This paper examines the effect that heterogeneous customer orders flows have on exchange rates by
using a new, and the largest, proprietary dataset of weekly net order flow segmented by customer type
across nine of the most liquid currency pairs. We make several contributions. Firstly, we investigate the
extent to which customer order flow can help to explain exchange rate movements over and above the
influence of macro-economic variables. Secondly, we address the issue of whether order flows contain
(private) information which explain exchange rates changes. Thirdly, we look at the usefulness of order
flow in forecasting exchange rate movements at longer horizons than those generally considered in the
micro-structure literature. Finally we address the question of whether the out-of-sample exchange rate
forecasts generated by order flows can be employed profitably in the foreign exchange markets.