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How to Predict the Forex Market with Trading Signals


As major countries recover at a faster-than-expected pace, the volatility of reserve currencies is gradually declining. For example, the U.S. Dollar Index improved 0.15% year-to-date, backed by its higher-than-expected GDP growth in the first quarter, and strong vaccination drive, ahead of the rest of the world.

While many expect this trend to continue in the upcoming months, the surging inflation rates in the country and rising government debt could reverse the U.S. dollar’s gains in the near term.

Forex signals allow investors to make a calculated guess on the direction of the currency movements, based on technical or fundamental analyses of respective currencies and underlying economies. Investors can view such forex signals for free to identify both short and long-term signals, based on the current market movements.

Forex Trading Signals

Trading signals in the foreign exchange markets are highly dependent on the current developments in a particular country, and its macroeconomic parameters. Also, technical analysis of past price performance can help investors identify the current market trends. Let’s take a closer look at such efficient forex trading signals.

Fundamental Signals

The ongoing volatility in currency markets can be attributed to the dovish monetary stance of the Federal Reserve and multiple fiscal stimulus packages. Moreover, emerging economies, particularly in the Asian subcontinents are displaying tremendous growth potential, causing local currencies to gain momentum.

For example, Chinese bond markets are currently attracting a large volume of global investors, given their high nominal and positive real yields. As a result, the Chinese Rembini (RMB) has been appreciating steadily with respect to the US dollar over the past year. This trend is likely to continue, as the Federal Reserve is expected to hold benchmark interest rates at near-zero levels to boost the economy further.

However, the greenback gained slightly against major eurozone currencies and the Euro earlier in March, owing to a substantial rise in U.S. benchmark Treasury yields. This is because the United States has been rebounding from the pandemic-driven recession at a faster rate compared to major European economies, aided by the strong vaccination drive and improving industrial and manufacturing activities.

The U.S. GDP increased at an annualized rate of 6.4% in the first quarter of 2021, while this figure for the Eurozone shrunk marginally. Nonetheless, analysts expect this trend to reverse soon, due to the added pressure of continuing near-zero interest rates and stimulus programs.

These recent developments in the forex markets should give traders an idea regarding the ongoing trends and their implications on the global currencies. Thus, being updated with the latest developments in the markets, particularly regarding the monetary flow and GDP growth rates should help investors identify the fundamental forex signals easily.

Technical Signals

Technical analysis of the past performance of currencies can be leveraged to predict the current and emerging trends in the forex markets.  Some of the most popular technical signals which help investors pinpoint the currency pairs with immense upside are –

Momentum

Moving averages are some of the most popular momentum tools used by forex traders worldwide to identify the current market trends. Generally, investors check the relation between short-term (50-day) and long-term (200-day) moving averages to recognize bullish or bearish markets.

When the 50-day moving average is higher than the long-term 200-day average, markets are considered to be bullish. However, when the short-term moving average falls below the long-term average, the markets witness a death cross trend, and currency pairs are expected to decline in the near term.

Moving Average Convergence Divergence (MACD)

MACD builds upon the basic momentum indicators or moving averages. It represents the difference between the short-term (12 periods) exponential moving average (EMA) and the long-term (26 periods) EMA. The MACD is compared to the base signal line (9-day EMA), which triggers buy or sell signals. When MACD is above the signal, the markets are considered to be bullish, while MACD below the signal line is indicative of a bearish market, triggering selloffs.

MACD is generally used alongside another popular technical indicator and oscillator known as the Relative Strength Index (RSI), which indicates whether a currency pair is overbought or oversold in the market. An RSI of above 70 indicates overbought, while an RSI of below 30, represents oversold markets, indicating a prospective uptrend. These two technical indicators combined allow traders to identify the ongoing market trends with ease.

Conclusion

Forex markets are highly complex, with high risk-return correlation, as currency values are fluctuating constantly due to ongoing developments and market trends. Given this backdrop, effectively utilizing trading signals can help investors derive substantial gains from this market.

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