Macro Trade Pitch

Individual Presentation
Steven Li
Phi Gamma Nu New Member
Introduction
1 million euros
Short
Agenda
EUR USD

Long
Hedge Sizing

Bullish USD
Hedge by shorting
DXY Futures Bearish EUR
DXY Futures
Technical Overview
The U.S. Dollar Index (DXY)
futures benchmarks the value of
Risks
the U.S. Dollar relative to the Euro,
Yen, Pound, Canadian Dollar,
Swedish Krona, and Swiss Franc

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

 Dynamic Hedging
Exponentiated Moving Averages – EUR/USD
1.4

1.35

1.3
EUR/USD DXY
1.25

Now 65% 35%

1.2

1.15 50 Day MA 70% 30%

1.1
100 Day MA 85% 15%
1.05

Last Price EMAVG (10) EMAVG (50) EMAVG (100)

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

 USD Historic Performance
U.S. Dollar Index
125.0000
124.0000
123.0000
122.0000
121.0000
120.0000
119.0000
118.0000
117.0000
116.0000
115.0000
2017-04-06 2017-07-06 2017-10-06 2018-01-06 2018-04-06

Trump Administration Super Cycle Decline Outward Flow

Treasury Secretary Steven Mnuchin The dollar is following an accurate Economies strengthened for EU
and Donald Trump has been talking 15-year cycle that began in 2008 and Japan in the last year. The
down the dollar because they favor and has peaked in early 2017. This dollar has weakened as flows
a weak currency. A weak dollar is due to not only the European increased into the euro and yen.
benefits multinational companies recovery but also because the U.S. Central banks in Europe and Japan
because it increases profits of business cycle is more advanced are looking to remove their own
exports. than Europe. accommodations.
Introduction Historicals USD Outlook EUR Outlook Technicals Risks
 EUR Historical Performance
EUR/USD Exchange Rate
1.2600
1.2400
1.2200
1.2000
1.1800
1.1600
1.1400
1.1200
1.1000
1.0800
1.0600
2017-04-06 2017-07-06 2017-10-06 2018-01-06 2018-04-06

ECB Focus on Growth Economic Strength Weaker Rivals

Mario Draghi, the president of the Economic growth increased by Euro’s two biggest rivals are the
European Central Bank, is focused 2.5% in 2017 for the European dollar and the pound. The dollar
on growth and his emphasis on a Union, surpassing the 2.3% has weakened and the pound has
strong euro is interpreted as an expansion of the United States in been under pressure after Brexit,
indorsement for the EUR to rise. 2017. dropping 18% against the euro
EBC is projected to slow the pace since 2016.
of it’s quantitative easing.
Introduction Historicals USD Outlook EUR Outlook Technicals Risks
 Bullish Outlook for USD – Interest Rates
Hawkish Fed 10-Year Treasury Yield
2.90
The United States Federal Reserve has started to 2.80
raise short term rates and will continue in the 2.70
2.60
following years. It aims for a rate of nearly 3% in
2.50
2020 and beyond. To combat the 2008 recession, the 2.40
Fed increased its balance Tsheet to 4.5 trillion dollars 2.30
in mortgage-backed securities and treasury bonds. 2.20
2.10
The Fed is now unwinding its balance sheet which 2017-03-01 2017-06-01 2017-09-01 2017-12-01 2018-03-01
will force markets to buy more bonds and increase
interest rates. Strong Dollar
High interest rates increase demand for USD from
banks. The demand for the dollar will create upward
Target Inflation pressure for it and appreciate against other
T appreciates in a strong
currencies. The dollar also
The Fed in their meeting last month displayed
economy, as wage increases causing a rise in
confidence in reaching 2% inflation, which helps
spending and overall consumption.
economy grow at a steady rate.

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

 Bullish Outlook for USD – The Carry Trade
Carry Trade Definition
When investors borrow currencies at a low interest rate and exchange them for U.S.
Dollars or a currency with high interest rates on bonds. They profit by receiving high
interest rates on money invested and pay low interest rates on money borrowed

Japanese 10-Year Bond Yields EU 10-Year Bond Yields

1.000 3.500

0.800 3.000

0.600 2.500
2.000
0.400
1.500
0.200
1.000
0.000
2013-03-01 2014-03-01 2015-03-01 2016-03-01 2017-03-01 2018-03-01 0.500
-0.200
0.000
-0.400 2012-01-01 2013-01-01 2014-01-01 2015-01-01 2016-01-01 2017-01-01

Yen Carry Trade Euro Carry Trade

There is monetary stimulus in Japan aimed to produce ECB reports that banks are able to withstand ultra low
a cheaper Yen to curb inflation at 2%. BOJ declared interest rates for a decade, and plans to keep its low
that that they have no plans to increase interest rates. interest rates until late 2019, at the earliest.
Introduction Historicals USD Outlook EUR Outlook Technicals Risks
Bullish Outlook for USD – Tax Repatriation
What is Tax Repatriation?
Tax repatriation is the tax imposed by the United States on the return of money that
multinational corporations have stored overseas. Corporations are required to pay taxes on
profits made domestically, but not abroad. This encourages corporations to store assets overseas
to defer paying U.S. taxes.

