Heightened Volatility in July

Currency markets experienced heightened volatility in July, and yet most of the major FX pairs closed the month near their opening levels. The best performer was the yen, with some help from the Bank of Japan, which raised its effective ceiling on long-dated Japanese yields.

Another element that helped the yen were signs that foreign economies are losing steam, particularly Europe and China. The Fund suffered losses during the previous month. July came as a perfect storm for the strategy, where certain variables were decisive for the negative impact. a) Market Environment: Although the month was characterised by increased volatility, that was primarily contained to short-lived and sharp sideways movements rather than robust directional moves. This was a hostile market environment for the strategy which increased average positioning but could not capitalise on gains. b) Execution Costs: July was record high in terms of traded volumes. Moreover, trading during the swinging volatile prices had increased costs per trade adding on the negative effect of the price reversals. c) Losses on multiple instruments traded: While typically losses are contained within one or two of the traded instruments, this month’s losses were produced by more instruments, compounding the effect. Despite this month’s results, such drawdowns are expected while the strategy is within its risk limits and in line with its past performance profile.

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