This paper offers an extensive analysis of the economic impactĀ of COVID-19 and the effects of the pandemicĀ on several currencies. We then explain a predictive model thatĀ utilizes COVID-19 indicators to generate FX trading signals.
Over a portfolio of 28 currency pairs, the model applies aĀ simple linear regression to the number of daily new COVID-19Ā cases in each country to, mainly, short the currencies againstĀ the USD. After optimizing the model's hyper-parametersĀ over the validation data, this model results in a +3.50 return,Ā with 0.84 standard deviation, resulting in 4.01 return-to-riskĀ (information ratio), over the out-of-sample period.
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