foreign exchange rate forecasting_s.pptx

Second and fourth quadrants indicate errors on

Info icon This preview shows pages 19–24. Sign up to view the full content.

Second and fourth quadrants indicate errors on direction: either that the forecast indicates a rising rate when the rate actually falls (point G) or that it indicates a falling rate when it actually rises (point H). G C F D E B A H Line of perfect forecast Forecast change Actual change
Image of page 19

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

20 Technical analysis Technical analysis comprises a variety of practices and procedures used to forecast exchange rates It ignores the role of fundamentals (e.g. inflation and interest rates) implicit in econometrics models. Similar to TS models as it uses exchange rates past history to forecast (using charts) its future values. Technical Analysts also called Chartists study charts of exchange rate movements to identify certain patterns to generate buy and sell signals, which makes it a pattern-based forecasting device. Rationale for technical analysis Not easy to pinpoint all the fundamental factors affecting the exchange rate over a period Supply and demand are governed by rational and irrational factors Some factors are qualitative in nature, & therefore cannot be measured History repeats itself For e.g. in 1980’s USD appreciated remarkably in spite of lower interest rate
Image of page 20
21 Kinds of charts Three kinds of charts are typically used by chartist: Line charts Plot S against the time, normally of daily closing exchange rates. Bar charts Not only the closing exchange rates, but also high or low for each day or period. Top end: measures high value of exchange rate Bottom end: measures low value of exchange rate Small horizontal line crossing: measures the closing value of the day or period Point and figure charts Are used to highlights major market trends. Unlike line and bar charts, they do not show small exchange rate movements and they are not time related i.e., entries are made on a point & figure chart only when there is a significant change. Look at page 241 for point and figure chart. It shows pattern persistence of upward trend (x) and persistence of downward trend (o). Closin g High Low S Time A bar chart
Image of page 21

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

22 Trendlines (TL; upward, downward, sideways) and trading ranges Chartist study charts of movements of exchange rates to identify certain patterns that have significant implications for the future movements of exchange rates for e.g., TL, ST, Flags etc. Trendlines connect ascending bottoms and descending tops In a bull (rising) market, the trend is upward and so the chart shows a series of ascending bottoms. In a bear (falling) market, the trend is downward, characterized by a series of descending tops. The market is in a trading range when the tops and bottoms are at the same level In order to recognize a trend, chartists draw trendlines connecting tops and bottoms Normally, a trend is not ‘confirmed’ until three tops S Time (a) Upward trend (bull market) S Time (b) Downward trend (bear market) S Time (c) Sideways trend (trading range) Buy at low, and Sell at high in established trend channels
Image of page 22
23 Support and resistance levels A support level is the bottom of a market swing A resistance level is a point where the market peaks
Image of page 23

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 24
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern