We Believe that Positions in EUR/USD Can Be Added in the Portfol

2016年7月7日

Our current trading signal for the Euro is BUY against the US dollar (equivalent to a BUY signal for EUR/USD and a SELL signal for USD/EUR). We have analyzed in detail the drivers of demand and supply in the currency market in order to draw conclusions about the outlook for the Euro. Some of the most important drivers are monetary policies and balance sheet of the ECB relative to other major central banks, sovereign CDS of the member countries, interest rate and inflation differentials, trade and current account balances, foreign exchange reserves, effective exchange rates, private and public debt levels, fiscal deficits, foreign investment flows, inter-bank liquidity, volatility skews, credit spreads, levels of financial speculations, employment levels, business climate, consumer sentiment, manufacturing and services confidence, real estate market sales and prices, home building and construction activities, private and public spending, personal income, corporate earnings and liquidity, loan demand, and lending conditions. Statistics derived from these factors correlate reasonably closely with cyclical turning points in the currency. By examining the fundamental and technical data and by comparing valuations to other currencies, we can determine the optimal entry and exit points for the Euro.

Chart 1 - Model Performance and Statistics
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Based on a scale from 0 to 100, with 100 being the most bullish and 0 being the most bearish, our latest model reading for EUR/USD is 93.06. The average return of the trades is 13.42% and the annualized return of the trades is 8.57%. Measuring the risk-adjusted performance, the model has produced a Sharpe Ratio of 0.93, which is driven by the model's standard deviation of 9.26%. For comparison purpose, the Sharpe Ratio of the buy and hold strategy for EUR/USD is 0.07. The Sortino Ratio, which measures the relative returns of the model over its downside deviation of 4.78%, is at 1.26. The Calmar Ratio, which is the ratio of the average return over the maximum drawdown, is at 0.91. The calculation of the model for EUR/USD took 2.85 hours per CPU core to complete at our central computation workstations, which are a group of powerful computers that perform statistical computation continuously 24 hours day and 7 days a week to produce real-time trading signals for EUR/USD.

Chart 2 - Current Model Level
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Our current model shows that the market supply/demand situation is now asymmetric, and we would expect the level of EUR/USD to rise. Accordingly, our investing view of EUR/USD is bullish. The table below shows selected drivers that have significant recent updates. They are among the large macro database on which we perform statistical analysis to project future price trends and develop investment views. We do not rely only on any single factor to model our investments. Instead, the cross relationships of all the factors and time series are researched back over many market cycles in both periods of secular bullish and bearish trends. The goal of our algorithm is to identify profitable buy and sell opportunities and optimize the risk/return profile for EUR/USD.

Chart 3 - Analysis of Recently Updated Drivers
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