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ABN Amro Launches Foreign Exchange Model

ABN Amro launched an FX model for Eur/Usd dubbed, FX Regime Prediction Indicator, which assesses market volatility and positioning to assign a probability factor to likely movements in the spot rate for the coming week.

"This tool provides currency traders and portfolio managers with an extra level of sophistication and choice in managing their currency exposure," says Aziz McMahon, senior strategist at ABN Amro.

According to the bank, by using its FX indicator, currency managers can employ a switching strategy, using "trend following" when the probability is high that Eur/Usd is trending up or down, and "volatility capture" when the probability is high that it is simply range trading.

The model has been built from data over the January 2000 to December 2002 period and tested for the period between January 2003 to the end of March 2005.

"Our tests show that using our indicators to dynamically switch between, or to adjust the weightings of, different trading styles produces significant improvement to returns compared to a passive approach," says McMahon.

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