I've just read the EURCHF analysis Matty posted today and I have just a question on the GDP Diffs.
I know the YoY change difference for 2022 in GDP growth is predicted to be -0.1% less than 2021, but with EUR still having a higher predicted GDP growth overall for 2021 and 2022, how does the slight drop in growth rates YoY affect how we use this info compared to the standalone Differential for the year?
Could you argue that at the end of the day EUR is predicted to grow more than CHF in 2021, giving us a bullish view on EURCHF overall? How does the YoY change info really effect how we view trades ideas?
Thanks!
Very good question. Generally speaking, GDP growth diff is a barometer of the potential holding period for a trade, and long-term bias. Continuing the EURCHF Example, over 2021 showing a positive change in differential, then dropping in 2022's forecast, my interpretation is as follows:
A long bias expires by the end of 2021, if it does long in the coming months. Therefore, it's okay to long until 2022. If you have a short bias before 2022, this indicator is disagreeing (but it's one of many, so make sure you consider all the economic variables to see if they agree/ disagree with any bias you're looking at. ) Hope that helps!