The decrease in interest rates decided by the Reserve Bank of Australia due to lower inflation expectations will prompt investors to shift to markets offering higher returns. In a nutshell, the varying impacts of COVID on the multifractality and efficiency of the forex markets under consideration can be explained by the structure of these markets and the behavior of traders during the COVID pandemic. A significant portion of international news headlines evoked uncertainty, negative sentiments, and fear and sadness Aslam et al.
In such a turbulent environment, investors tend to shy away from trading activity to avoid financial losses, which adversely affects the financial markets Mukerji and Tallon, ; Levy and Galili, COVID affects not only the trading behavior but also the multifractal behavior of financial markets with the considerable uncertainty Aslam et al. These factors potentially explain the differences in the overall effects of COVID on forex market efficiency, with the heterogeneous expectations of investors and traders about the fundamentals underlying a currency as well as strong trade ties with a severely affected country as with the AUD and reversal of safe haven perception as in the case of the JPY.
Forex market efficiency also depends on the policy response from governments on both fiscal and monetary aspects, which are subject to several factors linked to the prevailing economic and political environment, among others. For example, an unanticipated change in money supply may lead to exchange rate overshooting as consumer prices cannot move immediately to reflect the money supply change Dornbush, Building on this analogy, we can argue that a temporary disequilibrium in the forex markets may represent the adjustment of prices to information received through a relatively faster channel.
The COVID pandemic emerging from China received a quick response from investors while adjustments by policymakers may take time due to the rather measured interventions such as the recent deployment of central bank dollar swap lines. This paper provides a first look at forex market efficiency in the context of the COVID pandemic as its economic and social costs are a matter of great concern to the society, policymakers, market operators, and individual investors.
Our study is thus vital as it provides an insightful analysis of fractals in the six major international forex markets. The intraday data of five-minute frequency from October 1, to March 31, is divided into before and during the COVID outbreak, with a three-month trading window for each. These methods provide insight into the long-range dependence of these exchange rates in terms of their multifractal structures. Market efficiency is pivotal in both resource allocation and capital formation, which lead to economic development and stability Rizvi and Arshad, The findings of this study show varying degrees of forex market efficiency before and during the COVID outbreak.
In this scheme of things, the estimated Hurst coefficient h q provides insight into the dynamics and trending characteristic of forex markets, which are useful for investors in aligning their strategies to market conditions. This implies that, for a time series, a higher financial asset value in the prior periods may decline in the subsequent periods through a mean-reversion process.
For the remaining four currencies, a high value of the H exponent 0. In non-technical terms, this evidence suggests a lack of efficiency in the sample currency markets both before and during the COVID pandemic. Since the COVID pandemic is an ongoing crisis, we believe that no single policy response can be considered successful in the short term. The extant literature suggests minimum intervention in forex markets, while effective management of internal risks in the forex markets Han et al.
Such behavior may lead to higher autocorrelation, and hence a decrease in market efficiency. Policymakers may potentially address such behavioral anomalies by ensuring stability in the underlying macroeconomic fundamentals. Market participants would do well to reassess their investment and risk management framework in order to mitigate the new and somewhat higher risk levels of their exposures during the current tumultuous times.
While we acknowledge that the findings of this study should be viewed with caution given the sample period under analysis, it does pave the way for future research regarding the COVID impact on forex markets in the short and long run, the effectiveness of policy responses in maintaining their stability, and volatility transmissions, using larger samples and analysis windows.
The changes in investor behavior across two time horizons will potentially transform market linkages and correlations. Thus, the fractal models can be used to further explore the fractal contagion effects caused by the COVID pandemic. Moreover, investigating the primary source of the increase in multifractality to understand the psychological aspects of investment behaviors is potentially an interesting direction for future research.
This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Khurrum S. Maaz Khan: Data curation. He earned his master's and Ph. He deeply invests in creative and innovative research ideas related to financial analytics, data mining, artificial intelligence, and data sciences.
His-primary research interests is in empirical finance, corporate finance, stability of financial institutions - an analysis that cuts across investigating various types of risk and its genesis in mergers and acquisitions led growth strategies, national culture, financial regulations, AI and machine learning in finance, and green firms.
His-contributions include various published articles in leading academic journals, book chapters and posts on research blogs. Kennedy School of Government, Executive Education Mughal is working as a research economist in state bank of Pakistan. He completed his Post Doc from Austria. Maaz Khan is doing his master's in finance from Comsats University Islamabad. His-research interests include financial modeling, economic analysis and machine learning. Technol Forecast Soc Change.
