Thoughts on some of the absurdity of multi-currency analysis.
money is a more liquid currency or commodity. The quid is of course more liquid, but so is the euro. For example, for the RF Ministry of Finance the yardstick is the dual-currency basket - its value is used as a benchmark when making decisions. If some participants of the currency market make decisions based on the currency basket, they might be of interest to speculators as well.
The central bank has a lot of orientation, but it cannot afford currency arbitrage, i.e. the exchange rates set by the central bank, RUB/EUR and RUB/USD, always meet the ratio: RUB/USD / RUB/EUR == EUR/USD. For a sensible decision-making the bi-currency basket does not therefore matter, domestic fundamentals do.
Arbitrage:
After the ruble became a freely convertible currency (the RUB/USD exchange rate appeared), the world currency has taken over completely all goods in the ruble's territory. Goods are a broad concept here. Knowledge, for example.
Knowledge:
Almost any territory has its own national currency. This territory produces knowledge - training to a certain level. The value of knowledge is equal to a certain amount of national currency and is expressed by a floating exchange rate. For example, in one state this rate is equal to ZNA/RUB. And in the other state (where national currency is USD) there is a ZNA/USD rate.
So it turned out that one country introduced free ruble conversion in such a way, that a situation occurred, when the ZNA/RUB * RUB/USD rate is much lower than the ZNA/USDrate. This situation is called arbitrage. I.e. it is profitable to buy knowledge in the country with the national currency, and to sell it in the country with the world currency. Arbitrage always occurs in freely convertible currencies. Examples abound, from brain drain to importing cars into the EU from the US. But there are states that, even under the strongest global pressure, have not yet introduced free convertibility of their national currencies. China and its yuan, for example.
The central bank has a lot of orientation, but it cannot afford currency arbitrage, i.e. the exchange rates set by the central bank, RUB/EUR and RUB/USD, always meet the ratio: RUB/USD / RUB/EUR == EUR/USD. Therefore the bi-currency basket does not matter for a sensible decision, domestic fundamental factors do.
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да последнее время все банки ориентируются на курс бивалютки потому что ЦБ задал коридор по бивалютке внутри которого будет удерживать курс рубля. Поэтому для торговли парами RUB/EUR и RUB/USD нужно отслеживать индикатив RUB/(0.45*EUR+0.55*USD) Т.е. смысл в учете индекса может быть
Maybe. But I don't. I don't think you quite understand what getch is talking about here.
Maybe. But I don't. I don't think you quite know what getch is talking about here.
Maybe I don't get it. I disagree with the phrase No point in currency indices, no point in cluster indicators.and gave a real example where all participants in the currency market have to navigate and make decisions to buy/sell pairs based on the value of the basket, which is the currency (ruble) index
да последнее время все банки ориентируются на курс бивалютки потому что ЦБ задал коридор по бивалютке внутри которого будет удерживать курс рубля. Поэтому для торговли парами RUB/EUR и RUB/USD нужно отслеживать индикатив RUB/(0.45*EUR+0.55*USD) Т.е. смысл в учете индекса может быть
It is a "chicken and egg" issue:
CBRF bi-currency basket == 0.45 * RUB/EUR + 0.55 * RUB/USD == RUB/USD * (0.55 + 0.45 / EUR/USD)
Totally, the CBRF Bicurrency Basket = RUB/USD * (0.55 + 0.45 / EUR/USD).
In other words, knowing the value of the bi-currency basket, you can always calculate the value of RUB/USD. And vice versa: knowing the rate of RUB/USD, you can always calculate the value of the dual-currency basket.
If the bank is focused on the bi-currency basket when analysing the RUB/USD rate, then it is focused on the RUB/USD rate itself.
The CBRF's bi-currency basket, as a special case of a currency index, is as meaningless as any currency index.
From the 8 major currencies, 28 majors and crosses can be composed (a complete system). In this complete system, only 7 pairs will be independent (basis). The others are dependent on them. What follows is absolutely trivial reasoning.
Let's assume that there is no arbitrage. Consider movements of pairs (e.g. returns at a given point in time). To describe this movement it is convenient to assume that the movement of one currency (say USD) equals zero and the movements of other currencies will be uniquely calculated from the movements of pairs (e.g. basis). All reasoning is for one point in time.
Then it is obvious that there is at least one currency with a minimum movement (out of 8) and at least one with a maximum movement (also out of 8).
Again the same in other words: at any given time there is at least one "rising currency" PPP - such that all pairs for it in the full system (out of 28 pairs) show a non-negative movement of the PPP currency relative to the others. Similarly for the PPP (non-positive) "fall currency".
Cluster analysis in the form proposed by Semenych is, of course, inconsistent. It is only a leaven for serious thought. We need to go all the way here, without compromise.
We are not trading currencies, but pairs. Which pair to open? Of course, RRRPP (we can conventionally forget about the arrangement of currencies in the pair): each currency of this pair is "extreme", and we can expect that the movement of this pair will also be extreme.
But it is not enough. This reasoning does not make for a profitable trading system, because here we have only analyzed the current moment in time, not the possible future. But so far I don't see any absurdity in cluster analysis, everything is logical.
Cold:
USD is the world's currency. This means that almost any commodity can be bought with USD directly. Currency is also a commodity. Therefore to all currencies there is an exchange rate against USD - it is a characteristic of the value of the currency.
Earlier the world currency was gold. Therefore any currency could be bought for gold directly. Now it is not so, for example to buy EUR for gold, you have to buy USD for gold, and then EUR for USD.
One country has introduced a freely convertible currency - ruble. This means that the value of the rouble became known in the world currency - the exchange rate RUB/USDappeared (the world currency took over all goods in the territory of the rouble).
Warm:
Here is a detailed example of a EUR/GBP trade from all angles.
Interestingly, at certain paces the world currency USD is even involved in transactions between EUR and GBP.
Like e.g. EUR/RUB, the EUR/GBP rate is set via the majors(EUR/USD and GBP/USD). In other words, the EUR/GBP rate does not provide any additional information compared to EUR/USD and GBP/USD.
Hot:
This means that whatever currency pair you trade, there will be a surplus of information about its behaviour in the majors. For example, to trade GBP/JPY, there is no point in analysing pairs other than GBP/USD and USD/JPY.
There is no point in currency indices, there is no point in cluster indicators.
The value of a currency is always known in exactly defined parrots - USD.
P.S.
However, the analysis of correlation statistics of different majors (for example, where EUR/USD went, GBP/USD went) makes sense, as a certain probabilistic characteristic. It has the same meaning as the analysis of EUR/USD together with RUB/USD, for example. I.e. its meaning is poorly observed.
There is really no point in analysing correlations. I understand your point of view, because I went the same way myself. (Judging by your research.) Understanding us people on the forum will be very few because the conclusions of such studies are not at all obvious to the average man.
But there is a point in compiling currency indices in principle. The index can talk about the state of the economy of a country, whose currency is present in all the pairs of the index.
Personally, I only deal in one currency pair.
trade Eurobucks and the Bucks
the rest are all low liquidity bullshit for news trading
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Cold:
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P.S.