Market inefficiency identified by both single and multiple currency trends

TL;DR

This paper investigates the presence of market inefficiencies in currency trends by analyzing local trends and their cumulative effects, revealing potential predictability in Euro-dollar currency data at minute intervals.

Contribution

It introduces statistical measures to examine single and multiple currency trends and demonstrates their combined impact on forecasting accuracy.

Findings

Local currency trends exhibit nonrandom behavior.

Cumulative effects of multiple trends improve prediction performance.

Market inefficiencies can be detected through trend analysis.

Abstract

Many studies have shown that there are good reasons to claim very low predictability of currency nevertheless, the deviations from true randomness exist which have potential predictive and prognostic power [J.James, Quantitative finance 3 (2003) C75-C77]. We analyze the local trends which are of the main focus of the technical analysis. In this article we introduced various statistical quantities examining role of single temporal discretized trend or multitude of trends corresponding to different time delays. Our specific analysis based on Euro-dollar currency pair data at the one minute frequency suggests the importance of cumulative nonrandom effect of trends on the forecasting performance.