Forex Automaton

In the screening we conducted last summer using the data set from 2002 to early 2008, CHF/JPY was identified as a leading indicator for EUR/AUD. This time-evolution study confirms that the signal was real, as the fairly robust relationship persisted till the middle of 2007. Around the middle of 2007, CHF/JPY and EUR/AUD changed from being positively correlated to being negatively correlated. About the same time, CHF/JPY stopped being a leading indicator for EUR/AUD. Curiously, it's hard to interpret this as a result of changes in the interest rates: dramatic changes in that area did happen, but much later, not until the Fall of 2008.

The results for EUR/JPY and the respective LIBOR ratio, obtained in the inter-market correlation technique for logarithmic returns, look somewhat disappointing. The sharp zero-lag peaks seen in USD/JPY for LIBOR durations longer than 3 months are absent here. The quantitative analysis of time lag dependence of the correlation shows the EUR/JPY movement during the crisis to precede, rather than to follow the interest rate developments, however this seems to be more of a single long-range event than a repetitive and predictive temporal connection required for trading system formulation.