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German corporates outperform hedge funds in EURUSD

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By:
Peter Garnham
Published on:

If you are looking for the near-term direction of the euro, you are better off asking a German toolmaker than a Mayfair hedge fund manager.

That at least appears to be the message from Commerzbank data that suggest the predictive powers of German corporates in EURUSD outshine those of hedge funds and other currency managers. Commerzbank has surveyed the FX expectations of its main export-orientated corporate clients each month since February 2011 to produce its FX Compass Index. It simply measures the proportion of bulls minus the proportion of bears in a number of EUR crosses over three, six and 12-month horizons. For the short-term period, German corporates have an impressive hit record in EURUSD, getting the direction right in nine of the past 14 months. That means they have a better record than the professional FX fund managers tracked in the Stark Index.

 Performance of trades according to FX Compass
 index (3 month outlook) versus Stark Index

 
 Source: Commerzbank FX Research
German corporates’ longer-term predictions are not too shoddy either. The data starts in February 2011, so there are 11 results for the corporates’ predictions as to the direction of EURUSD over six months and five over 12 months. Over the six-month horizon, they have been right in eight of the last 11 months and, over a year, they have been right in four of the past five months. Indeed, Commerzbank says anyone who might have traded the FX Compass Index would have made 6.2% per annum.

 FX Compass positioning index (EURUSD)

 
 Source: Commerzbank FX Research
For the record, the June survey, which was taken as the results of the second Greek general election were coming out, showed the index for EURUSD during the three-month horizon recovered from the record low in May. It rose from -58 to -37, but still remained resolutely in bearish territory. There was less of a change during the six-month horizon, with German corporates remaining bearish on EURUSD. Over 12 months, however, they turned from neutral to marginally bullish.

 German companies and their assessment of EURUSD
over the next 3,6 and 12 months

 
Source: Commerzbank FX Research 
In EURCHF, there was little solace for the Swiss National Bank (SNB) from the German corporates. While only 6% of companies responding to the poll expect the exchange rate to breach below the central bank’s SFr1.20 floor in the coming three months, just 9% expect it to trade higher. In other words, the SNB’s balance sheet looks set to expand further as it defends the level, even if Swiss inflation picks up as a result. Lutz Karpowitz, strategist at Commerzbank, says as long as the market does not consider the floor to be completely secure, the SNB will have to continue to intervene, even after buying approximately SFr50 billion worth of EUR last month.

As he puts it, the SNB “simply leant too far out of the window by introducing the minimum exchange rate”.

This article was originally published by Euromoney FX News.