So the ECB made some comments and the Euro exchange rate jumped. OMG the FT is onit! Here's data from Bloomberg:
Well, actually, the exchange rate is now where it dropped to back in October when it was considered a loosening monetary policy:
The thing is that the exchange rate should fall on bad economic news (evaluated relative to the US for the Euro-dollar rate) since bad economic news should mean lower AD (relative to the US continuing along its path). The Euro-dollar exchange rate could also fall if the US was doing better than the EU.
Update:
Here's the IT model using M2 (in the footnote) (today's move is in black):
Nice Gaussian residuals ...
Nice residuals, indeed! This is one series to watch- especially if one would be interested in the investing/speculation possibilities of ITE. Based upon the IT model using M2 above, one should be able to make a nice profit predicting an increase in the Euro-Dollar exchange rate. Ready to start a hedge fund, Jason? ;)
ReplyDeleteI don't quite have the initial capital for this. Unfortunately you only make a few cents on transactions of thousands of dollars.
DeleteBest to just put your money in a savings account and accrue interest :)
Well if you place some future options bets and get the timing right you can make lots of $$. Timing's the hard part. However, this gets me thinking about information transfer investing. I am going to look at your older posts in this series more carefully and see if there is a potential application to stock prices. IOW, perhaps the market being too far away from a stock (or stock market) information transfer rate would be a sign that there will be reversion to the "correct" pricing at some point in the future.
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