FX Volatility to Rise in 2019 Despite Calming Markets: Ensemble

The hedge fund, run by former JP Morgan traders, is focusing on two currencies - CNY and TRY.

Will volatility continue to rise in 2019? Well an artificial intelligence (AI) hedge fund run by two former derivatives traders from JP Morgan Chase & Co., Ensemble Capital Pte Ltd, is betting that it will.

Specifically, the hedge fund, which was set up by former foreign exchange (forex) option traders Damien Loh and Atsuo Ogaki, is focusing on two currencies in particular to make money – China’s yuan (CNY) and the Turkish lira (TRY).


According to an article from Bloomberg, the two traders believe that there’s still a lot of room for volatility next year even though trade war tensions are easing and emerging markets are quietening down. The traders’ strategy is: go long volatility and fade the rally.

Damien Loh the chief investment officer at ensemble capital
Damien Loh
Source: LinkedIn

Speaking on his strategy, Loh, the chief investment officer at Ensemble, said: “Generally volatilities will grind higher, but what will happen is there’s always going to be a big spike in the front end, and you should look to fade it. Be long volatility, but be nimble enough to sell the front end.”

The news of upcoming forex volatility is no doubt welcome information for many brokers in the industry, which have been weighed down by low volatility this year. However, despite the low trading activity, brokers managed to report solid first half-year financials, which in theory, would only be boosted higher in an active market.

Ensemble Capital

Ensemble uses deep-learning algorithms to analyze market data and forecast moves in order to help traders generate returns. The absolute return fund doesn’t just monitor trading levels for currencies, but a number of asset classes.

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The AI-driven hedge fund is targeting double-digit returns, however, at present, it has managed to return around two percent. According to Loh, this is because the investment staff have been placing their own hedges on trades, rather than leaving it up to the machine.

So far in 2018, emerging currencies have seen large swings, with a gauge of volatility up 12 percent year-to-date, the most since 2016. These were driven by a number of factors, namely trade war tensions between the United States and China, as well as a financial crisis in Turkey.

The events in Turkey saw the TRY fall to record historic low levels, with the currency losing 45 percent of its value against the US dollar by mid-August since the start of the year. The downward trend wasn’t just limited to the TRY, as it dragged down other currencies, such as the Argentine peso and the Indian rupee with it.

As a result of the falling TRY, numerous forex brokers suspended trading in the currency. As Finance Magnates reported, one such broker was Alpari, who cited “economic instability” in Turkey as the reason behind its decision,

Is it peace at last for emerging currencies?

Now, swings in the lira have calmed down after the country’s central bank hiked interest rates to combat a rapidly-rising inflation. Furthermore, the United States and China called a truce on their trade war on Monday, which caused a drop in the CNY. However, this does not mean its peace at last, as Turkey’s inflation is still high.

“People have been chasing returns and a lot of real money has been put in there. But if we start to see risk assets sag again, it’s likely they’ll depart from the Turkish market,” Loh commented.

On the US-China truce, Loh added: “there will still be a lot of back and forth, the economy is still going to slow down.”

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