Commercially available order flow data and exchange rate movements: Caveat emptor

Research suggests that customer order flow should help predict exchange rates. We make two contributions. First, we provide a review of the recent literature on order flow and exchange rate movements. Second, we critically evaluate the practical value of customer order flow data that are commercially available to the wider market, as well as the forecasting properties of inter-dealer order flow. In line with microstructure theory, we find little evidence that the latter can forecast exchange rates, but our results also cast considerable doubt on the practical value to market practitioners of commercially available customer order flow data.