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The role of technical indicators in exchange rate forecasting

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  • Panopoulou, Ekaterini
  • Souropanis, Ioannis

Abstract

Forecasting exchange rates is a subject of wide interest to both academics and practitioners. We aim at contributing to this vivid research area by highlighting the role of both technical indicators and macroeconomic predictors in forecasting exchange rates. Employing monthly data ranging from January 1974 to December 2014 for six widely traded currencies, we show that both types of predictors provide valuable information about future currency movements. To efficiently summarize the information content in candidate predictors, we extract the principal components of each group of predictors. Our findings suggest that combining information from both technical indicators and macroeconomic variables significantly improves and stabilizes exchange rate forecasts versus using either type of information alone.

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  • Panopoulou, Ekaterini & Souropanis, Ioannis, 2019. "The role of technical indicators in exchange rate forecasting," Journal of Empirical Finance, Elsevier, vol. 53(C), pages 197-221.
  • Handle: RePEc:eee:empfin:v:53:y:2019:i:c:p:197-221
    DOI: 10.1016/j.jempfin.2019.07.004
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    More about this item

    Keywords

    Exchange rate predictability; Principal components; Forecast combination; Technical indicators; Macroeconomic fundamentals;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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