Forex: Summary

Buy on the up arrows, sell on the down arrows

This tool is designed to summarise the key action-orientated features of other currency analysis tools, omitting explanations for those who just want to see the bottom line. It incorporates both momentum Buy & Sell signals as well as a proprietary econometric forecasting model created by PIT. For this summary tool, foreign currency indexes are shown on a total return basis, including interest on short-term deposits. For comparability, they have been rebased to set year-end 1994 at 100.

In each chart the historic total return currency index, the thick white line, and the econometric forecast, the thin orange line, are shown on the same scale and may be viewed from identical left- or right hand axis. The base level for the econometric forecast is the average for the currency index over the last completed calendar year. Chart  technical Buy & Sell signals are show as red arrows embedded in the total return index.

The econometric model incorporates analysis used in the currency tools for Yield and Spare Capacity. It is based on equations tested over a quarter century of historical data, where the projections depend on consensus forecasts for comparative interest rates and GDP. Depending on whether the investment perspective is Dollar-based or relative to a global benchmark, the relevant foreign data are those for the United States or a GDP weighted global average.

Please note that the performance pattern of total return foreign currency indexes may be radically different from price-only indexes. This occurs because the yield on high inflation currencies is often substantially greater than that needed to offset exchange rate depreciation. Thus Buy & Sell signals for total return indexes will not be the same as for price-only indexes.

Owing to the conversion of legacy currencies into Euros, analysis is provided on the common currency, rather than for individual countries. Historical data is provided by creating synthetic GDP-weighted time-series for the component currencies, expressed in the European Currency Unit.

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