Meraglim Blog

CURRENCY MOVES BAFFLE THE EXPERTS. DON’T WATCH TRENDS, WATCH REVERSALS.

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn

 

There’s never a shortage of pundits and TV talking heads who are willing to tell you what stocks and bonds are going to do next. They use fundamental and technical analyses to chart and explain every wiggle in stock prices all day long. But, what about currencies? There are far fewer experts who are willing to go out on a limb to forecast future exchange rates.

The reason, as explained in this article, is that foreign exchange cross-rates are notoriously hard to forecast. After all, you don’t have corporate earnings, management calls, unemployment rates or other statistical tools to rely on. Those who do forecast exchange rates tend to rely on obsolete tools such as purchasing power parity, PPP, trade deficits or surpluses or interest rate differentials to do their homework.

Those tools worked back in the good old days of the Bretton Woods gold standard and the pre-globalization days of closed capital accounts. Today exchange rates are driven almost entirely by capital flows and those capital flows are driven largely by sentiment in terms of the risk on/risk off dynamic and the potential for “carry trades” where large investors borrow in one currency, (a short FX position), to invest in another currency, (a long FX position).

Despite the difficult of forecasting day to day moves (that really is impossible without inside information), investors can reliably predict exchange rates to a three- or six-month horizon by looking for trend reversals. Stocks and bonds can go to zero in the event of bankruptcy of the issuer, or they can go to the moon based on strong profits and bubble dynamics. But, major currencies trade in a range; they move up and down against each other but never reach extreme levels.

When you see a strong move in a currency pair, a temporary reversal is a good bet.

Accredited investors interested in learning more about Jim Rickard’s private placement in the world’s first predictive data analytics startup that combines human and artificial intelligence with complexity science should check out his offering at Meraglim Holdings. Click the link to learn more.

 

IF THE SCIENCE IS NOT ON YOUR SIDE, JUST TRY THREATS

It’s clear that good science does not support the extreme claims of the climate alarmists. Yes, there is such a thing as climate change, but it’s slow, difficult to predict and almost impossible to model because of the complexity of the process. The climate alarmists have grabbed most of the headlines for the past ten

Read More »

WHY TRUMP WILL WIN REELECTION: NOT POLLS OR PUNDITS; JUST COMMON SENSE

Political analysts use polls, betting odds, historic trends and other inputs to make their (usually wrong) political predictions. We all remember that “experts” said Hillary Clinton would win the presidency in 2016 (they gave her a 92% chance on the morning of the election), and that the UK would vote to “remain” in the EU

Read More »

HERE’S ANOTHER ELITE WITH ANOTHER PLAN TO TAX AWAY YOUR WEALTH

The elites never rest when it comes to devising new ways to take your money through taxes, inflation or outright confiscation. The latest Trojan horse the elites are riding to take your money is climate change. The climate does change over long periods of time for reasons that are not well understood except that they

Read More »

KRUGMAN SHOWS HE KNOWS LITTLE ABOUT ECONOMICS AND LESS ABOUT FINANCE

We already knew that Nobel Prize winner Paul Krugman knows almost nothing about economics. Now, we see from this article that he knows nothing about banking either. Krugman claims that the repeal of Glass-Steagall and the actions of banks in general were not the cause of the 2008 financial crisis. The conventional wisdom is that Lehman Brothers,

Read More »
Scroll to Top