Quick Win by the Algorithm: Bearish Forecast Continues Amid Further Complications

Quick Win by the Algorithm

On June 5th, 2017, the I Know First algorithm issued a bearish forecast for GBP/JPY. GBP/JPY had a signal of -11.66 and a predictability of 0.26. As a result, in accordance with the forecast, the currencies decreased by -3.15% in just 7 days, showing a quick win by the algorithm.

 

The British Pound (GBP) against the Japanese Yen (JPY) pair denotes how many Yen are needed to purchase one Pound Sterling. The JPY is historically a low yielding currency. The JPY is used as a funding currency of trade. The United Kingdom is one of the largest economies in Europe. Therefore, the Pound-Yen pair is viewed as a proxy for worldwide economic health. When the markets experience severe risk aversion the pair is viewed as a proxy for market ‘risk-off’ moves as the carry trade gets reversed.

 

 

The UK General election didn’t go as expected, after the Conservative party narrowly lost its majority in the House of Commons. In order to continue ruling the country, it had to form an alliance with the Democratic Unionist Party. In turn, the GBP/JPY has struggled, although there’s room for a potential long position. Recent hard UK data released came out positive for the GBP. The results indicated rising inflation of 2.9% from prior months 2.7%. The out-look of a ‘softer-brexit,’ does no harm to the future of the currency either.

In addition, UK workers’ earnings after inflation fell at its fastest rate since 2014. This seems to the case due to lower than expected weekly earnings, excluding bonuses. Weekly earning grew by 1.7% below the expected 2.0% increase. The UK’s Office for National Statistics reported the February-April quarter were down .4% including bonuses and .6% excluding.

The Japanese Yen wasn’t much better after reports from the Ministry of Finance. The Business Sentiment Index (BSI) fell 2 points, after previously rising 1.3. The large manufacturing segment seems to have taken the biggest hit, down a high 2.9 points relative to non-manufacturing’s 1.6 for the quarter. Overall, with all the economic instability of both countries, the bearish outlook for the GBP/JPN remains.

Current I Know First subscribers received this bearish forecast on GBP/JPY on June 5th, 2017.

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How to interpret this diagram:

Algorithmic Currency Forecast: The table on the left is the forex forecast produced by I Know First’s algorithm. Each day, subscribers receive forecasts for six different time horizons. The currencies in the 1-month forecast may be different than those in the 1-year forecast. In the included table, only the relevant currencies have been included. A green box represents a positive forecast while a red represents a negative forecast. The boxes are then arranged according to their respective signal and predictability values (see below for detailed definitions).
Forecast Performance: The table on the right compares the actual currency performance with I Know First’s prediction. The column titled “Forecast” shows which direction the algorithm predicted. The column “% Change” shows the actual currency’s performance over the indicated time period. The “Accuracy” column shows a “v” if the algorithm correctly predicted the direction of the stock or an “x” if the forecast was incorrect. The “I Know First Hit Ratio” represents the algorithm’s accuracy when predicting the trend of the currency.
Signal: This indicator represents the predicted movement direction/trend; 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.
Predictability: This value is obtained by calculating the correlation between the current prediction and the actual asset movement for each discrete time period. The algorithm then averages the results of all the prediction points, while giving more weight to recent performance. As the machine keeps learning, the values of P generally increase.

Please note-for trading decisions use the most recent forecast. Get today’s forecast and Top stock picks.