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The Foreign Exchange Matrix: A new framework for understanding currency movements by Barbara Rockefeller, Vicki Schmelzer

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Chapter 5 – Forecasting FX

“… if there is a consensus result in the empirical literature, it has to be that nothing, but nothing, can systematically explain exchange rates between major currencies with flexible exchange rates.”

Kenneth Rogoff [29]

Economists see the FX market through one lens and FX professionals see it quite differently; this is true of traders at banks, brokers and hedge funds, as well as analysts. Economic theory seems logical but doesn’t work in the real world, which leaves practitioners with no solid economics underpinning and therefore the inability to forecast with any confidence.

This seems an enduring drawback, but it does have a virtue – FX professionals are free to abandon orthodoxy and ideology. A professional ...

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