Currency prediction based on a predictive algorithm.

Weekly Currency Review

 DXY Index Price Chart: 5-minute Timeframe (from June 12 to June 19, 2018). Source: Tradeview.com

The Federal Reserve raised interest rates on Wednesday and signaled two additional increases by the end of this year. The confidence Fed showed gave the market the prospect of US dollar. The US Dollar Index measuring the value of US dollars against a basket of foreign currencies made a jump on Thursday amid ECB’s announcement to keep the interest rates unchanged through the summer 2019. Combined with Trump administration implementing tariffs on Chinese goods worth about $50 million, the index rose to a seven-month high on Friday and closed at 94.79. China responded with retaliatory tariffs on $34 billion worth of American products. The US dollars gained another strength this week as Trump renewed his threat with tariffs on $200 billion in products, which deepened the fear of trade war and made the stock markets across Asia and Europe slump.

USD/CAD Price Chart: 5-minute Timeframe (from June 12 to June 19, 2018). Source: Tradeview.com

The clash of G-7 summit worsened the trade relationship between US and Canada. Canada announced retaliatory tariffs afterwards that look to go beyond the value of US tariffs on Canadian imports of steel and aluminum. The Canadian dollar continued to lose ground after some gains on Thursday and entered into an upward channel. Canada’s recent domestic wage data showed promising prospect and Bank of Canada is also optimistic about raising interest rates soon, but in the future there’s more going in favor for US dollar. According to a TD Economics report released on Monday, the massive Trump tariffs on cars decimated the auto industry and reduce Canada’s long-term economic capacity. Canadian dollar is expected to depreciate with more volatility coming alongside.

EUR/USD Price Chart: 5-minute Timeframe (from June 12 to June 19, 2018). Source: Tradeview.com

Early in last week, this pair recovered some strength and peaked at 1.1850 on Thursday. It slumped to a bottom of 1.1618 after the ECB announced its plan to exit from the QE program and it pledged to keep interest rate unchanged throughout 2019 summer. Along with the lingering uncertainties that came from Italy’s budget and post Brexit UK/EU economic relationship, the refugee crisis heating up in German pushed extra downside pressure on Euro. Last Friday, the data released indicated Euro-zone’s worsening trade situation-the trade surplus shrank to 18.1 billion, well below the expectation of 20 billion. The decisive impact on the common currency would come from the fundamental reforms and budget plans coming in the near future.

USD/JPY Price Chart: 5-minute Timeframe (from June 12 to June 19, 2018). Source: Tradeview.com

There’s few event about Japan last week and Japanese Yen fluctuated along with the changes in risk sentiment of the global market. JPY declined amid the historical Kin-Trump Summit where agreement on denuclearization was signed and the peace improvement brought about risk-on sentiment. The pair rose to 110.67 at the end of last week. On the Japan’s side, Japan’s disappointing domestic consumer data made the Bank of Japan’s target to a higher inflation rate vague while US’s side showed strong economic growth. The earthquake that happed in Osaka contributed to some money inflow to the country. The trade war between US and China increased trade tension and the flight to safety would continue thus helping Japan received an additional boost.

On May 18, for the one-month forecasting period, I Know First Algorithm gave USD/CAD a bullish signal of 1.09 with the predictability of 0.4, suggesting we have quite confidence in the increase of USD/CAD. In accordance with the prediction, USD/CAD increased by 3.08% in the forecasting period. Our algorithm also successfully predicted EUR/USD movement by observing a signal of -4.81 and a predictability of 0.3 and the actual movement was -1.45% in the following month.

How to interpret this diagram:

Algorithmic Currency Forecast

The table on the left is a currency forecast produced by I Know First’s algorithm. Each day, subscribers receive forecasts for six different time horizons. Note that the top currencies in the 1-month forecast may be different than those in the 1-year forecast. In the included table, only the relevant tickers have been included. The boxes are arranged according to their respective signal and predictability values (see below for detailed definitions). A green box represents a positive forecast, suggesting a long position, while a red represents a negative forecast, suggesting a short position.

Signal

This indicator represents the predicted movement/trend of the asset; not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or “fair” price.

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability (P)

This value is obtained by calculating the average correlation coefficient between the past predictions and the actual asset movement for three discrete time periods. The averaging gives more weight to more recent performances. As the machine keeps learning, the values of P generally increase.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

Forecast Performance

The table on the right compares the actual currency performance with I Know First’s prediction. The “Forecast” column shows which direction the algorithm predicted, and the “% Change” column shows the actual currency performance over the indicated time period. The “Accuracy” column shows a “√” if the algorithm correctly predicted the direction of the currency or an “x” if the forecast was incorrect. The I Know First Average is the equal-weights average percent change of the currencies listed above. The S&P 500 may be included for reference if relevant.

The Algorithm

The system is a predictive algorithm based on Artificial Intelligence (AI) and Machine Learning (ML) with elements of Artificial Neural Networks and Genetic Algorithms incorporated in it. The system’s predictive analytics are self-updating, and thus live. The algorithm is a powerful resource for any investor conducting black-box trading or algotrading.  Please note – for trading decisions, use the most recent forecast.

Please note-for trading decisions use the most recent forecast. Get today’s currency forecasts.