The information effect of order flows in foreign currency futures and spot markets

Using intraday EUR–USD and JPY–USD data in both electronic futures and spot markets, we examine the important role played by order flow in price discovery and in intermediating the exchange-rate reactions to macroeconomic news. We find that, after considering the order flows of futures and spot markets, the futures market dominates price discovery when compared with the spot market, confirming that order flows have a permanent impact on prices, even more so in futures markets. Furthermore, announcement surprises in gross domestic product, jobless claims, and nonfarm payroll affect both order flows and exchange-rate changes.