Published online Aug Mughal , e and Maaz Khan a. Author information Article notes Copyright and License information Disclaimer. All rights reserved. Elsevier hereby grants permission to make all its COVIDrelated research that is available on the COVID resource centre - including this research content - immediately available in PubMed Central and other publicly funded repositories, such as the WHO COVID database with rights for unrestricted research re-use and analyses in any form or by any means with acknowledgement of the original source.
This article has been cited by other articles in PMC. Abstract We employ multifractal detrended fluctuation analysis MF-DFA to provide a first look at the efficiency of forex markets during the initial period of the ongoing coronavirus disease COVID , which has disrupted the global financial markets. Data and methodology 2. Data description We use high-frequency data five-minute intervals to reveal the inner dynamics of forex market efficiency under the COVID impact.
Open in a separate window. Table 1 List of currencies with summary statistics of their exchange rate returns against the US dollar 5-minute interval. Multifractal detrended fluctuation analysis Once STL decompositions are obtained, we apply the MF-DFA technique to compute multifractality in the time series following a five-step procedure.
While the length N of the series is usually not a multiple of the considered time scale s , it disregards a short part of the profile X k at the end. It is not necessary to disregard this part of the series, and the same procedure will be repeated from the opposite side. Thus, 2 N s segments are obtained in total. Peng et al. Step 3 : Calculate the local trend for each of the 2 N s parts by k th-order polynomial fit.
Step 4 : In Eqs. Step 5 : Compute the relationship between F q s and s. The task consists of establishing the scaling exponent of the fluctuation function for any fixed q. If F q s is a power law, the time series are in the log-log scale for that particular q. Empirical results and discussions Fig. Conclusion This paper provides a first look at forex market efficiency in the context of the COVID pandemic as its economic and social costs are a matter of great concern to the society, policymakers, market operators, and individual investors.
Funding This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Declaration of Competing Interest None. References Adrangi B. Chaos in oil prices? Evidence from futures markets. Energy Econ. Short-term predictability of crude oil markets: a detrended fluctuation analysis approach. Has the financial crisis affected stock market efficiency?
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Nonlinear Sci. Multivariate cointegration testing of the efficiency of Australia's spot forex market. Measuring excess-predictability of asset returns and market efficiency over time. Terror and trade of individual investors. Foreign exchange market inefficiency and exchange rate anomalies. Global economy and the Australian dollar.
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Cowles Foundation Discussion Paper No. A multifractal model of asset returns. September Ambiguity aversion and incompleteness of financial markets. The multifractal properties of euro and pound exchange rates and comparisons. Multifractal analysis of Korean stock market. Updated Feb 01, Joseph Nguyen. Updated Aug 18, Updated Mar 04, Updated Dec 19, Updated Dec 22, Gordon Scott. Updated Aug 09, Updated Apr 01, Updated Mar 31, Alexandra Twin.
Updated May 21, Will Kenton. Kristina Zucchi. Jennifer Cook. Updated Nov 14, Daniel Liberto. Chris B. Updated Apr 11, Adam Hayes. Updated May 12, Updated Aug 24, Osikhotsali Momoh. Updated Mar 24, Caroline Banton. Updated Dec 25, Updated Dec 26, Updated Oct 23, Updated Jul 24, Marshall Hargrave. Updated Nov 01, Updated Oct 31, Albert Phung. Updated Aug 05, Selwyn M. Updated Jun 09, Updated Sep 24, Updated Apr 08, Updated Jun 25, Updated May 03, Updated Mar 09,
They are only there for the convenience of a trader, and their better understanding of past moves. The same chart may appear to consist of a variety of patterns to different traders, or perhaps even the same trader at different times, producing opposing signals.
This is why supporting constructions should not be the primary argument in your decision making, and perhaps why supply and demand should. If you have opened your trading platform, you will have definitely seen a technical indicator before.
For clarity, let's divide them into two big groups - trend indicators and oscillators. Trend indicators work well in trending markets, whereas oscillators work well in ranging markets. At least they do in theory. There are a couple more that are in between, such as Bollinger Bands.
They use both a variation of an MA to track the trend, as well as the price range channel to hint on the turnarounds. Finally, there are volume based indicators. These are interesting because although trading volume has always been used in financial trading as a defining factor for supply and demand, accurately measuring it within a Forex spot market is impossible.
