Intraday patterns in FX returns and order flow

Using a comprehensive high-frequency foreign exchange dataset, we present evidence of time-of-day effects in foreign exchange returns through a significant tendency for currencies to depreciate during local trading hours. We confirm this pattern across a range of currencies and time zones. We also find that this pattern is reflected in order flow and suggest that both patterns relate to the tendency of market participants to be net purchasers of foreign exchange in their own trading hours. Data from a single market maker appears to corroborate that interpretation.