Many past studies have found that currencies trend over time, so simple trading rules are able to produce significant profits, meaning foreign exchange markets are not perfectly inefficient, according to the CFA Institute. However, in an article published in the May/June CFA Institute Financial Analysts Journal, authors Kuntara Pukthuanthong-Le and Lee R Thomas reexamined this phenomenon using a new database of currency futures for 1975-2006 that includes old and newly liquid currencies. The study, Weak-Form Efficiency in Currency Markets, is the first to examine various rules across many different currency combinations, including newly liquid currencies, according to the Institute.
In the study Pukthuanthong-Le and Thomas found that the profitability of trend following eroded for major currencies and their associated cross exchange rates around the mid-1990s. Newly liquid currencies after 2000 do trend, however, just as major currencies did in earlier years. The evidence is consistent with earlier research efforts that showed such profitability in newly established currencies tends to vanish as traders learn and adapt their strategies. " Although we confirmed earlier findings that trend-following trading rules once worked, we found that profitability has been negligible since 2000 for the British pound, Swiss franc, Japanese yen, and Canadian dollar (based on U.S. dollar futures prices)," wrote Pukthuanthong-Le and Thomas in the report. "In fact, for these currencies, one can say that trend following has been worthless since 2000, which supports the assertion that the major currency markets have become weak-form efficient after many years of inefficiency," they say in the report.