Predicting trends that currencies will follow
Currencies react to NEWS and other announcements. The most important of them are:
- Changes in inflation
- Changes in interest rates
- Changes in the state of the economyv
- Changes in Industry indices
- Changes in employment indices etc...
Hence it is quite easy to understand that if you want to be ahead of the game and make profits from the Forex market then you must understand what currency will turn which way and be ready to take action at the right time. If you stay aloof of this I can GUARANTEE you will make losses in Forex. You cannot ignore these important announcements. Most Forex trading software have a news section where they will stream news announcements to you.
What does inflation mean?
The changes in prices of goods and services that you see in the market, if such a change is wide spread through out the country then such a matter is referred to as the inflation. Generally inflation in countries with lower manufacturing possibilities are high and also in developing countries where demand is high and the masses now have new money to spend on goods. So don't be mistaken if you see a product you have been eyeing for a while and next week should the price rise, don't blame it on inflation. Only is such a rise is widespread, or for that matter if a fall in prices is widespread, caused because of more larger background changes in industry raw material prices, then we call such a situation a change in the inflation rate.
The way this rate of inflation is calculated is dependant on the price change in average throughout the economy. Though checked almost weekly, the numbers are calculated for a whole year and thus it is called annual inflation.
Any rise or fall in inflation for a particular week or month would affect the Forex market. Irrespective of the various parameters that cause changed in inflation rate the prime factor of inflation is simply the amount of money that is liquid and can be spent along with the demand and supply of products in the market.
So if too many people are after the same goods for example the Apple iphone then the Apple iphone can sell at a higher price as it was initially. But when demand falls, then prices will fall too. If there is too high demand over several products, small and large over several industries throughout a nation then inflation will rise, and in the opposite circumstance with too much produce but little demand prices will fall. The finance ministry of each country has an eye on the inflation figures and has a range within which it tries to maintain the inflation number.
When it is impacted too much, then changing interest rates is the usual recourse. This helps temporarily and things are brought into balance.
Other indicators that affect the FX market as stated above are the figures released to do with jobs and unemployment. This directly states what is the demand of labor and what is happening with salaries, prices etc…
Consumer Price Index is also related to inflation and is another metric you should watch out for when trading Fx.
Other things like state of the economy, industry indices changes in direct interest rates, US non farm payroll numbers etc… are important and you have many announcements weekly in depth. We have discussed the most important ones above.
So keep your eye out on the charts and prices at all times, keep your ear open on the news at all times, keep reading and researching and sooner than later you will be successful in Forex trading !