FOREX Currency Research
The foreign exchange market, also known as the Forex or FX market, is the largest financial market in the world. Its daily turnover of over $1.5 trillion makes it a sophisticated and mature financial institution. Trading on it requires a lot of currency research--information about international developments that may affect currency exchange rates.
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History
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Currency research in its modern form emerged with the floating of major currencies in the 1970s. Floating currencies rise and fall against each other all the time, and so accurate and up-to-date intelligence is important. In the 1990s, many specialized currency research providers were started (primarily by Forex brokers) to help clients make more informed trading decisions.
Fundamentals
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Currency research is based on fundamentals--macroeconomic variables that provide the basis for exchange rate movements, including GDP growth, national debt, interest rates, unemployment, average income, trade balance and consumer spending. Forecasting these variables can help predict the movements of exchange rates.
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Charts
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Charts in foreign exchange refer to the visual representation (graphs) of exchange rate movements over a period of time. Currency research primarily concentrates on three factors when analyzing charts: trends, and support and resistance levels. A trend is the prevailing (downward or upward) direction of an exchange rate. Support levels refer to the floor below which an exchange rate normally doesn't go, while resistance levels indicate the ceiling above which it has difficulty rising.
Criticism
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Currency research has its critics. The criticism of trying to predict exchange rate movements primarily comes from people who believe exchange rates follow the so-called "random walk," i.e., they rise and fall randomly and it is impossible to predict which way they will go. Alan Greenspan, a former chairman of the Federal Reserve, compared trying to predict exchange rate movements to a simple coin toss, with 50-50 chances of a currency rising or falling in value.
Future
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The future of currency research looks bright. The criticism it receives is based on the theory of perfect markets, while financial markets, though sophisticated, are far from perfect, with market players often exhibiting what Mr. Greenspan himself called "irrational exuberance"--or herd behavior.
As cross-border transactions increase further, and individuals and firms need to exchange even greater amounts of FX, they will need well-argued and reliable foreign exchange intelligence to help them manage their currency transactions.
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References
- Photo Credit exchange fluctuations image by Raimundas from Fotolia.com
