We Favor Being Overweight the Swiss Franc

7 ก.ค. 2016

Our current trading signal for the Swiss franc is BUY against the US dollar (equivalent to a BUY signal for CHF/USD and a SELL signal for USD/CHF). The view is developed by our quantitative strategists who apply statistical analysis to study the relationship between the currency and key macro factors including monetary policies and balance sheet of the SNB relative to the Fed, budget deficits, foreign exchange reserves, interest rate spreads, current account and trade balances, external and internal debt, effective exchange rate, inflation differentials, credit spreads, financial stress, volatility, levels of financial speculations, yield term structure, price actions, employment growth, private and public expenditure, lending growth, housing sales and prices, business climate, corporate earnings, consumer confidence, retail sales, construction activities, capital investments, manufacturing and non-manufacturing outlooks, and credit demand. These factors are essential in determining the principal force behind the outlook of the Swiss franc. The reason why our model requires many different types of drivers lies in the fact that the Swiss franc is largely influenced by the direction and maturity of multiple secular trends. Our mathematical system is developed to isolate periods when CHF/USD historically turned in a nice profit, but with little in the form of downside risk.

Chart 1 - Model Performance and Statistics
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Based on a scale from 0 to 100, with 100 being the most bullish and 0 being the most bearish, our latest model reading for CHF/USD is 100.00. The average return of the trades is 18.58% and the annualized return of the trades is 11.43%. Measuring the risk-adjusted performance, the model has produced a Sharpe Ratio of 1.20, which is driven by the model's standard deviation of 9.51%. For comparison purpose, the Sharpe Ratio of the buy and hold strategy for CHF/USD is 0.28. The Sortino Ratio, which measures the relative returns of the model over its downside deviation of 4.38%, is at 1.71. The Calmar Ratio, which is the ratio of the average return over the maximum drawdown, is at 0.99. The calculation of the model for CHF/USD took 2.64 hours per CPU core to complete at our central computation workstations, which are a group of powerful computers that perform statistical computation continuously 24 hours day and 7 days a week to produce real-time trading signals for CHF/USD.

Chart 2 - Current Model Level
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Our current model signals that the balance of the drivers points to decent upside in CHF/USD. Therefore, we believe that the current stage is a time to profit from owning CHF/USD. The table below shows selected drivers that have significant recent updates. They are among the large macro database on which we perform statistical analysis to project future price trends and develop investment views. We do not rely only on any single factor to model our investments. Instead, the cross relationships of all the factors and time series are researched back over many market cycles in both periods of secular bullish and bearish trends. The goal of our algorithm is to identify profitable buy and sell opportunities and optimize the risk/return profile for CHF/USD.

Chart 3 - Analysis of Recently Updated Drivers
InvestUp.com/OUTPUTS/RSSImages/16-06-09-16-06-09-70/tr-chf-swiss-franc-drivers-1.png


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