Federal Tax Reform

The Government wishes to provide a tax break to large multinational corporations to use their
foreign earnings to create more American jobs and and expand operations in the U.S. Congress
estimates that there are 3.5 trillion dollars of untaxed earnings overseas. Republicans plan to
tax companies a one time lower rate of 12% as opposed to the traditional 25% tax rate.

The Dollar Strengthens

WSJ predicts over $400 billion to be brought back by companies. This involves the sell-off of
foreign holdings and purchase of assets tagged by dollars. Historically, the dollar appreciated in
2004 when President Bush passed the Homeland Investment Act, a similar reform.

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

Bullish Outlook for USD – Safe Haven Asset
What is a Safe Haven Asset? U.S. Dollar - Safe Haven
Safe Haven Assets are investments that are expected to U.S. Dollar has been the perceived Safe Haven Asset for
retain and even increase in value during times of market over 50 years. During times of uncertainty, the US dollar
and financial turbulence. Investors turn to Safe Havens strengthens against other major currencies. In 2000 –
to limit their losses in the event that market downturns 2002 Market Crash where S&P 500 declined 50%, the
occur. dollar appreciated by 8%. In the 2007 – 2009 Market
Crash the dollar appreciated by 27%.

USD/CNY Effects of Trade War

6.3100
Trade tensions between the United States and
6.3000
China have been a point of concern for the
6.2900
global economy. USD/CNY data shows that the
6.2800 dollar appreciated relative to the yuan ever since
6.2700 the rise of trade war concerns, gaining from 6.27
6.2600 to 6.31. China has been studying the affect of
2018-03-26 2018-03-29 2018-04-01 2018-04-04 2018-04-07 yuan devaluation as a tool for a trade war.

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

Bearish Outlook for EUR – German Politics
Coalition Uncertainties Rise of AfD
After weeks of talks on forming a new Recently, there has been a rise of the AfD
government, a coalition was created party, which is heavily anti-immigrant and
between Angela Merkel’s Christian Alliance anti-Islamic, and passed SPD to become
(CDU – CSU) with the Social Democrats Germany’s second most popular party after
(SDP). However, there is uncertainty with taking 12.6% of the votes in the 2017
SDP’s leadership as their president election. It’s a radical party formed only in
resigned, and the coalition agreement could the last 5 years and is heavily inexperienced
be jeopardized. politically.

The Euro Weakens

Germany is the largest economy in the EU, and the de facto leader of the EU. Instability
in Germany plays a significant factor in the direction of the Euro. Merkel, arguably
German’s most successful political leader of recent history, is upon her final term as
Chancellor and rise of anti-immigration parties indicates a worrying trend among
European countries.

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

Bearish Outlook for EUR – Dovish ECB
Historical Precedence ECB Minutes
ECB consistently attempt to use verbal Latest ECB minutes released on April 12
intervention to depreciate the euro when it’s were dovish, as it echoed concern on
become too expensive. Former ECB growing trade war tensions. The more
President Trichet, has used verbal strategies aggressive Trump is on China, the less
through 2004 and 2007 to curb EUR/USD likely rates will rise. Appreciating Euro,
advances. Central bank statements have the from 5 years of economic growth in the
power to induce movement in the currency euro zone, is also a sign of concern for the
market as the financial world listen in on economic outlook for the ECB.
clues of monetary policy.

EUR/USD Index – April 12

1.238
1.237
1.236
1.235
1.234
1.233
1.232
1.231
1.23

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

Technical Analysis
EUR/USD Exchange Rate
1.25

1.2

1.15

1.1

1.05

Relative Strength Index - EUR/USD

80

70

60

50

40

30

20

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

Potential Risks

Dollar Deflation Domestic Turmoil

All federal reserve policymakers are Political turmoil within the United States
confident that inflation will rise in coming government could weaken the economy and
months, and are hiking up rates as a the dollar as a result. Paul Ryan’s retirement
response. Deflation results from capital from the House is discouraging for the
moving to non-productive, hard assets, that Republicans and increases the chance that
preform best when money is losing value. Trump will be impeached. Twice the
USD’s historical performance is pointed number of Republicans are leaving the
downwards, which may create a downside House as Democrats, and a Democratic
surprise in inflation, causing the federal Congress will put pressure to remove
reserve to shift their tone from hawkish to Trump from office. Uncertainties also arise
dovish. regarding the Mueller investigation against
Trump on Russia’s interference in the 2016
election.

Introduction Historicals USD Outlook EUR Outlook Technicals Risks

Appendix
20 USD Relative Value Analysis

15

10

0
4/12/17 5/12/17 6/12/17 7/12/17 8/12/17 9/12/17 10/12/17 11/12/17 12/12/17 1/12/18 2/12/18 3/12/18 4/12/18

-5

-10

-15

EURUSD BGN Curncy GBPUSD Curncy USDJPY Curncy USDCAD Curncy USDSEK Curncy USDCHF Curncy