Forex Investment and Currency Trading

“Real Effective Exchange Rates” (REER) offer an alternative measure of longrun valuation. However, they must be interpreted with caution, as they can deliver messages significantly at odds with the near-term trading environment, just like many longer-run valuation metrics. REERs currently imply that the EUR could still have some way to fall, but JPY is also overvalued, and GBP is undervalued at the moment. Indeed, REERs offer a guiding point toward the longer run, but substantial differences can persist for extended periods.
Nevertheless, simply looking at REERs can also give another estimate of how distant exchange rates are from equilibrium, even if [...]

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Trading currencies is not difficult for fundamental traders, either. Countries can be analyzed just like stocks. For example, if you analyze growth rates of stocks, you can use gross domestic product (GDP) to analyze the growth rates of countries. If you analyze inventory and production ratios, you can follow industrial production or durable goods data. If you follow sales figures, you can analyze retail sales data. As with a stock investment, it is better to invest in the currency of a country that is growing faster and is in a better economic condition than other countries. Currency prices reflect the [...]

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Forex markets function alongside other major financial markets, such as stocks, bonds, and commodities. Although these financial markets overlap to some degree, there are few reliable correlations between currencies and other markets on a short-term basis. The one financial market where there is a strong correlation to currency developments is the U.S. dollar index.
But there are still important fundamental and psychological relationships between other markets and currencies, especially the U.S. dollar. In that sense, we look to developments in other financial markets to see whether they confirm or contradict price moves in the dollar pairs. So even though there may [...]

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USD While the USD has exhibited extreme volatility in recent weeks, the overall trend likely remains lower as easy Fed policy and sluggish private capital inflow weigh on the USD.
EUR The EUR surged above 1.45 last week and retreated; while expect another run toward to the 200-day MA, a EUR/USD spike toward its record high appears very unlikely.
JPY The BoJ’s rate cut has eased risks of a JPY surge, but the JPY remains vulnerable to risk appetite developments. Repatriation may keep the JPY firm in coming months despite collapsing exports.
GBP Expectations for weak growth and sharply lower interest rates have [...]

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