🔸7 Common Ways to Forecast Currency Exchange Rates🔸
If you’re a Forex trader, currency rate forecasting is a fundamental activity for you. One possible way to minimise risks lies in foreign exchange rate forecasting. Every trader chooses whichever method works best for them or uses multiple methods to perform comprehensive research.
1. Fundamental Analysis
This forecast method includes all the factors mentioned above, such as monetary policy, domestic and foreign government policy, and global economic and political conditions.
2. Technical Analysis
This approach doesn’t consider the influence of external forces. Rather, it uses patterns discovered from historical price data and statistics to forecast future movement. Indicators, trendlines, and candlestick and chart patterns are essential instruments of technical analysis.
3. Relative Economic Strength
It’s already been established that numerous economic factors make up FX rate forecasts. However, many traders are unaware that these factors also interact with each other.
4. Econometric Model
Here, Forex traders select whatever metrics they believe influence the currency market the most. Comparing economic conditions in two countries, traders could forecast an exchange rate.
5. Purchasing Power Parity (PPP)
This method asserts that the price of goods and services should be equal, regardless of the country. If there are any differences in price, a trader can calculate the suitable exchange rate that will make goods or services cost the same.
6. Interest Rate Parity (IRP)
The interest rate parity is quite similar to purchasing power parity. But PPP focuses on the prices of goods, while IRP focuses on currency and interest rates.
The general concept of this model is that the differential between interest rates should equal the differential between spot and forward exchange rates.
7. Balance Payment Theory
This foreign exchange model determines future currency values by considering a country’s rate of imports and exports.
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