Inflation: You Think The U.S. Has Problems - Check Poland

We started monitoring a "Distance" pair trade over the summer between EURUSD and PLNUSD because we saw how EURPLN was bobbing higher and lower all year. We decided to check back in on that pair trade after seeing headlines on Reuters earlier this week from Polish central banker Kotecki, who warned that inflation in Poland could reach 23% to 24% if the government does not extend aid measures designed at protecting consumers from rising prices.

Yikes!

We started monitoring a pair trade between EURUSD and PLNUSD on June 1. We decided to do a distance trade at the time because it was the one that back-tested the best results. We also discovered that the best trade enter-exit parameters were 1 and 0.75 (meaning when the "distance" between the two was above 1 standard deviation (or below -1 standard deviation) to enter and when the daily distance calculation was crossing .75 standard deviations or -.75 standard deviations (to exit). The Excalibur website explains those calculations in more detail.

The returns so far have been pretty amazing. We entered a long-spread trade on June 21 and when we exited the next day, the annual returns on that trade were 1,779.6%. Next, a short-spread trade was entered on July 13. On July 14, the annual return was 65.35%. And on July 15, it was 290.49%. Finally, another short-spread trade entered on Sept. 29. We exited Sept. 30 with a return of 178%.

It's worth watching this one closely - we appear to be heading toward another long-spread trade soon.