Currency Forecasting: Generating Views about Foreign Exchange

Stephen L. Jen

Getting the macro story right is key to successful discretionary currency management. It is also very important for systematic currency programmes to incorporate the evolving macro landscape, as it might influence the calibration of the various embedded strategies. For example, in 2008, it became critical for proper adjustments to be made in the weights on the “momentum” and “carry” components of a typical systematic currency programme.

Currency managers need to understand and have an opinion on the main cyclical and structural macro themes, which have three broad aspects: (i) macro, including macro data and trends; (ii) policies, including monetary and other policies; and (iii) markets, including positioning, momentum and other relevant features of market participation in various trades.

This chapter presents five themes related to post-crisis globalisation that have implications for currencies. Some of these themes are macro-oriented, while others are more related to policies or markets. The examples aim to illustrate how views on currencies can be derived from the various thoughts on macro.

POST-CRISIS GLOBALISATION AND THE DOLLAR

More than a cyclical shock to the global eco

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