Five Keys to Predicting Forex Market Movements

Five Keys to Predicting Forex Market Movements

To profit from Forex trading here are the five key factors that affecting a currency's value.

In order of importance, they are:

• Interest Rates
• Economic Growth
• Geo-Politics
• Trade and Capital Flows
• Merger and Acquisition Activity

If you can predict how each of these factors affect your currency trades, you have the foundation to make serious returns.

1. For interest rate here are some of the techniques:

- Buy currencies from countries with high-interest rates and finance these purchases with currency from countries with low-interest rates.

- As country's interest rate rises, the value of the country's currency also tends to rise. You profit from the increased value or capital appreciation.

2. Economic Growth.

The stronger the economy, the greater the possibility that the central bank will raise its interest rates to slow down inflation. And the higher a country's interest rates, the bigger the likelihood that foreign investors will invest in a country's financial markets. More foreign investors means a greater demand for the country's currency. A greater demand results in an increase in a currency's value. Simple law of supply and demand. This is usually represented by the GDP value.

3. Geo-politics.

Yup currencies represent countries. Any bad news on a country would pull down the currency it is carrying. And as a general rule of thumb, politics always beat economics since speculators always run first and ask questions later thus affecting the "demand" for the currency.

4. Trade and Capital Flow.

First classify a country if it is dependent on wither trade or capital flow. Some countries are more sensitive on one or the other.

Let's differentiate the two first. Trade flow refers to how much income a country earns through trade. Capital flow refers to how much investment a country attracts from abroad. Then of course you look for policies affecting either the trade or capital flow.

5. Mergers and acquisitions.

Merger and acquisition activity occurs when a company from one economic region wants to make a transnational transaction and buy a corporation from another country.  Take note that a buyer has to convert it's currency to the one he's buying in another country. Of course this raises the "demand" for the currency.
In conclusion. Make sure you check for all these factors when making your investment decision. If there is a conflict, it very well depends on the strength of each opposing factor. And that's the hard part.

That's it pancit. Just some stuff I want to share...