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JPMorgan Develop New BRL Positioning Indicator

  • JPMorgan note that trading in BRL is uniquely concentrated in forwards and futures. According to the BIS, ~70% of BRL turnover is in outright forwards (against 15% for all currencies) while only 16% is in spot transactions versus 30% for all other currencies.
  • Tracking investor positioning in BRL FX is therefore not a trivial task and JPM tackle this challenge by developing an index that unifies the information contained in the available sources into a single metric: The JPM BRL positioning Index.
  • Their intention is for the JPM BRL Positioning Index to be used as part of a broader, holistic discretionary process. Nonetheless, JPM back-test a simple systematic strategy to sense-check its usefulness and find it is a potentially profitable indicator. The Index is available on Bloomberg with ticker JPRABRLP Index and will be updated weekly on Mondays.
  • Currently, the JPM BRL Positioning Index is close to neutral, which challenges the anecdotal evidence of investors being heavily long the currency and supports JPMorgan’s overweight BRL in the GBI-EM Model Portfolio.

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