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Bloomberg Training: FX Forecast Model - www.fintute.com - YouTube
Channel: Fintute
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welcome to Finn chew in today's lesson
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we're going to learn how to use a
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foreign exchange forecasting model on
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Bloomberg to find the forecast model
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type in the top left hand corner FX
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forecast this will bring up FX forecasts
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and also the FX rate forecast model
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click on this this will now bring you to
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a screen that has on the left hand side
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the currency box I'm going to change
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this to
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aud/usd a date box source number of
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deviations and a series of columns and
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rows on the right hand side you'll see a
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table that contains a histogram and a
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distribution let's go through this from
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the very start selecting quarter three
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you'll see that there's a seventy four
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point seven percent chance of the price
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falling between 80 to 52 m101
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36 looking at the histogram what we see
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is a definite skew toward the currency
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falling lower that is a higher
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percentage probability that the currency
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is going to be lower than it is for an
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equivalent move higher what this uses is
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undiscounted digital prices as a
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cumulative distribution you can work
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this out using OPML if you're so
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inclined
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however the nice thing about the
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Bloomberg model is not only do we have
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these implied probabilities and you'll
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see that if I hover over one it will
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give me the point probability or
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discrete probability inclusive of end
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points what I then want to do is add the
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analyst forecast to find out whether the
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analysts are different to the market why
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would the market be different well the
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market as you know can
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a lot quicker then an analyst can
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however analysts have a more fundamental
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view and as a result are less likely to
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be skewed by noise unlike a market which
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may well be looking at the table on the
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right-hand side you'll see how implied
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probability our analyst forecasts but I
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can also click on and off my analyst
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consensus being the orange line and
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click on and off my current spot if I so
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chose I could pick the forward price and
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strangely this falls right in the middle
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of where the market is saying the
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currency should move - all this is well
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and good and gives you a good feel for
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the direction the currency is going to
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take in the next quarter in this case
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you'll see it's definitely skewed toward
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moving lower however if I wanted to find
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an accurate statistical measure of where
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the currency would be I would go to
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probability calculator on the bottom tab
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and then I would say for example give me
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the probability that the Australian
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dollar will be above one in six months
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time this will now go out and calculate
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the probability using the undiscounted
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digital and it comes up with a
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probability of 21.4% if I now said
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beneath one
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you would expect my answer to be one -
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21.4 in which case it is 78.6% chance of
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it being beneath one there are also a
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series of references on how to use this
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model under user guide and white paper
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but this is not the only currency that
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can be placed in here we can also place
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a you GBP gain so on and so forth game
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by three percent from today to q3 this
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becomes very very handy when we're
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starting to look for opportunities to
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hedge or we need to put in papers and
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say right this is what my cost level is
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and here is the probability that the
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market is going to fall beneath or
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remain above that hedge costs now of
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course it's the right answer but it may
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not be the correct answer one needs to
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ensure that they stay on top of the
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market by looking at daily charts and
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why the analysts are saying that these
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forecasts are the way they are this has
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been another tutorial from
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