How can the FX futures market be utilized for price discovery?
To extent that FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates whether one currency will appreciate or depreciate versus another. Since FX futures contracts trade in an expiration cycle, distinct contracts terminate at distinct periodic dates into the future. The prices pattern of these contracts provides information as to the market's current belief regarding the relative future value of one currency versus another at the scheduled expiration dates of the contracts. Generally one will see a steadily appreciating or depreciating pattern; though, it may be mixed at times. Therefore, the futures market is useful for price discovery, i.e., gaining the market's forecast of the spot exchange rate at distinct future dates.