Forex Trends and Economic Fundamentals
Trading currencies is a serious job. Beyond traders glued on television and computer screens, foreign exchange trading is a minute-by-minute, round-the-clock affair. So serious that if you miss economic data news or even an entry in statistical modelling would mean disaster. Traders are experts in analysing the economy and relating them in complex mathematical or statistical models.
Economics and technical know-how are central to a trader's life. Before they embark on those speculative decision-makings at the height of buying and selling, they first rely on proprietary research usually done by research analysts or the research department. Outside the mathematics of it all, the factors they start with are fundamental factors and technical factors graphically shown by charts.
Fundamental factors are news or happenings in a country, which include political issues like wars, elections, or government changes; and macroeconomic indicators like the jobless rate, PPI, CPI or inflation rate, and trade balance. Unprecedented events like calamities are also considered. Positive or negative news about all these factors ordinarily lead to a good or bad currency performance. For example, if a war cripples a country, the trader would speculate a weaker currency. In effect, he would sell that nation's weakening currency and buy it back when conditions stabilize. That way, he earns. A strong currency, on the other hand, prompts traders to buy it first and as it goes even stronger, they sell it. Another profit.
Studying charts is another way to a profitable speculation. Trend analysis is a cornerstone in comparing previous and present movements and using findings to capture future trends. Like in the stock markets, traders often look at resistance levels (the highest point on a trend) and compare them with support levels (lowest point). In a series of resistance levels, a trader buys the currency if it breaks a previous resistance level. If it does not break the previous resistance and it goes down, they make a sell. The same is true with supports. They sell if a support level breaks another support level (that is, a continuous decrease). A decreasing trend is apparent if supports break previous supports. An increasing trend is when resistance levels break previous resistance levels.
Economics, politics, resistance and support levels are cardinal in understanding currency price movements or fluctuations. A bad news goes bad for a currency. And so with good news. If fundamental factors are all used out, trend analysis makes way.