FX Strategy Insights

This week we take a look at one of the world’s most recognised FX traders.

John Taylor is the CEO and Chairman of a hedge fund firm called FX Concepts which he founded in 1981. FX Concepts manages currencies and FX exposures for institutional clients through both overlay and absolute return strategies. Their website states that they “employ a unique methodology integrating the study of cycles, quantitative model-building, and technical forecasting.”

FX Concepts runs the world’s largest Currency Hedge Fund and is certainly one of the “smart money” investors to keep an eye on. All up Taylor’s firm manages over US$4.5 billion in FX funds.

BusinessWeek reported last week that the FX Concepts has recently exited all its bets on commodity based currencies based on the view that these currencies will fail to appreciate as slowing Asian growth dampens metal prices. The “China growth story” has been a concern of ours for quite some time and regular FX Strategy readers will be familiar with our thinking and strategy on this topic. So seeing the “smart money” heading for the exits should be a wake up call for any remaining China bulls.

On a more positive note, Taylor is bullish on the USD and the US economy. With improving US growth and consumer spending Taylor thinks currencies that will benefit from America’s improving fortunes could do well – he highlighted the CAD and MXN as particularly leveraged to this scenario.

As mentioned in the opening paragraph, FX Concepts employs technical forecasting in their strategy. One example of this in action can best be explained by this recent quote from Taylor: “The Yen is an interesting side-line. It will be hurt by a slowing China, but so much of the Yen is based on the flows in and out of the country for investment reasons. Over the last 7 to 10 years, the Yen is often weak in the month of March and then in the Month of April it starts to strengthen.”

This is a very interesting pattern that Taylor has identified and for FX Strategists it’s certainly worth further investigation.