RMIT International Finance: Evaluating Currency Trading Strategies

This report evaluates currency trading strategies within an international finance context. It identifies appreciating and depreciating currencies (JPY/USD, AUD/USD, GBP/USD, EUR/USD) and proposes trading strategies based on these movements. The report assesses the effectiveness of implemented trading rules, noting a loss due to inaccurate initial predictions and portfolio allocation. It highlights the importance of technical indicators, economic announcements, and balanced investment allocation for improved strategy performance. The analysis also references academic work on technical analysis and investment opportunities, emphasizing the need for continuous refinement of trading strategies to enhance investment returns. The student document is available on Desklib, a platform offering a range of study tools and resources.

Running head: INTERNATIONAL FINANCE
International Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
1. Identifying the currencies appreciating and depreciating:.....................................................2
2. Conducting the proposed trading strategies for the identified trading currencies:................4
3. Indicating the trading rule worked during the game:.............................................................5
4. Depicting the ways in which the trading strategy can be improved:.....................................5
References and Bibliography:....................................................................................................7

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1. Identifying the currencies appreciating and depreciating:
Current Pair Description of the currency movement
JYP/USD
The above figure indicates a downtrend for JPY/USD, where the stocks have
relevantly showed slowdown in progress. The reduction in overall down trend has been
hitting lower lows, which might be beneficial for investors. Furthermore, Buying the JPY to
USD would eventually help the investors in gaining profits when the overall trend of the
currency changes.
Current Pair Description of the currency movement
AUD/USD

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The above figure relatively showed growth prospects where the previous resistance
levels were broken by the AUD/USD currency. This relatively indicated that an upward
movement was inevitable in future, which relatively indicated a bicycle for the investors. The
halt in the continuous downtrend relatively changed with a higher high that was obtained by
the currency during the previous trading days. This relevantly indicated that the value of the
currency would eventually increase over time while generate high level of income from
investment. Therefore, buying the current value of the currency will be beneficial for the
investor.
Current Pair Description of the currency movement
GBP/USD
The above graph relevantly indicates a trend change, which has relevantly resulted in
an upward trend. The higher highs, which have been obtained by the price action of
GBP/USD indicates a pattern of upward momentum, which can allow the investor to gain
high returns from the exposure. The currency has been breaking resistance level and
obtaining higher value, which is relevantly indicating a positive trend. Therefore, buoying the
currency at the current value will be beneficial for the investor, as the current value is at the
level of support line.
Current Pair Description of the currency movement

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EUR/USD
The overall trend of the EUR/USD currency has been indicating a positive trend, as
the value was gaining higher high. The current value is mainly at the levels of support, which
depicts a positive trend continuation for the currency. The currency has been gaining higher
high, which has pushed the boundaries of the pervious resistance level and allowed the stock
to engulf in a new trend, which will increase the return for the investors.
2. Conducting the proposed trading strategies for the identified trading currencies:
Current Pair Trading Strategy
USD Buying and trading it for 7 days, where the weights will be 9.327%
JYP Buying and trading it for 7 days, where the weights will be 0.003%
AUD Buying and trading it for 7 days, where the weights will be 0.679%
GBP Buying and trading it for 7 days, where the weights will be 39.080%
EUR Buying and trading it for 7 days, where the weights will be 50.912%

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3. Indicating the trading rule worked during the game:
The trading strategy developed before the initial trades were not accurately depicting
the price movements, which led to the loss of -1.069 in returns. The failure was relevantly
conducted during the distribution of investments in the portfolios, where high exposure was
conducted in EUR, which was rapidly declining in value. This led to the high loss, which was
being incurred from the investment. The high investment was also conducted in GBP
currency, whose values were falling due to Brexit conditions. The strengthening of USD has
relevantly helped in gathering positive returns for the portfolio, while the exposure in JPY
and AUD has resulted in loss, which hampered the invested capital. The trading rules only
worked for USD, as the policies were being made by the political administration, which
strengthened its value against other countries currency.
4. Depicting the ways in which the trading strategy can be improved:
The above figure relevantly indicates the overall trading, which has been conducted
during the period of 7 days. The major constraints that can be found from the trading rule are
the lack of using technical indicators and announcements that was considered essential during
the treading session. The announcement of the traffic and other declaration from the US led

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to the strengthening its currency value against different currencies. Hence, before initiating
the trade the strength of the currency and the announcements needs to be taken into
consideration. Furthermore, the major constraint that led to the downfall of the trading
strategy is the allocation process, where the investment capital was not adequately allocated
in all the relevant exposures. Barroso and Santa-Clara (2015) mentioned that with the use of
adequate technical analysis approach investors are able to detect relevant investment
opportunities, which can generate short-term returns. Thus, improving the above constraint
would eventually help in strengthening the trading strategy and improve the return from
investment.

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References and Bibliography:
Barroso, P. and Santa-Clara, P., 2015. Beyond the carry trade: Optimal currency
portfolios. Journal of Financial and Quantitative Analysis, 50(5), pp.1037-1056.
Chaboud, A.P., Chiquoine, B., Hjalmarsson, E. and Vega, C., 2014. Rise of the machines:
Algorithmic trading in the foreign exchange market. The Journal of Finance, 69(5), pp.2045-
2084.
Costantini, M., Cuaresma, J.C. and Hlouskova, J., 2016. Forecasting errors, directional
accuracy and profitability of currency trading: The case of EUR/USD exchange rate. Journal
of Forecasting, 35(7), pp.652-668.
Dewandaru, G., Masih, R., Bacha, O.I. and Masih, A.M.M., 2015. Developing trading
strategies based on fractal finance: An application of MF-DFA in the context of Islamic
equities. Physica A: Statistical Mechanics and its Applications, 438, pp.223-235.
Menkhoff, L., Sarno, L., Schmeling, M. and Schrimpf, A., 2016. Information flows in foreign
exchange markets: Dissecting customer currency trades. The Journal of Finance, 71(2),
pp.601-634.
Narayan, P.K., Ahmed, H.A. and Narayan, S., 2015. Do momentum‐based trading strategies
work in the commodity futures markets?. Journal of Futures Markets, 35(9), pp.868-891.