[forex filter] Who knows how many euros one dollar will buy next summer? Anyone? Anyone? Bueller??

November 7, 2007 9:36 AM

What do currency speculators think the euro-dollar exchange rate will be in June 2008? Are there online sources that currency speculators use to project or predict exchange futures? Can non-traders see these sources? Am I asking for something that just doesn't exist???

I've seen at least a couple of folks here on the green express some expertise in foreign exchange and currency trading. And I'm not interested in engaging in such trades, but I do have a professional opportunity to travel to Europe next summer, and in order to put together the most iron-clad proposal for funding from my boss, I kind of need to know what currency traders *think* the dollar-euro exchange rate is likely to be in June 2008. (I work at a well-funded, but appropriately tight-fisted NFP.)

Now, I know that the actual, honest answer is "who in the f@ck knows?! (and now geddoff my lawn!!)" But at the same time, I can't believe that currency speculators simply guess at this stuff . . . they must base their predictions on some sort of data. (Mustn't they? Eek.) Is this data privately held? Does it result from ungodly derivatives and financial models only slightly less complex than your average Rube Goldberg machine? Or is there some sort of secret website run by the Trilateral Commission? (Who, of course, must preordain these sorts of things [responsibly, of course]. Oh, and btw, if there is such a TLC site, can you send me an invite via MeFi Mail? We'll be BFF! I promise!!!)

But to return to the serious side of my question, I found lots of discussion on how to make/lose a ton of money in forex by searching the green (and the internets) . . . but I didn't see anybody talking about sources for the data that trader and speculators base their assumptions or predictions on. Can a simple, honest, international traveler get a bead on where the euro is likely to be in June 2008?

I'm sure this is one of these impossible questions . . . but it can't be most stupidly impossible question asked here today . . . can it?? I mean, I know if there were an ironclad site for this stuff, then everybody in the world would be using it and making jillions of dollars trading currencies. And I also know that YANMFA, and that MMWV, and all of the other acronyms that we use here in lieu of "watch your six." But at the same time, is it really the case that currency speculators base all of their models simply by following financial headlines? There isn't some sort of predictive market for this field? One that I can peek at??

Bonus points for anyone who can explain currency futures to a total financial numbskull (like myself).

posted by deejay jaydee to work & money (7 answers total)

The short answer is "no, such a site does not exist."

The longer answer is, "if such a site did exist, you would not want to trust it anyway." Traders /do/ speculate simply on financial headlines. Traders may provide their speculation to the public, but it's just that - their speculation. Moreover, if they are providing it to the public seriously, it's only for their own benefit (to pump up their positions).

I would be approaching this as "if my work is so miserly as to require an employee to speculate in the currency market to justify a professional trip, why am I working there?"
posted by saeculorum at 9:41 AM on November 7, 2007

The information you seek, if it exists, is immensely valuable -- but its value is inversely proportional to the degree to which it's spread around. The fewer people who know it, the more valuable it is.

So why would they put it online where anyone (like you and me) could read it, reducing its value to nil?
posted by Steven C. Den Beste at 10:10 AM on November 7, 2007

Currency traders do indeed use economic models/guesswork/witchcraft to make their determination of what exchange rates in the future will be - the variety of opinions in the market go to make up what's known as the forward price for a currency pair (i.e. what the USD/EUR exchange rate will be in 6 months or a year). The contracts are traded on major exchanges (e.g. Euronext or CME) which publish prices at the end of each day. This is the market's view of a particular exchange rate at the relevant point in the future.

As to what goes in to the models, that's proprietary to the bank/trader in question as each one thinks their model is just that bit better. Basically you need to look at predictions of future interest rates between economies and the reasons behind those differentials as well as other factors that could boost demand for a currency or lessen it.
posted by patricio at 10:16 AM on November 7, 2007

""who in the f@ck knows?!"

Actually we do know; the best prediction of the future rate of exchange is the current spot rate.

This isn't true of all markets by the way, but in the absence of other data and to avoid taking a definitive view (market speak for making a guess) do all your costing against the current spot and you'll be fine.

Besides, I've read lots of research lately taking the view current $ weakness is overdone. And when you've SuperModels going on record as saying "I won't get out of bed for US dollars" I think shorting the dollar is a little overdone.
posted by Mutant at 10:19 AM on November 7, 2007

The best you are going to be able to do is use the price of futures, as patricio writes. You can see the rates on the CME, for example. As you can see, the market prediction is that the EUR/USD rate will be about the same in the future, so you might as well use the spot rate. If there were any information publicly available that the current futures prices were significantly wrong, then the market would very quickly integrate this information into the price.

Theoretically, you could put together your funding proposal to buy EUR/USD futures now, so the price of your trip won't change in USD, but that going to be practical unless you are taking a very expensive trip. You can also make these sorts of arrangements through your bank, but again, this isn't practical for small amounts.
posted by ssg at 11:50 AM on November 7, 2007

As the Germans say, The Trees don't grow to the Sky.

But, on the other hand, The Trend is Your Friend.

Proposing to accrue 1/6th of the Euro cost every month going forward as a dollar-cost-averaging device might be a useful hedge. I plan on doing this in 2008 for my eurocar purchase in 2009 ("ED" for those in the know).
posted by Heywood Mogroot at 1:01 PM on November 7, 2007

Actually we do know; the best prediction of the future rate of exchange is the current spot rate.

This is the gist of the efficient market hypothesis, and produces the lowest risk/reward ratio. Otherwise, futures are the way to go, provided you know what you're doing.
posted by randomstriker at 1:39 PM on November 7, 2007