Forex Sentiment

Daily Trend-Following and Mean-Reverting trading signals from macro news sentiment across G7 currencies.

Foreign exchange markets often exhibit patterns akin to trend-following and mean-reverting strategies. Research has identified predictive power in news sentiment across G7 currencies to construct each signal, which significantly outperforms traditional price momentum and mean-reversion currency factors.

The RavenPack Forex Sentiment Factors make these strategies accessible to all investment workflows with two signals:

Use Cases

Currency traders can trade these signals to generate alpha or enhance currency risk premia strategies:

Factor Performance

The performance of Forex sentiment factors has been backtested for various holding periods of long-short and dollar-neutral futures strategies based on Trend-Following and Mean-Reverting factors across G7 currencies, rebalanced daily over 2004-2023. For easier reading, the charts disaggregate the portfolio statistics by top and bottom number of currencies.

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UNDER THE HOOD

Computing Forex Sentiment Factors

The Factors are the outcome of a multi-step process including:

Content Collection

RavenPack analyzes textual content from high-reputation sources over 40,000 curated ones to identify news related to places or organizations, including the 249 countries and 161 currencies worldwide.

Analytics Enrichment

For each event identified, RavenPack uses sentiment analysis to compute multiple scores by matching stories usually categorized by financial experts as having a positive or negative financial or economic impact.

Information Extraction

Documents considered include full articles, news flashes, press releases, and tabular material with a fact level including facts, forecasts and opinions, but excluding mentions. Additional filtering is applied to ensure entity and event relevance, and exclude machine-generated content.

Signal Construction

Every day, for each of the G7 currencies (AUD, CAD, CHF, EUR, GBP, JPY, NZD), Event Sentiment Score (ESS) related to media attention around currency prices is aggregated at the currency level to obtain an average FX sentiment score which is then exponentially smoothed for different time decays and processed to produce Mean-Reverting factors. The Trend-Following factor is constructed by averaging the Composite Sentiment Score (CSS) of individual country-specific macroeconomic news and then linking each score to the corresponding currency.

Company Factors Facts
Purpose
  • Extract alpha
  • Boost FX Strategies
FrequencyDaily
HistorySince 2004
UniversePrecalculated factors available for G7 currencies. Custom factors for all tradeable currencies.
Content
  • When the factor was produced.
  • The currency, as name and RavenPack entity identifier, and ISO country code.
  • Exponential smoothing decay — the number of days used to smooth sentiment and control portfolio turnover, provided for various periods from daily to semi-annual.
  • Factor name — one of the following: FX Trend-Following or FX Mean-Reverting.
  • Factor score — the computed value for that specific currency.
Delivery RavenPack, Snowflake

Access the Forex Sentiment Factors


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