2
$\begingroup$

Central banks publish official figures for domestic interest rates, as well as spot currency rates for a few select countries (largest trading partners).

To prevent arbitrage, I "expect" that in the absence of any intraday shocks to the system, the central banks figures will (and the possibility of arbitrage), should keep intraday prices "in check" - that is within reason.

I do not trade forex actively myself, so I do not know if this inference from the fundamentals (pun unintended), is borne out in practise.

My question therefore is this:

In lieu of actual EOD data for forex market data, is it practical (i.e. sensible), to use bank official rates as a proxy for actual EOD spot currency rates?

This would obviously be flawed for intraday trading, but for lower frequency trading, I imagine that the series (official rates and market spot values), will be highly cointegrated - and therefore, the former can act as a proxy for the latter - am I correct?

$\endgroup$
3
$\begingroup$

Yes, you can use e.g. the ECB daily official foreign exchange rate data as a reliable and consistent daily timeseries. ECB does a fixing at 14:15 CET, by some methodology they call a "daily concertation procedure". I don't easily find a description of the details (are they considering only traded prices, or bids and offers? How long of a time window around 14:15 may used? etc.) But for purposes of daily vol, correlation, etc. such details won't matter. It is a consistent dataset with a consistent methodology giving daily market exchange rates.

$\endgroup$
  • 1
    $\begingroup$ Do beware of mixing data from different sources though! Different fixing times mixed on the same daily timeline means that some are "in the future" relative to others. $\endgroup$ – q.t.f. May 7 '15 at 12:21

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.