Forex Intermarket Analysis

Intermarket Analysis is the technique the savvy pros use to increase profits and decrease risk and if you learn how to use it you will enjoy bigger currency trading profits - let's take a look at it in more detail.

Currencies don't move in isolation - they are part of the global economy and other markets impact on them and by looking at them, you can get clues to where they will go next. Intermarket analysis means looking how, stocks, bonds and commodities are performing and using there movements to get advance warning of currency movements - most of the top fund managers in Forex use this strategy and you should too.

First lets look at the Basic principles Intermarket analysis is based upon:

1. All financial markets are connected, by both domestic issues and global economic trends.

2. A market never moves in isolation, its influenced by other markets and if you think about it, this is obvious and a reflection of the global economy we live in.

3. An analysis of one market must include an analysis of all the markets as they are all inter related to each other.

4. The four main market groups of financial instruments are - stocks, bonds, commodities, and currencies.
Intermarket Analysis and Technical and Fundamental Analysis.

Technical analysis looks at a currency pair in complete - but intermarket analysis sees the bigger picture. When analysing the currency market, the Intermarket trader will also look at the stock market (to consider how money around the global economy), the bond market (to see how traders see interest rates moving), the commodities market (to get an idea of inflation and supply and demand in different economies), and overseas markets (to get an idea of general global market trends).

Fundamental analysis again, restricts its analysis to a single market, while Intermarket analysis examines multiple markets at the same time, to try and decide where the currency pair maybe going next.

Here are some examples of inter market analysis and how other markets impact currencies

Both the Australian and Canadian Dollar are influenced by the price of commodities. In terms of the Aussie Dollar, the price of Gold and Copper are important and in terms of the Canadian Dollar oil is important. The $Dollar is the world's reserve currency and tends to do well when safe haven flows occur and unlike the Canadian Dollar, it tends to suffer when prices of crude oil are high.

There are many more examples - but if you see the bigger picture and ALL markets as one you can increase your currency trading profits dramatically.

Source : ezinearticles