On most fundamentals, at some point in time, the relationship between supply and demand is the only factor in determining the exchange rate. In other words, if a currency rally will be excess demand, the market for this price rise. In contrast, if a currency devaluation, in which case there will be excess supply.
In the foreign exchange market under the premise of speculative transactions entered into future exchange rate will be somewhere at a certain direction will become profitable. The following will give several reasons: Why market participants will be expected to buy or sell based on their prejudices about the future exchange rate?
•Fundamentals - economic, social and political data, reports and news are likely to be market participants to decide whether the sale of a currency factors. For example: For example, investors seeking income, will invest in the currency of the currency difference has broad interest, such as the Australian dollar / US dollar (AUD / USD). This is the so-called carry trades, investors from a low interest rate country borrows money, and their investments in a high-interest countries.
•Geopolitical prospects of a country or region - to assess the economic and political stability of a country or region, and use this assessment to determine whether an investment opportunity will appear. For example, the war in Iraq in the short term the US dollar against the major currencies of the two benefits, the financial situation of the dollar decline is due to the cost and investor confidence balloon war decline.
•Trade flows – Importers and Suppliers for the purchase or sale of foreign exchange to pay for their goods or services. For example: Japanese companies to sell their cars to the United States, and needs to be converted to yen revenue. This will increase demand for the yen leading to enhanced demand for the yen.
•Capital flows - speculative and investment capital will flow to a higher income areas to obtain higher returns, such as the stock market, investment in securities, mergers and acquisitions.
•Technical analysis - based on analysis of price charts do trading decisions. Technical indicators and analysis can provide to the transaction entry point and exit point.
•Market sentiment – Investment to the confidence and the attitude of market risk, as well as market liquidity, there may be factors affecting investors sentiment.