Archive for the ‘Forex’ Category

How can one predict Forex Market Movements?

Monday, May 17th, 2010

Overview: For one to profit from the world of Forex trading, there are five key factors that should be looked into when betting on a currency’s value.
The following based on order of impact are:
Rates of Interest
Growth of an Economy
Geopolitical Climate
Flow of Trade and Capital from Abroad
International Merger and Acquisition Activities of Companies
If you can predict how each of these significant points affect the way you trade your currency, then you have the basic foundation for a lot of outstanding profits.

1. Here are some of the things that you should be looking at when you look at interest rates:
You should get currencies which have very high interest rates and use a currency with the lowest possible interest rates to buy those.
Why? When a certain nation’s interest rates goes up, the value of that nation’s currency also rises. You basically profit from the appreciation of the capital or the increased value of the currency.

2. Check for the growth of a nation’s economy.
The stronger the economy, the greater the chances that the regulators will raise interest rates to hold inflation down. Higher interest rates actually attract more foreign investors to buy that country’s currency.  And a greater demand leads to an increase in a currency’s value. It’s a simple law of supply and demand.

3. Now let us look at Geopolitical climate.
The currency of a country represents the country itself. If there is bad news that you see on TV about a country, you can almost be sure that the currency of that country will drop somehow. And when that happens, political news always overcome economics since speculators jump in and out then ask questions later thus affecting “demand” for the currency.

4. Now what about International Trade and Capital Flow?
You have to check first if a country is significantly affected by either one of them. Some countries are more vulnerable on trade and some are more vulnerable on capital flow.
Let’s differentiate one from the other. Trade flow is the income a country earns from trading with other countries. And capital flow is how much investment a country attracts from other countries. Now all you have to do is check for the current policies of a country regarding each. Then you can have a strategy on what to watch for in the financial news.

5. Finally it’s time to look at mergers and acquisitions of big companies.
These activities happen when a huge company from one country wants to make an international transaction and buy another company from abroad.  To buy a company in a different country, a corporation will have to use its currency. This creates a demand for that currency. As an economic rule, higher demand increases prices.

To wrap things up, you better make sure that you check for all of these significant points when you make your Forex transaction. One of these considerations might oppose another one and that’s the time you have to look at the relative strength of each one factor and try to determine which one would make the strongest impact.