Riding the early morning Metro North train from Grand Central to Greenwich in late December 2004, the euro dominated Luke Anthony's thoughts. After bottoming out at about 0.85 $/?, in 2000 and 2001, the euro had appreciated sharply and now stood at 1.35 $/? (Exhibit 1). Luke, an FX Strategist at a hedge fund, had to form a view about the likely path of the euro going forward. The evidence was in no way clear cut. Of the traditional factors, some were pointing toward further euro appreciation, but others seemed to favor the dollar. And there were a host of "new" factors to sift through. Sorting through the evidence would require both relatively standard thinking about foreign exchange markets and the more recent emphasis on prospective capital flows. And Luke had only this quiet week between Christmas and New Year's to form a cohesive plan for early 2005.