LondiniumFX Quant Models, July 29, 2016

The estimates below are derived using variables, which exhibit high correlations to the respective currency. These quant estimates can be useful in combination with technical analysis.

The green line of each chart shows the estimated currency price, while the red line is the actual price of the respective currency. The green line provides the underlying trend of each currency, while the blue line tells us if the currency is overbought/oversold in relation to the underlying trend (green line). We use six months of daily data and re-estimate the relationship once a week.

Please note that correlations could break down and the estimates below only offer a rough estimate of where currencies may be heading. The underlying variables may also change trends, which may disrupt the estimates. Not all models are stable from a strict econometric point of view.

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GBPUSD

The estimate (green line) is now below the actual currency price (red) and the discrepancy between the estimated value and the actual price (blue line) is getting a bit rich but the currency could still rise before it deviates too much from its estimated value. The model suggests we should be bearish GBPUSD.

Predicted price: 1.2929. Standard error around estimate: 542 pips.

EURUSD
The estimated price is trending lower and it suggests lower prices going forward. The EURUSD is trading above the estimated price, but as seen below it may still rise for an additional 160 pips before the deviation is large enough to suggest converging should take place.

Predicted price: 1.1016. Standard error around estimate: 210 pips.

AUDUSD
The estimate for the Australian Dollar (green line) has risen sharply over the last few days and the model suggests a bullish bias.

Predicted price: 0.7673. Standard error around estimate: 220 pips.

NZDUSD
The estimate (green line) remains in an uptrend and suggest higher prices, the currency (red line) appears also to be a bit too low in relation to the estimate.

Predicted price: 0.7137. Standard error around estimate: 200 pips.

USDCAD
The estimated price is trending higher and it suggests a higher price for the USDCAD in the weeks ahead. The difference between the estimated and actual price of the USDCAD is low.

Predicted price: 1.3113. Standard error around estimate: 490 pips.

GBPJPY
The estimate of the GBPJPY is longer-term bearish and it suggests lower prices ahead, in the short term the estimate has been stable over the last few days and suggest the GBPJPY might be short-term oversold.

Predicted price:  142.91. Standard error around estimate: 550 pips.

USDCHF
The trend of estimated price is trading sideways and it suggests the USDCHF should be trading close to 0.9665. The discrepancy is wide enough to suggest that price would need to move back to its estimated price.

Predicted price:  0.9665. Standard error around estimate: 180 pips.

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About the Author

Alejandro Zambrano

Alejandro Zambrano combines extensive professional experience and a common-sense attitude to offer LondiniumFX members a strategy that focuses on making fewer, smarter trades and building members’ understanding of the markets and the rationale behind investing. He is also the Chief Market Analyst with TradeCaptain.com, and before founding LondiniumFX, Mr. Zambrano was Head Analyst at FXCM’s London desk.