Chart analysis and the foreign exchange market

Quarterly Bulletin 1989 Q4
Published on 01 December 1989

Standard economic analysis of floating exchange rates, as it has developed over the past fifteen years, is apparently subject to severe limitations: standard analysis cannot, it seems, give an adequate explanation of the past, nor predict the future reliably. Largely as a result of these failings, recent research has begun to analyse influences on financial markets other than those relating to pure economic fundamentals.

This article summarises some empirical research undertaken in the Bank's Economics Division on the nature and percei ved importance of a major form of non-economic, or non-fundamentalist, analysis-chartism-in the London foreign exchange market.

Four main findings emerge:

  • the use of chart analysis as an input into trading decisions appears to be widespread among dealers in the London market;

  • chartists' forecasts display a marked degree of heterogeneity;

  • it appears that chartist advice is unlikely to have a destabilising effect on the market;

  • some chartists perform extremely well when compared against a range of alternative forecast procedures, although this finding should be interpreted with caution.

PDFChart analysis and the foreign exchange market

Other Quarterly Bulletin 1989 Q4 articles

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