Photographer: Pawel Dwulit/Bloomberg

Paris Boutique That Foresaw 2008 Crisis Right Again With Loonie

  • Tiny team led all for projecting in Bloomberg ranking
  • Valerie Gastaldy identifies cycles to drive her forecasts

Valerie Gastaldy says she can predict the Canadian dollar’s movements years in advance using centuries-old models.

Her six-person team, the entirety of Paris-based research firm Day By Day SAS, was the best forecaster for the currency in the second quarter, according to Bloomberg rankings. To top a list of 61 firms including the likes of JPMorgan Chase & Co. and Morgan Stanley, the 51-year-old analyst ignored macroeconomics and relied on cyclical theories and behavioral economics.

Her strategy tracks financial markets worldwide to spot trends well before they happen, such as the rise in the Canadian dollar, which was the second-best performer among the Group of 10 currencies, behind the yen, during the first half of the year. Now, Gastaldy, whose company also won plaudits as the most-accurate European equity research forecaster after the 2008 financial crisis, projects a period of weakness for the loonie, followed a rally into mid-2017 and then a long-term slump.

"Everything really is a cycle," Gastaldy said in a phone interview from her office near the Paris Opera. "I know of only one other person who uses a similar method and it’s the man who taught me it."

Market Call

Gastaldy predicts the Canadian dollar will weaken to C$1.35 against the U.S. dollar during the next couple of months before strengthening into the first half of next year, reaching C$1.20. She said her forecasts are based on cycles, rather than direct analysis of the turmoil following the U.K.’s vote to leave the European Union or oil prices.

The loonie has strengthened since the Bank of Canada held its benchmark interest rate unchanged on July 13 and policy makers expressed confidence in an export-led rebound for the nation’s economy. It was at C$1.2877 as of 7:39 a.m. in Toronto.

Day By Day’s approach is based on quantifying the concept that investor emotion is the main driver of global macroeconomic trends, such as the relationship between interest rates and currencies. Gastaldy began constructing cyclical models in 2002, largely based on theories developed in the early 19th century to explain periods of high and low growth.

Gastaldy credits her success to the research of Tony Plummer, an economist and director of Helmsman Economics. The two met and struck a friendship at a conference in London in the early 2000s where Gastaldy said she was astounded by his presentation and became a "dedicated practitioner" of his work.

"Valerie’s managed to apply and further it with her own research on specific trends and markets like the Canadian dollar," Plummer said by phone from London.

Team Approach

Gastaldy’s research team is tight knit, with the majority working together for more than a decade. To win the equity prize, they beat the likes of Credit Suisse Group AG and Goldman Sachs Group Inc.

"Six people might not sound like a lot, but it can be too much keeping them in line sometimes," she said. "It’s a very informal environment -- we like to bicker a lot and throw around ideas. Everyone’s opinion matters. "

Gastaldy said her models incorporate historical methods, including Kondratiev waves, which show a repeating 54-year pattern of commodity prices, and Juglar cycles, which focuses on flows within fixed investment cycles of seven to 11 years. In this type of technical analysis, analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

"We took these models and we essentially made road maps that show us when and how greed and fear can evolve in investors in relation to interest rates, inflation, confidence, and so on," she said.

For more on the correlation between the Canadian dollar and oil, click here.

Gastaldy’s call for the Canadian dollar to weaken by the end of this quarter to C$1.32 is in line with the median in a Bloomberg survey of analysts. Her projection for C$1.20 by the first half of 2017 is more bullish than the C$1.31 median in the Bloomberg survey.

The factors that buoyed the Canadian dollar in the first half, such as the rally in oil, a lack of easing action from the Bank of Canada and unwinding of long-held bearish positions will fade in the second half, said Vassili Serebriakov, foreign-exchange strategist at Credit Agricole CIB in New York. His team predicts a weakening to C$1.35 by the end of the year and a further decline to C$1.37 by mid-2017.

Longer-term, Gastaldy said the loonie is poised to tumble toward the 13-year low reached of C$1.4690 in January. She said it may weaken to C$1.40 in 2018 and C$1.50 in 2019.

“There will be a steep drop in commodities leading into global deflation by the middle of next year, which will significantly affect the Canadian dollar," Gastaldy said. "Our models are already telling us that there will be a significant downturn in commodities from next year all the way until 2019."

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