Forex and value investing

Hi guys,

I guess you all heard about value investing in the stockmarket by discounting back the cashflows a stock is producing. I was wondering if you could apply the DCF method as well to currency pairs.
Questions that come to my mind:

1. is a value investing approach at all useful for currency pairs?
2. how would one construct a financial statement. Is it the financial statements of the central banks? what about P&L and cash-flow statement?
3. which interest rate do you use for your cashflows? just the minimum rate or the rate that companies get from banks including all the margins
4. what discount factor would you use? 30-year treasury bond?
5. what growth factor do you apply for the continuing value?
6. how would you then construct the value of a currency pair? taking the sum of the discounted cash-flows of EUR and put it into relation with the sum of discounted cash-flows of USD?

I would love to have a good discussion about that - but please, let's keep the topic around value investing. No price action, trend searching and other mumbo jumbo.

I'm afraid you're not getting anywhere here...Stock value investing approach doesn't work in Forex...It's easy to find financial statements of a public company to get your figures right...But it's almost impossible ( unless you're a central bank employee) to get a central bank financial statements...And even if you get it and make all of your analysis, it won't be of any use! Currencies follow a more Macro approach...So you need to look into subjects like Macro Economics...Regarding interest rates, try to look into the 'Carry Trade' subject...And don't forget the economic indicators like: CPI, PPP. NFP...etc. Although central banks could have huge influence over their own currencies, they rarely intervene in the financial markets ( unless there's a crisis)...You won't find a central bank intervening on a daily/weekly basis in the markets..Try to focus more on the Macro aspect of the markets and you'll do just fine in your value approach...Regards

Buy strong currency, short weak currency. Ta-da! Value.

Thanks for your comment. You are obviously right, that macro factors are really important, especially in the short to medium term. But when it comes to long-term moves, I believe only two things are relevant: interest rates and QE. Everything else you can ignore.
QE & interest rates are of course interlinked with the macro factors.

Is an intrinsic value of a currency not the interest charge you get from holding it and how fast it devalues? Maybe "the balance sheet" is just the money supply that exists, and the P&L is just the interest rate?

sorry, but finding the FED balance sheet is as easy as typing into google "FED balance sheet 2015.
I am not look for a central bank intervening on a daily/weekly basis. I don't want to trade the FOREX market, I want to invest in it, holding the currency for years.

So question still remains, how can we challenge market prices?

what did i say in my first post? don't write anything that isn't related to value investing. I want to have an intelligent discussion about value investing in the forex market, not some mumbo jumbo.

If you're looking for a long-term approach, I think you'd do better constructing a portfolio of assets to beat the inflation over the long-term and also appreciate in value over the years...To be honest with you, I wouldn't hold any specific currency for years...Fiat currencies are built for one and only one reason: to lose value over the long term and magnify inflation...Take a look at the historical charts of Gold and precious metals over the past 100 years...If a smart investor held a basket of precious metals, he would've made a fortune just buying and holding precious metals for 20-30 or even 40 years...If you're goal is just capital preservation, you can divide your wealth into 2 equal halves...keep one-half in any currency you like or even a basket of currencies, and the other half in physical gold/silver/platinum...I hope this is helps..Good luck with your trading. Regards!

Holding a currency that is gaining in value against one that is losing value is mumbo jumbo?

Oh brother, this forum never ceases to amaze.