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Change is inevitable. Let’s face it. The foreign exchange market is a jam-packed market since numerous news and data shape movements in this market. Such changes influence the biggest economies and reserve currencies around the globe. Picture this: any major event or two (or any economic report) can drastically affect market conditions.

Forecasting exchange rate changes has never been an easy feat. According to an article written in 1983, no model or structure could provide better predictions than a random walk. The write-up said the more future projections were integrated into current rates, the more difficult prices were to estimate.

Traders need to bear in mind that there is a big volume of noise in global markets especially in the forex market. More often than not, there are precise explanations for the crucial movements in rates. We all know that a currency is primarily chiefly used to exchange products and services between nations or economies. Currency values set by a free market signifies true trade elements and economic figures can be discarded.

Unusual speculation may largely impact mega-trends since positions are placed or exited by participants. Not to mention the number of market players is increasing. Therefore, we ought to forget financial theories in assessing movements in the currency market. We can employ other methods, of course.

Investors can use primary economic output. Certain currencies have a huge primary input which can significantly impact directions. Legal tenders are affected by various factors such as a speculation or two encompassing most of them. Connecting it to a commodity or element will not produce good predictions.

We can also compare a currency to a bunch of currencies. Sure country-to-country differentiations are handy when looking at exchange rates. But it can be explained better by being bias in a currency versus a basket of other currencies. When we compare these two, how the basket performed can somewhat reveal the rationale behind some movements.

Then there is government policies. Whilst rates are chiefly speculative, how people perceive existing or future policies can shape future movements. Interest policies and monetary policies can definitely affect prevailing rates.