This is because Forex spot is an OTC over-the-counter market. Technical indicators are, for lack of a better word, imperfect. They lag behind the price, often being redrawn upon the candle closing. They are used regularly in combinations to complement each other, because otherwise they fail completely. And when you hear professional traders advising beginner traders to keep their charts clean and simple - they are talking about not abusing the technicals.
Lastly, trading strategies that are based purely on technical indicators can hardly provide a competitive edge. Fundamental FX market analysis does not use price charts, but rather economic data such as interest rates, inflation rates, or trade balance ratios. The theory behind fundamental analysis is that markets may misprice a financial instrument in the short run, yet always come to the 'correct' price eventually. For the period of this 'mispricing', a trading opportunity is subsequently created.
Fundamental FX trading analysis is hardly a style that provides precise points for entering or exiting trades. However, if used knowledgeably, it is a great tool to predict long-term price movements. The catch with purely economic based fundamentals is that even though countries are much like companies, currencies are not quite like stocks. A company's financial health is directly relevant to its stock price. For countries however, an improving economic performance does not necessarily equal growth in its currency's relative value.
In fact, a currency's relative value is a function of many factors ranging from national monetary policies, to economic indicators, to the world's technological advancements, to international developments, or even natural disasters. Besides the market sentiment, there are also a few economic theories that work on locating disparities in the current price of a currency and its 'true' value.
Here are a few examples:. Aside from the aforementioned theories, raw national economic data has a say in Forex weekly analysis. Employment data, interest rates, inflation, GDP Gross Domestic Product , trade balance, retail sales, durable goods and other indicators all can have a short term effect on the market upon their publication. If you would like to track this sort of data, you can do so with our Forex calendar. This is possibly the most straightforward method of measuring supply and demand other than through price action, although it is not without its limitations.
The method is based on measuring open interest open trades , which is the key to supply and demand. It's an idea borrowed from the stock market: wherein, if trade volumes are rising, while open interest is dropping, the chances are that market sentiment is changing. The Forex spot market is traded over-the-counter, so tracking trading volume, or measuring open interest is impossible.
The next best thing to help traders gauge market sentiment is the 'Commitment of Traders' report for the Forex futures market. There are only two problems associated with this:. Most traders tend to use strategies that work for them, whether it be technical analysis, fundamental analysis, or a mixture between the two. Undoubtedly, interest rates, inflation rates, trade balances, market sentiments and other fundamentals can show traders the bigger picture. However, in the short term, currencies rarely move in a straight line, which means that there is plenty of short-term price action to take advantage of.
In that domain, technical analysis can be very effective. Whatever type of analysis you use, make an effort to trace its logic back to supply and demand market theory. If it still makes sense, go for it. If it doesn't, think about it some more.
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Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. Contact us. Start Trading. Personal Finance New Admirals Wallet. About Us. Rebranding Why Us? Login Register. Top search terms: Create an account, Mobile application, Invest account, Web trader platform.
An all-in-one solution for spending, investing, and managing your money. More than a broker, Admirals is a financial hub, offering a wide range of financial products and services. Upcoming news on this indicator shall be considered by any trader, who deals with the USD. In general, changes in NFP lead to a movement of price in different markets: product, stock but most importantly, currency exchange market.
Professional analysts define the index of leading indicator as a set of economic indicators. The data are published in Conference board report monthly. Specialists tend to relate this kind of date with prognosis, since the indicator is vitally important for it. An accurate analysis of Conference Board report allows us to draw certain conclusions concerning the prospects for the economic development. The index includes 10 elements which reflect the current market situation within the US.
The government shall be considered some kind of a flagman, thus financial state of the country immediately finds its mark on exchange rates and securities. The described above indicators characterize the economic state of the USA quite accurately. The data extracted from monthly report is used by professional traders, investors, economists. The Leading Indicators Index analysis allows us to correctly elevate the situation and choose prospective ways for investment.
The 10 indicators, combined in one, are one of the most effective instruments for short-range prognosis. The official data provider for this index is Conference Board. It is published as a detailed report, are accurate and real. The data may be published earlier or later.
In formally several hours, the data appear on pages of central financial magazines. The central are Thomas Reuters and Bloomberg. E-magazines are published in English only. Elevating the Leading indicators is a complex process. These are the key characteristics of governmental economics of the USA. The changes shall reflect in a fall or rise. This is some kind of basis for drawing up a conclusion concerning business cycles. The changes in indicators demonstrate the turning tendencies.
