Introduction:

The dollar-Euro foreign exchange (FX) market – comprising spot and forward markets, swaps, options and others – has a market share in global currency markets of 24%, outpacing the second biggest FX market, the dollar-Yen market with 18% (2013, BIS 2013), The annual turnover of the dollar-Euro market was 34 times the Euro area GDP (2013). Since this market is absolutely unregulated, let alone a few rare central bank interventions, it might be a model of a FX market in a perfectly flexible exchange rate regime. Even though many authors have analysed this market, neither the exchange rates themselves nor the volatility and the dynamics could be explained with econometric methods. Despite many differences, mainstream theories are united in arguing that the short and perhaps even the medium term performance cannot be explained, whereas "fundamentals" reign the long-run (see standard textbooks). There is no explanation of the long short-run chaos, nothing about the alleged eventual switch to fundamentals, and the short long-run which quickly gyrates into new non-fundamental short-runs. This set of theories is in big crisis.