King Talal School of Business Technology

Advanced Financial Technology

Proposal Topic:
The Role of AI in Predicting Forex Market
Movements
By:
Zain Al-Omari
Anas Al-Jabi
Supervised by:
Dr. Laith Almaqableh
Introduction to Forex Market

•Complex & Volatile

• The Forex market is the largest in the world, with daily volume trades exceeding $5.1 trillion.
•The market is highly volatile and complex, often compared to a “black box”.
•Currency trading is available around the clock, split into four main time zones.
•Each zone has its opening and closing hours, creating arbitrage opportunities.
Evolution of Online ForexTrading

From 1996 Onwards

• In 1996, the first online foreign

currency trading platform was
introduced
• This innovation opened up the market to
retail traders globally.
• Online platforms have made currency
trading more accessible and efficient.
• These platforms flagged the way for
new trading strategies and technologies.
Literature review
Forecasting Methods
Traditional Methods
1- Technical analysis

• Technical analysis is a popular method for forex forecasting, dating

back to Charles Dow's Dow Theory in the late 1800s.
• It involves analyzing historical pricing data to identify patterns,
trends, and indicators for making trading decisions.
• Technical analysis relies on previous stock price data and aims to
predict future price changes by examining various market data.
• It is particularly common in the FX and commodities markets, where
traders focus on short-term price changes.
• Traders use various tools and strategies such as oscillators, moving
averages, and Fibonacci retracements to anticipate market reversals
or continuations.
• Technical analysis can provide insights across asset classes but tends
to have decreasing predictability over time.
Forecasting Methods
Traditional Methods
• 2- Fundamental analysis
• Fundamental Analysis:
• Determines the intrinsic value of shares by studying economic forecasts, financial statements, and current
conditions.
• Utilizes financial ratios like Activity, Leverage, Liquidity, Profitability, and Valuation to assess stock value.
• Analyzes economic and geopolitical factors such as interest rates, GDP growth, and political stability to
predict currency movements.
• Focus on Firm:
• Considers the firm's financial situation, board of directors, and annual reports to forecast stock prices.
• Not suitable for short-term price changes but helpful for long-term movement predictions.
• Valuation Models:
• Assesses fair value based on past, present, and projected earnings, aiding in discovering mispriced stocks.
• Determines intrinsic value using financial information from publicly available statements.
• Fundamental Elements:
• Profitability, solvency, liquidity, and operating efficiency are key indicators for successful investing strategies.
• Cash flows, outside funding, and dividends help predict future stock returns and explain momentum
phenomena.
• Combination with Technical Analysis:
• Combining technical and fundamental analysis offers insights into short-term trends and long-term value
drivers.
• Automation of fundamental analysis is challenging, but machine learning has enhanced prediction accuracy
 Forecasting Methods
Artificial intelligence

• AI in Financial Markets:
• AI supports highly traded markets using complex mathematical and
statistical models.

• Removes geopolitical barriers and connects disparate market segments,

enhancing communication among participants.

• Raises market accessibility, liquidity, and daily turnover.

• Machine learning (ML) techniques transform Forex forecasting by

analyzing large data volumes, spotting patterns, and adjusting to market
shifts.

• AI primarily used for exchange rate prediction, capable of producing

precise short-term projections but faces challenges in long-term
forecasting due to ambiguity.
Forecasting Methods
Artificial intelligence

• Deep Learning Models:

• Recurrent Neural Networks (RNNs) and Long Short-Term

Memory Networks (LSTMs) effectively capture sequential
dependencies in time series data.

• Neural networks, especially deep neural networks (DNNs), prove

effective in predicting Bitcoin price trends.

• LSTMs learn long-term dependencies, ideal for financial asset

price predictions due to their ability to handle sequential data.
 Forecasting Methods
Artificial intelligence
• AI Advancements in Trading:

• AI utilizes pattern recognition and breakout

signaling for trading, identifying established
patterns, and determining trade entry/exit points.

• ML methods effective for Forex forecasting,

combining fundamental and technical analyses
with qualitative and quantitative factors.

• Neural networks combined with expert systems

improve prediction accuracy and performance in
financial markets.
Methodology
Criteria Technical Analysis Fundamental Analysis Machine Learning/AI

Historical price data and chart Intrinsic value based on economic indicators and Automating and enhancing prediction using structured
Focus
patterns company performance and unstructured data

Oscillators, moving averages, chart Neural networks (CNN, RNN, C-RNN, LSTM), decision
Tools Financial ratios, macroeconomic factors
patterns, Fibonacci retracements trees, higher-order neural networks

Short-term trading in forex, Short-term and long-term market predictions, risk

Applications Long-term investment decisions
commodities, and equities management

Provides immediate trading signals; Provides a deep understanding of underlying High predictive accuracy with complex and nonlinear
Strengths effective for identifying trends and asset value; useful for identifying mispriced data; capable of handling large volumes of unstructured
market reversals securities and long-term growth potential data; continuous learning and improvement

Predictive power decreases over

Requires significant computational resources and
time; does not account for broader Data is often unstructured and complex; less
Weaknesses expertise; models can be ambiguous and difficult to
economic or company-specific effective for short-term price movements
interpret
factors
Conclusion
• Forex trading and AI's predictive capabilities are
explored.
• Challenges posed by geopolitical, economic, and
psychological variables in the forex market are
discussed.
• AI-driven methods are emphasized for improving
prediction accuracy and handling large data volumes.
• Conventional and AI-based approaches to predicting
commodities and cryptocurrency values are compared.
• AI techniques show potential for enhancing prediction
accuracy, especially in volatile markets like
cryptocurrencies.
• Integration of AI technologies into forex forecasting
represents a notable advancement.
• Traders benefit from AI by gaining unparalleled
insights for informed decision-making.