RouteMaster: Yes. We have experimented extensively with monetary variables, on the basis that these may be leading indicators for asset markets and so we developed Buy / Sell signals based on Liquidity.

We found that the best fit varies between different asset classes and investment perspectives, which we can discuss another time, but again the chart format is standardised, so you can easily see the relationship, without needing to understand the precise formulation.

In this case there is a combination of a value measure in real effective exchange rates, combined with a trend measure in real interest rates.  At first sight this chart looks very encouraging as there appears to be an excellent correlation with interest rates. However it turns out that the relationship is largely coindident, so it is good that use of real effective exchange rates prevents too many useless signals being flashed.

There are very few signals because they will only arise if both interest rates and the real rate are sending the same message. If you care to have a look at the Test Results again, you can see that this kind of analysis happens to be only occasionally useful. However it  is included for the sake of completeness.

[ Site Map ] [ Home ]
[ Demoland ] [ Forex in Demoland ]