US president Donald Trump's latest round of tariffs land squarely on Europe, Mexico, and Canada with the consequent slowdown in trade likely to reduce demand for oil and refinery products, and transportation fuels in particular.
Article / 06 January 2013 at 23:51 GMT

3 Numbers To Watch: EURUSD, EURGDP, USDJPY levels

editor/analyst /
United States

Monday is a slow news day for economic releases, which provides an opportunity for a quick review of the momentum factor in three currency pairs: EURUSD, EURGDP, USDJPY. A few weeks ago I profiled this trio and their respective 20-day return histories through time. It is always helpful to periodically revisit a given analytical methodology and how it compares after the fact on the assumption that progress in estimating future values for currencies (or any other data series) is a learning process rather than a reliable point forecast.

EURUSD: On December 16, I wrote that EURUSD "still has room to run higher," based on the historical perspective for a 20-day trading horizon. The reasoning was that most (97%) of EURUSD's rolling 20-day return histories for the previous 10 years are contained within a  +/-6 percent performance band. True, but I should have also mentioned that a +/-4 percent performance band captured almost as much (86%) of the fluctuations over the past decade. As it turns out, the +/-4 percent band was a short-term ceiling. EURUSD's 20-day return topped out around a 3 percent gain recently and has been sliding in the new year.


Deciding where and when a trading position has run its course is never easy, but we can benefit from a number of empirical facts in forex, starting with the persistence of momentum. Relying on one metric alone for assessing momentum is problematic, but studying historical return patterns is usually a good start. Assuming a 20-day trading horizon, for example, implies that we should be increasingly cautious whenever returns move into the outer range of historical experience. But it is also prudent to look for confirmation, or rejection, from several methodologies for a richer read on estimating expected return. Analysing the trend via several technical analysis filters is one possibility. That includes reviewing the +/- percentage deviation for the latest price versus a 20-day moving average of those prices. Looking at EURUSD through this analytical lens implies that the outlook is relatively neutral compared with the last several weeks.


EURGBP: My previous comments on EURGBP also failed to mention that a tighter performance band of +/-2 percent cannot be ignored, given its history of representing the upper and lower range of 20-day returns for 80 percent of these rolling periods over the past decade. This turned out to be a hard mark for EURGBP recently, which has hit some headwinds lately. The 20-day return has fallen to virtually nil as of Friday. The percentage deviation in the EURGBP's current price relative to its 20-day average is also hovering around zero. The message here too is that the momentum signals look considerably closer to neutral compared with late-December.


USDJPY: It is another story for USDJPY, which has been in a powerful rally lately. Last month I noted that USDJPY was closing in on its historical upper range for 20-day returns, which suggested caution. The observation looked relevant for a few days after my December 16 post, but then events intervened with the late-December installation of a new prime minister in Japan. As we all know, Shinzo Abe is leading the charge for a substantially more aggressive round of monetary stimulus, which has weakened the yen lately.

The bottom line: USDJPY has continued to rally, with the 20-day return pushing higher into rarefied performance territory for this time horizon. As of January 4, USDJPY is up 7.5 percent over the past 20 days. Since the end of 2002, 7 percent-plus returns have occurred only 0.6 percent of the time for 20-day rolling periods. The +/- percentage deviation in the current price versus its 20-day average also confirms that recent performance is in the outer range for positive returns for the past decade.

USDJPY could run higher still, of course. So, what is the value of quantitatively profiling momentum and other aspects of trading histories? Perspective. If USDJPY's track record reveals a slim 0.6 percent frequency of 20-day returns north of 7 percent, the implication is that betting on returns over that level will be a losing proposition 99.4 percent of the time. That is not necessarily going to help you on the next trade, of course. On the other hand, that is a considerably more informative piece of information if you are designing a trading system that has a decent chance of surviving the test of time.



The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail