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July/August 1998, 
Vol. 80, No. 4
Posted 1998-07-01

Technical Analysis and the Profitability of U.S. Foreign Exchange Intervention

This article reconciles an apparent contradiction found by recent research on U.S. intervention in foreign exchange markets. LeBaron (1996) and Szakmary and Mathur (1997) show that extrapolative technical trading rules trade against U.S. foreign exchange intervention and produce excess returns during intervention periods. Leahy (1995) shows that U.S. intervention itself is profitable over long periods of time. In other words, technical traders make excess returns when they take positions contrary to U.S. intervention—U.S. intervention itself is profitable, however. The author first presents recent research on these subjects. He then discussed how differing investment horizons and varying return and position sizes may reconcile these facts.