A three-pillar framework for foreign exchange trading based on interest rates, growth and financialization

Mykola Yaremenko

Abstract

This paper presents a coherent, theoretically grounded framework for trading the three major currency pairs (EUR/USD, USD/JPY and EUR/JPY) using only fundamental factors. The framework is built on three pillars: the interest-rate–growth nexus, which provides a fair value anchor; a financialization accelerator that amplifies or corrects the fundamental signal; and triangular consistency constraints that prevent arbitrage violations. A regime-dependent weighting scheme adapts the model to carry, growth or leverage environments. All equations are explicitly stated, making the framework reproducible and, once calibrated, falsifiable. The structure is intended as a foundation for rigorous backtesting and refinement. A preliminary backtest over 2005–24, presented as initial evidence rather than validation, suggests the framework’s potential, with the full model showing a significantly higher Sharpe ratio and lower drawdown than a simple carry benchmark. The integration of these three dimensions into a single, modular design offers a transparent alternative to black-box trading models and addresses key shortcomings of single-factor approaches.