THE USE OF TECHNICAL ANALYSIS IN THE FOREIGN-EXCHANGE MARKET

Technical, or chartist, analysis of financial markets involves providing forecasts or trading advice on the basis of largely visual inspection of past prices, without regard to any underlying economic or 'fundamental' analysis. This paper reports the results of a questionnaire survey, conducted on behalf of the Bank of England, among chief foreign exchange dealers based in London in November 1988. Amongst other findings, it is revealed that at least 90 per cent of respondents place some weight on this form of non-fundamental analysis when forming views at one or more time horizons. There is also a skew towards reliance on technical, as opposed to fundamentalist, analysis at shorter horizons, which becomes steadily reversed as the length of horizon considered is increased. A very high proportion of chief dealers view technical and fundamental analysis as complementary forms of analysis and a substantial proportion suggest that technical advice may be self-fulfilling. (JEL F31)