Is it possible to time a favorable currency conversion? Euro to USD.

[Bogle-007]

I have a significant sum of Euros I need to convert to USD and transfer to my bank. I've been watching the EUR to USD conversion rate and it seems to be trending down. I see it was much higher last summer. Is there a way to reliably predict when it will be higher/more favorable, or is it pretty much unpredictable like the markets?

[jg12345]

I have a significant sum of Euros I need to convert to USD and transfer to my bank. I've been watching the EUR to USD conversion rate and it seems to be trending down. I see it was much higher last summer. Is there a way to reliably predict when it will be higher/more favorable, or is it pretty much unpredictable like the markets?

Is there a way to reliably predict when it will be higher/more favorable => No
is it pretty much unpredictable like the markets? => it is unpredictable, and at that it is way more unpredictable than the market. volatility of EUR/USD is a lot more than Vanguard FTSE all world.

If you made an IPS, follow it. If you don't, make the conversion whenever you need to. so "now" seems like a good choice.

[Watty]

Is it possible to time a favorable currency conversion? Euro to USD.

If you could then you could quickly become a billionaire trading currency futures.

One thing you can do it so dollar cost average the transactions and do something like transfer 10% of the amount every week for 10 weeks to make sure you do not make a large transaction at just the wrong time.

I don't recall the details of how they work but there are options when you can buy which will help protect you against making a large trade then having the exchange rate suddenly shift. This can help you minimize regret but the downside is that the options cost money and any gains could be taxable so at least on average you would not expect to come out ahead.

[daviddem]

You cannot reliably predict it but it's useful to know that one major driver of currency fluctuations is central bank interest rates: for example if the Fed raises rates while the ECB keeps rates steady, the USD becomes stronger compared to the EUR.

The situation right now is the the Fed has raised the rates higher and faster than the ECB over the last year -> the USD has gained value over the EUR.

What happens next is anyone's guess. Some think that the Fed won't raise the rates much higher while Europe will have to, but nothing is for sure: the ECB seems reluctant to raise rates further even if inflation is high, because the European economy is weak. And the Fed might raise rates further if the US economy doesn't cool down enough... anything is possible.

[MrsDaisy]

As someone who lives overseas but works for a US company and gets paid in dollars, I've had to convert USD to EURO monthly for the last 4 years. So I can say unequivocally, that NO you can't predict it.

If I see the rate is at a one month high (in my favor) sometimes I'll convert more. If it's low, I begrudgingly convert anyway.

I second that you could dollar cost average convert a portion each week or month.

[glorat]

The short answer to your whole question is No. And in the spirit of what you're asking, still No

Is there a way to reliably predict when it will be higher/more favorable

However strictly speaking, it *is* possible to predict which currency will become stronger than the other over time based on relative interest rates and looking at the FX forward market. But there is no free lunch to be had due to no arbitrage principle in the markets. Just convert as cheaply as possible

[nisiprius]

Foreign exchange (FOREX) "investing" is traditionally regarded as some of the most speculative and riskiest of all trading. It seems as if every few years you read about some giant bank losing billions of dollars by making a heavy currency bet and losing. First one that popped up in a search:

NEW YORK (Reuters) - Goldman Sachs Group Inc lost more than $1 billion on currency trades during the third quarter, regulatory filings show, offering some insight into why the firm, considered one of Wall Street's most savvy traders, reported its worst quarter in a key trading unit since the financial crisis. (November 21, 2013).

Stories like that convince me that it's a gamble.

In a situation like yours I probably would spread it out into spaced-out smaller transactions, not with the idea of doing better by picking good times, but with the idea of reducing variability by averaging over multiple rates at different times.

[DreadPirate]

As others have said, you can’t time it.

But perhaps it’s worth pointing out that some platforms—I use Wise—allow you to set up auto conversions. You tell it what conversion rate you want to see, and once it reaches that, the money will be converted for you automatically. Saves you having to watch things.

[jg12345]

In a situation like yours I probably would spread it out into spaced-out smaller transactions, not with the idea of doing better by picking good times, but with the idea of reducing variability by averaging over multiple rates at different times.

Despite the underlying "idea", averaging is still market timing. implicit, yes, but still market timing.

I would say my reco is the same as with stocks,
1) change all lump sum (for stocks is buy all lump sum) but
2) if you cannot get around doing that (which is fully understandable, I would not be able to do it myself I don't think), then average it over time as suggested

I wonder over what time we should suggest you average, if you end up with averaging. for stocks anywhere within 6 months is suggested, and the shorter the better. I would stick to the same reco.

[jg12345]

As others have said, you can’t time it.

But perhaps it’s worth pointing out that some platforms—I use Wise—allow you to set up auto conversions. You tell it what conversion rate you want to see, and once it reaches that, the money will be converted for you automatically. Saves you having to watch things.

although you might end up never converting if you set it too low...
I am more inclined to suggest averaging over time at market rates

[EddyB]

You cannot reliably predict it but it's useful to know that one major driver of currency fluctuations is central bank interest rates: for example if the Fed raises rates while the ECB keeps rates steady, the USD becomes stronger compared to the EUR.

The situation right now is the the Fed has raised the rates higher and faster than the ECB over the last year -> the USD has gained value over the EUR.

That’s a nice theory, but please don’t just look at the change in the USD/EUR exchange rate in the past 12 months, look at the 12 months prior to that, too (and at the relative change in central bank rates in that time), and tell me what one could actionably do with the theory.

[criticalmass]

You cannot reliably predict it but it's useful to know that one major driver of currency fluctuations is central bank interest rates: for example if the Fed raises rates while the ECB keeps rates steady, the USD becomes stronger compared to the EUR.

The situation right now is the the Fed has raised the rates higher and faster than the ECB over the last year -> the USD has gained value over the EUR.

What happens next is anyone's guess. Some think that the Fed won't raise the rates much higher while Europe will have to, but nothing is for sure: the ECB seems reluctant to raise rates further even if inflation is high, because the European economy is weak. And the Fed might raise rates further if the US economy doesn't cool down enough... anything is possible.

European Central Bank raised rates last week and the dollar gained slightly since. Perhaps someone was expecting a stronger move or interpreting comments their own way. Perhaps hundreds of other factors influenced conversion rates. Cause and effect are not always predictable in currency markets.
The days of Euros under 90 cents US are gone for now. So is the $1.45 Euro.

[daviddem]

Probably because at the same time it was already becoming clearer that the US Fed would also raise interest rates one more time before the end of the year.

Note also that I said interest rates are a major driver, not the only driver of currency fluctuations. Inflation is another major factor, and inflation in the Eurozone is higher than in the US.

Investopedia: 6 Factors That Influence Exchange Rates

[bberris]

You can't time it, but you can shop around for the cheapest way to convert. You can search threads, many people recommend Wyse.

[ijuz]

If it is significant amounts, then interactive brokers is likely the cheapest way to convert.
https://www.interactivebrokers.com/en/p ... encies.php
You get the spot price and your fee is 0.002% (minimum of $2), so a $50k conversion will cost you $2.

Obviously you can't predict when the best time is.