Building a Currency Value Model

I’d like to hear from any of the currency trader followers on their favorite models for trading currencies based on valuation (not momentum, interest rates, carry or anything else).  The most typical is Purchasing Power Parity (ie think the Big Mac Index) using OECD data.  The biggest difficulty is that the valuation in currencies can take many years to correct.

Some more background from Deutsche Bank here on some very simple models (here and here).

I’ll follow up with a longer post in the next few days on an interesting take on the currency carry model.