing on USD, NOK, short JPY
We are making a relatively modest change in the overlay portfolio adding back JPY shorts, adding more in EUR against bumps higher in NOK and the USD.
Heading into the Fed, our bias is the market could be pricing too much in respect to dovishness. Despite this, we expect risk aversion to wane further and JPY could subsequently underperform.
On NOK, bottoming out of energy prices and balance of positioning could favor further strength near term. Further on NOK, the fading of risk premium should be supportive and the latest policy meeting has allayed investor fears.
Leveraged ideas – Gains on spot
The leveraged portfolio returned about 0.78% over the past week with gains from our spot positions, short NOK and short CADJPY. Having now closed the CADJPY position, we maintain our longer term shorts through USDCAD topside and a short in CADMXN. On the week we also went short EURUSD through 1.25 put, 1.20 RKO. Trade performance can be seen in Figure 3 (attached).