The Role of Technical Indicators in Exchange Rate Forecasting

43 Pages Posted: 10 Oct 2017

See all articles by Ekaterini Panopoulou

Ekaterini Panopoulou

University of Kent - Kent Business School

Ioannis Souropanis

University of Kent - Kent Business School

Date Written: October 5, 2017

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 summarise 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 stabilises exchange rate forecasts versus using either type of information alone.

Keywords: Exchange Rate Predictability, Principal Components, Forecast Combination, Technical Indicators, Macroeconomic Fundamentals

JEL Classification: C53, C58, F31, G17

Suggested Citation

Panopoulou, Ekaterini and Souropanis, Ioannis, The Role of Technical Indicators in Exchange Rate Forecasting (October 5, 2017). Available at SSRN: https://ssrn.com/abstract=3049864 or http://dx.doi.org/10.2139/ssrn.3049864

Ekaterini Panopoulou (Contact Author)

University of Kent - Kent Business School ( email )

Canterbury, Kent CT2 7PE
United Kingdom

Ioannis Souropanis

University of Kent - Kent Business School ( email )

Canterbury, Kent CT2 7PE
United Kingdom

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