Trading Tips: How our Analysts Predict Forex Moves | Podcast
Talking points on this podcast:
- How to determine if an unfamiliar currency will strengthen or weaken?
- Do you need a different mindset to trade Asian markets compared to London or New York?
- What’s the decision process when determining which assets to trade?
This time on Trading Global Markets Decoded, our host Martin Essex is joined by DailyFX analysts Ilya Spivak and Justin McQueen, who share their trading tips. The discussion focuses on how to predict forex moves, covering the approach to take with unfamiliar currencies, the interplay between fundamental and technical analysis, and how FX markets differ to equities when it comes to forecasting.
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Trading tips: How to predict forex moves
The podcast begins with the question: How do you decide whether an unfamiliar currency will strengthen or weaken? Ilya says, “The first thing I always start at is monetary policy. I think that when you talk about FX in particular, everything really boils down to where interest rates are going.
“Almost any influence that you can think of on what a given exchange rate is going to do ultimately comes down to what that influence is going to mean for interest rates, because that is the return on owning a currency.”
How can a trader find the best insight into possible currency movements? “I think looking at the overall trajectory of what is most liquid for a given set of assets tends to be the most helpful,” Ilya says. “People look for [the likes of] overnight index swaps or interest rate futures to see what’s being baked into expectations of central bank policy changes.
“Often it can be as simple as just looking at benchmark bond yields to get the overall direction. For most major currencies, looking at the ten-year government bond yield for that particular country or region will say a whole lot; at least about where expectations are headed.”
When it comes to a strategic approach, Ilya starts with a macro-fundamental view that he develops over a six to nine-month horizon. “Then I’ll look at the charts to fine-tune entry and exit points, manage risk to see where I want my stops and targets, and decide whether I think the trend is ongoing.”
Like Ilya, Justin also pays particularly close attention to central bank activity. “It’s available for everyone,” he says. “For example, the Bank of Canada releases a quarterly forecast, and we look at how they project GDP and inflation, and we see how the economic indicators change relative to the central bank’s viewpoint.”
From this, Justin says it’s possible to predict what the rhetoric from the central bank will be and how it will see monetary policy. “As a market participant you can see how the data has evolved over time and from that you can deduce your own conclusion as to how a central bank may view the economic oulook within its domestic economy and for the international economy as well.”
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.