Sentiment Index
EURUSD 4% bulls
USDCHF 96% bulls
UDX 97% bulls
EURUSD 4% bulls
USDCHF 96% bulls
UDX 97% bulls
- #18,062
- Mar 11, 2015 9:13pm Mar 11, 2015 9:13pm
- Joined Jun 2010 | Status: zero | 20,603 Posts
Do interest rates help to predict exchange
rates?
„ The link between exchange rates and interest rates is a recurring topic of dis-
cussion among economists and financial analysts, with particular emphasis
on how a monetary policy shift affects the exchange rate.
„ This article focus on the relationship referred to as uncovered interest-rate
parity (UIP). UIP formalises the following principle: when two currencies'
relative interest rates diverge substantially and durably, exchange rates will
move so that a risk-free investment in one of the currencies will be equivalent
to a risk-free investment of the same maturity in the other currency, otherwise
it would become possible to achieve limitless returns at no risk.
„ Empirical studies show that this relationship between interest rates and
exchange rates is better verified in the long run (beyond one year), and when
interest-rate differentials are sufficiently large. In the short run, on the other
hand, the relationship between interest rates and exchange rates in the deve-
loped countries is unstable and tends, on average, to display the opposite
sign to the one predicted by the uncovered interest-rate parity relationship.
„ This short-term deviation may be due to the existence of shocks of a mone-
tary origin, whose unexpected character may explain why the uncovered inte-
rest-rate parity is not verified ex post even though it remains an equilibrium
relationship at each moment in time.
„ The introduction of agents' uncertainty as to
future movements in financial variables,
exchange rates in particular, in the pre-
sence of transaction costs, may also explain
the phenomenon of deviation from the
uncovered parity: agents' uncertainty would
in that case prevent them from carrying out
arbitrages arising from the deviation from
the equilibrium relationship, thereby dam-
pening speculation.
rates?
„ The link between exchange rates and interest rates is a recurring topic of dis-
cussion among economists and financial analysts, with particular emphasis
on how a monetary policy shift affects the exchange rate.
„ This article focus on the relationship referred to as uncovered interest-rate
parity (UIP). UIP formalises the following principle: when two currencies'
relative interest rates diverge substantially and durably, exchange rates will
move so that a risk-free investment in one of the currencies will be equivalent
to a risk-free investment of the same maturity in the other currency, otherwise
it would become possible to achieve limitless returns at no risk.
„ Empirical studies show that this relationship between interest rates and
exchange rates is better verified in the long run (beyond one year), and when
interest-rate differentials are sufficiently large. In the short run, on the other
hand, the relationship between interest rates and exchange rates in the deve-
loped countries is unstable and tends, on average, to display the opposite
sign to the one predicted by the uncovered interest-rate parity relationship.
„ This short-term deviation may be due to the existence of shocks of a mone-
tary origin, whose unexpected character may explain why the uncovered inte-
rest-rate parity is not verified ex post even though it remains an equilibrium
relationship at each moment in time.
„ The introduction of agents' uncertainty as to
future movements in financial variables,
exchange rates in particular, in the pre-
sence of transaction costs, may also explain
the phenomenon of deviation from the
uncovered parity: agents' uncertainty would
in that case prevent them from carrying out
arbitrages arising from the deviation from
the equilibrium relationship, thereby dam-
pening speculation.
- #18,063
- Mar 11, 2015 9:49pm Mar 11, 2015 9:49pm
- Joined Jun 2010 | Status: zero | 20,603 Posts
When one thinks about interest differentials and their predictive value in estimating exchange rates, Kenneth Rogoff comes ultimately to mind.
Here are two of his master-works to that theme:
Be the judge and decide, if forecasting exchange rates via interest differentials will work or not:
Here are two of his master-works to that theme:
Be the judge and decide, if forecasting exchange rates via interest differentials will work or not:
- #18,066
- Mar 12, 2015 2:26am Mar 12, 2015 2:26am
- Joined Jun 2010 | Status: zero | 20,603 Posts
upps, that was fast......
turning from winners into losers within 3 hours
and judging from the EU thread, where it is suspiciously quiet this morning, a lot of positions were taken just around the very lows
turning from winners into losers within 3 hours
and judging from the EU thread, where it is suspiciously quiet this morning, a lot of positions were taken just around the very lows
- #18,077
- Mar 12, 2015 11:05am Mar 12, 2015 11:05am
- Joined Mar 2012 | Status: turning probability into profit | 1,550 Posts
Hunting High and Low
can't stop laughing....... - #18,080
- Mar 12, 2015 5:12pm Mar 12, 2015 5:12pm
- Joined Jun 2011 | Status: the risk is the unknown | 2,182 Posts
{quote} Well, I am on the short side... and XXXAUD pairs are really great recently with their un-tame-ambe momentumsAnd this pair has formed its weekly top I guess , and the inside bar formation signnifies the undecisiveness of the market. Here is the weekly screenshot telling what i am trying to tell by means of words... {image} {image} And when we go back to the lower timeframe (D1) its easy to see that the price was consolidating with remarkable volumes, and the price finally achieved to leave the consolidation zone , and now its just retarcing...
good ... liked alert..
I used with my criterion of R / R.
