Last week we studied the commodity currencies to see the divergences in performance if the Euro and the Yen went in different directions. Now we shall do the same thing for the New Zealand Dollar. If we use only the Euro gauge to filter trades, we get a best solution from the machine:
- Buy if the Euro fuel gauge rises above 50
- Short if the Euro fuel gauge crosses below 50
That’s it. Here is the equity curve over the last 10 years:
There were two big draw-downs, the most recent being in the 2nd and 3rd quarters of 2015. In 2015 the Euro came back from tremendous losses against the commodity currencies as the threat of Greek bankruptcy faded. Now we can look to include a Yen gauge factor to the filter so the new Index calculation is:
CompIndex = (Eurofg+Wt*YenFG)/(1+WT)
The value for WT is less than zero for the commodity currencies – the A$ and the C$. The machine analysis for the NZ$ chooses-.2 … not a huge component but the new equity curve looks like this:
This is much better though we still have that same ugly draw-down in 2015. Stops and profit targets would help but I’ll leave it to subscribers to add in their own additional factors. Clearly, as with all the gauge work, if there is something special going on that is not a factor in the gauge(s) then one must put these filters on hold. Going forward we shall assume that if there is a big positive divergence between the Euro FG and the Yen FG then it will favor the NZ$ just like it does the C$ and the A$.