Page 51 - Ultimate Guide to Currency Trading

build upon your knowledge base of what is expected in the direction of interest rates of that currency
through its current and future growth rates.

Additionally, you can cross reference any of the information you may have noticed with the
currency-news websites and any broker's reports you may be receiving as part of your trading
platform's information news feeds. It would also be good to make note of your observations in your
trading journal, keeping note of where and when you observed the hint or suggestion that a trade
might be developing.

Economic indicators are used by economists as well as stock, bond, and currency traders
to predict where a country is financially heading. Some of the economic indicators tell a
story of what has already happened, called lagging indicators. Others tell where the
economy will be soon; these are called leading indicators.

Gathering Fundamental Information

Fundamental information develops slowly: It is considered the longer-term information and therefore
a medium- to long-term analysis of where a currency and a currency pair are moving. Often, your
broker might report a current price and a medium- and long-term range for a particular currency pair.
What these investment banks are doing is having their currency analyst departments look at the
fundamentals of a currency and compare it to the fundamentals of a counter currency.

For example, the currency analyst might look at the NZD/USD for a possible trading
opportunity. The FX analyst at the investment bank that is providing the report would study all of the
written reports on the Reserve Bank of New Zealand (www.rbnz.govt.nz) for any indication of growing,
slowing, or steady economic development. This would indicate a change in the interest rates of
currency as set by the Reserve Bank of New Zealand to control the growth (or lack of growth). The FX
analyst would then look for any information on money flows into and out of the country and other
statistics (www.rbnz.goanz/statistics/econindfindex.html). She would then make note and compare
these to the same type of information on the related U.S. central bank website. This information
would be matched with the information and observances of the NZD/USD technical indicators, and if
she has an idea that there will be a widening or convergence of the interest rates of the two
currencies, she would take a long, short, or neutral stance.

Interpreting the Information

If the analyst thinks the NZD will raise interest rates and the USD will be steady or lower interest rates,
then she would issue a long NZD/USD buy signal in the report. A long NZD/USD would mean you are
selling USD and using the proceeds to buy NZD. The trade would make money when the NZD crept up
in value against the USD over time due to other traders pushing its price up. This pushing of the price
of the NZD would most likely be due to the world's FX traders engaging in the time-tested practice of