Hello guys, i am a student from University of Nottingham and currently i am working on a assignment in forecasting future exchange rate for JPY/USD. I hope that i could learn and seek some information here with you all.
First of all, basically may i ask how could we forecast future exchange rate with fundamental analysis. Currently in my mindset i had an idea about how to use PPP, forward rate agreement and economic calender. Therefore i would like to seek feedback on you all about my methods.
First of all, i would use PPP analysis to determine weather the currency is over/undervalue if it were then it has the tendency to appreciate/depreciate over time. However PPP would only help me determine the direction of the currency movement i think......
Therefore secondly, i would use forward rate quoted by bank as a base rate for my analysis. A forward rate are the expected bank forecast future rate regarding the currency but however it is subjected to variance for the news release after the quotation rate because the forecast was limit to the day the bank quote us. So in order to get a more precise forecast, i would then use economic calender to adjust the forecast forward rate to get my forcast exchange rate.
So what ya all think? would this work?
Secondly, i would like to seek help on how to use PPP analysis to forecast future exchange rate. So far as i know, PPP under law of one price means if the commodity were not sell equally in two country, then the difference between the price would be the exchange rate. So compare to the actual exchange rate it would then determine weather the currency is under/over value. But how am i gonna determine the commodity price in two country?
There are so many forecast economic indicator out there for 2010, such as PPP gdp, PPP conversion and etc. Which 1 should i use?
Thank you
First of all, basically may i ask how could we forecast future exchange rate with fundamental analysis. Currently in my mindset i had an idea about how to use PPP, forward rate agreement and economic calender. Therefore i would like to seek feedback on you all about my methods.
First of all, i would use PPP analysis to determine weather the currency is over/undervalue if it were then it has the tendency to appreciate/depreciate over time. However PPP would only help me determine the direction of the currency movement i think......
Therefore secondly, i would use forward rate quoted by bank as a base rate for my analysis. A forward rate are the expected bank forecast future rate regarding the currency but however it is subjected to variance for the news release after the quotation rate because the forecast was limit to the day the bank quote us. So in order to get a more precise forecast, i would then use economic calender to adjust the forecast forward rate to get my forcast exchange rate.
So what ya all think? would this work?
Secondly, i would like to seek help on how to use PPP analysis to forecast future exchange rate. So far as i know, PPP under law of one price means if the commodity were not sell equally in two country, then the difference between the price would be the exchange rate. So compare to the actual exchange rate it would then determine weather the currency is under/over value. But how am i gonna determine the commodity price in two country?
There are so many forecast economic indicator out there for 2010, such as PPP gdp, PPP conversion and etc. Which 1 should i use?
Thank you