Currency time series momentum

Checked October 2026

Currency time-series momentum buys a currency that rose against the dollar over the past year and sells one that fell. It is the Moskowitz, Ooi and Pedersen rule from 2012, applied to currencies. Backtoast ran it. The 12-month version failed our test, losing 13.9% a year over 303 trades.

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Currency time series momentum

Each currency is its own up-or-down decision. On the last trading day of the month the rule buys each currency that's up against the dollar over 12 months and sells each one that's down, sizes each so it swings about the same amount, and holds for a month.

The run traded nine currencies against the dollar, with the interest gap paid and charged overnight, which the paper's forward contracts also carry.

Currency momentum ranks the currencies against each other over one month instead.

When it works

Currency trend following pays when central banks move rates apart for a year or more and a currency keeps going the same way, and the 12-month signal loses when a trend reverses inside the year. Traders keep running it because Moskowitz, Ooi and Pedersen found the diversified version did best in extreme markets, up or down, which is why it's held next to stocks. That version runs the same rule on bond, stock index and commodity futures as well, so currencies are one part of it.

Origins

Moskowitz, Ooi and Pedersen found trend returns were positive for every currency forward they tested from 1985 to 2009, before costs. The same rule on futures is futures time series momentum. The run is from late 2021 to October 2026.

The run is Backtoast's, from 29 October 2026, after costs.