Over the years, I’ve written pieces postulating that fair value (a truly nebulous term) is probably somewhere in the 1.15/1.25 region. I base that on historical ranges, and quite frankly, on the seat of my pants. My definition of fair value is the level at which neither the US nor the euro zone has a particularly notable export advantage based sole on FX rates.
The advent of QE prompted me to revise up my fair valuation, using the sophisticated algorithm described above, to the 1.25/1.35 area.
Now that the ECB has taken the crown as the central bank with the largest balance sheet in the world, I guess we have to put fair value around 1.20/1.30.
How’s that for sophisticated econometrics?