Indicators are extremely accurate, which distinguishes it from other individual indicators. Once studied the report, a trader makes a definite conclusion concerning a fall or rise in this or that sector. Investors are allowed to make an optimum decision for investment direction. The American employment system is well developed, thus the government provides the unemployed population with relatively high claims.
Any fired employee due to optimization or any other reason is eager to receive aid from the government and the statistics data about such people is public. Jobless claims Indicator shows the amount of claim request received per week. The weekly statistics on Jobless Claims indicator are published every Thursday at a.
The weekly review includes a detailed report on the requests received from the citizens who were formerly employed in the following fields of labor:. If the number of request to receive aid from the government is increasing, it means more and more people are fires. Once obtained a certain prognosis from a specialist and formed a preliminary strategy, traders wait for real indicators of the currency change.
Once fixed a result that is lower than the one predicted, we shall conclude, the dollar is strengthening, but if the result is lower than the real numbers are, a negative scenario shall be expected. In the US it is customary to calculate the wages in money per hour. The average of it is extremely important, published every month by the American Bureau of labor statistics. The Hourly Earnings Indicator is a main indicator for predicting escalation.
The Indicator allows us to trace the dynamics of the average wage per hour at American companies excluding agricultural companies. Based on the data, analysists predict consumer and industrial escalation additionally comparing it with process costs. The higher the wages, the more expensive the product shall be. But industrial escalation unavoidably touches the volume of consumer costs leading to consumer escalation.
Having this in mind, the main financial regulators of the country have an only way out — fight the escalation increasing the rates, thus strengthening the national currency, in other words, the Average Hourly Earnings for American dollar always is considered positive.
And vice versa, if the index is falling, such a factor shall be considered negative. Every first Friday of the month 9 a. But the indicator is used in order to make sure the chosen strategy is appropriate and correct it if necessary. Thus, the Indicator is not considered independently, only accompanied by those that are published later. One of the easiest, but extremely effective ways to evaluate the current state of retail economy in a country is based upon the volume of items sold by retail organizations.
Redbook index is calculated by a branch of the network called Redbook Research Inc and is published every week, on Thursday. For own convenience, it is divided into the following categories:. The results of the research powered by Redbook Research Inc. Knowing how do the data on consumer demand change at a certain timeframe, one may draw certain conclusions about private income of the population. This references to employment rate allowing to evaluate the volume of production being stored etc.
It is not exactly that Redbook index makes a significant influence on financial market and its participants, but it often accompanies some serious market changes. One should keep in mind the traditional days of sales, pre-holiday discounts, and an increased demand during natural disasters etc.
At such occasions, the indicator Redbook is studied extremely thoroughly by the experts all over the world. Not only the biggest players of forex market pay extra attention to it, but American financial experts also. In some cases the sum differs a lot, thus making their purchasing power analysis way more difficult. Real Earnings indicator is a narrow case, the data collected from the registered entities, while Personal Income is a general case, which includes not only salary and official income, but government aid and other sources.
Following the dynamics of personal income volume allows drawing certain conclusions. But either way, Personal Income is the best preceding indicator which reflects consumer costs and accordingly retail sales and escalation expectations. American existing home sales is a field of domestic economics which is paid extra attention to by financial experts, bankers and, of course, traders.
This is understandable, since the last global economical crises started particularly with severe problems with realty market. The main trait of American realty consists in comparatively small share of new houses being built and sold. Citizens normally buy and sell houses on secondary market , but each house is obligatory renewed before the sale.
The number of sell-buy deals on secondary realty market — one of the clearest indicators reflecting the state of the mentioned field. This indicator is more important than new home sales. Each numeral collected by the census bureau is multiplied by The field of American realty is attractive, since it opens some new employment opportunities. These are representatives of building field, who repair the old houses, bank accountants who permit or reject loans and the whole army of brokers who are in charge for execution of corresponding transactions.
It is obvious that if Existing Home Sales turns out to higher than expected, it shall have positive effect on the market, an increase in sales also increases labor demand. This factor almost neutralized the effect that general sales volume produced when it has fallen. This index is characterized by an extreme influence on the market and neither traders, nor market analysists and financial experts leave it out in the cold.
The index of business activity in the field of services is also that important, since its indicator is the result of public surveys conducted among specialists who find themselves in the amidst of the market and who see it from the inside and participate in it.
They are asked about the current business conditions, volumes of orders, price levels, product stock levels, etc. The result of the survey is reflected in percentage and subdivided accordingly. The report on ISM is published every 3rd day of the month proceeding the financial month.
The exact time is