Read the Daily Market Report from Dave Evans, BetOnMarkets Market Strategist.
US Dollar versus the Euro
• Today’s big U.S. Dollar move versus the Euro on the threat French bank downgrades and riots in the streets of Greece has me thinking about their respective Exchange Traded Fund proxies, UUP and FXE. Of course, all currency trades inherently involve the concept of long:short pairs, but using the ETF basket proxies does allow us to easily measure their independent relative mathematical relationship using traditional pair analysis [educational link].
• The method below employes Percent Ranked Z-Scores measuring how far the ratio of the two ETF currency proxies has run relative to the typical range. When that move becomes extreme, the model either goes long or short the pair.
• As it turns out, a short look back period (4-days) with wide bands (2.3) provides the optimal trade. Like any pair, we run the risk of a trending breakout, and so limit our losses with a time-based stop of eight days, or twice the periodicity of the expected in trade holding period.
Read the Daily Market Report from Dave Evans, BetOnMarkets Market Strategist.
US Dollar versus the Euro
• Today’s big U.S. Dollar move versus the Euro on the threat French bank downgrades and riots in the streets of Greece has me thinking about their respective Exchange Traded Fund proxies, UUP and FXE. Of course, all currency trades inherently involve the concept of long:short pairs, but using the ETF basket proxies does allow us to easily measure their independent relative mathematical relationship using traditional pair analysis [educational link].
• The method below employes Percent Ranked Z-Scores measuring how far the ratio of the two ETF currency proxies has run relative to the typical range. When that move becomes extreme, the model either goes long or short the pair.
Click here to view full-sized image
• As it turns out, a short look back period (4-days) with wide bands (2.3) provides the optimal trade. Like any pair, we run the risk of a trending breakout, and so limit our losses with a time-based stop of eight days, or twice the periodicity of the expected in trade holding period.
Morning Moves: June 16th 09.00 London
Click here to view full-sized image
~Jeff Pietsch of ETF Prophet for Dave Evans.
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