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Federal Reserve Bank of New York
Economic Policy Review
Exchange rate changes and net positions of speculators in the futures market
Thomas Klitgaard
Laura Weir
Abstract

Traders, strategists, and other participants in the currency markets continuously seek to understand and interpret short-term exchange rate movements. One data set frequently used in those efforts is a weekly report of net futures market positions held by speculators on the Chicago Mercantile Exchange. In this article, the authors pursue a transaction-oriented line of research to track short-term exchange rate moves. They examine the data set for six currencies over a ten-year period and document a strong contemporaneous relationship between weekly changes in speculators' net positions and exchange rates. The authors find that knowing what speculators did over a given week gives one a 75 percent probability of correctly guessing an exchange rate's direction over that week. One explanation for this relationship is that these speculators-acting on their interpretation of public and private information-have some success anticipating how underlying demand will move exchange rates from their prevailing levels in the very short term.


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Thomas Klitgaard & Laura Weir, "Exchange rate changes and net positions of speculators in the futures market" , Federal Reserve Bank of New York, Economic Policy Review, issue May, pages 17-28, 2004.
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Keywords: Foreign exchange rates ; Speculation ; Futures
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