Technical Trading Rule Pro tability and Foreign Exchange Intervention

There is reliable evidence that simple rules used by traders have some predictive value over the future movement of foreign exchange prices. This paper will review some of this evidence and discuss the economic magnitude of this predictability. The pro tability of these trading rules will then be analyzed in connection with central bank activity using intervention data from the Federal Reserve. The objective is to nd to what extent foreign exchange predictability can be con ned to periods of either high or low central bank activity. The results indicate that after removing periods in which the Federal Reserve is active, exchange rate predictability is dramatically reduced. The author is grateful to the Alfred P. Sloan Foundation and the University of Wisconsin Graduate School for support. Also, the author thanks seminar participants at the Federal Reserve Board of Governors for useful suggestions.