Forex Supply and Demand: Intermarket Analysis Preview - ForeXposed


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Friday, February 24, 2017

Forex Supply and Demand: Intermarket Analysis Preview

Let's continoue to learn forex trading. I hope, this time you already can understand the basic concept of how the laws of supply and demand working in the financial markets, particularly the currency markets. Hopefully, you can start to recognize and identify the supply and demand areas.

Then, if you still use indicators as a tool, you already understand how to use them proportionately. I think, now we can continue to discuss the intermarket analysis, which serves as an additional to understanding the workings of modern financial markets.
Intermarket analysis is the study of the various financial markets and the dependencies between each other. Like a domino effect, a phenomenon that affects a financial market will directly affect other markets.
Generally, financial markets are divided into four categories:

  1. Stock Market

  2. Bond Market

  3. Commodity Market

  4. Currency Market
Forex Supply and Demand: Intermarket Analysis Preview
Illustration of Intermarket analysis.
Example; a phenomenon that impacted directly on the stock exchange will have a domino effect on the bond exchange, into commodity markets, and ultimately affect currency market. And on the contrary, the phenomenon that shakes currency markets will impact directly to the other three markets.

The question is, why did this happen?
The answer is very simple, that is because the money never sleeps. Money must always work produces a higher yield for its owners.
For example, if you are a Fund Manager (FM) for an investment institution, as an FM, you should be able to rotate funds, and put it in assets that provide a high yield.

When you rotate the funds, typically you'll have portfolio assets that have profitable values. You can put funds in blue chips stocks, but if the share price goes down, as an FM, you certainly will reallocate the composition of this portfolio.

Certainly, you don't want to lose money and don’t want the money/funds to stuck, not moving. You can take off the stocks and then invest in government bonds.

Another example, as FM, you can borrow the U.S. dollar money which interest rate is low (0.25%) at American banks, to be placed on the asset with higher yield, for example, Indonesian interest rate is on top of the 6-7%.

Thus, by observing the movement of the money and its influence, you will gain an understanding and be able to prepare better in anticipating currency movements.

"Where's the smart money goes?" is a question that should appear when you doing a trade. What is the thing have to be observed in addition to seeing the chart pair? There are some important indicators that have to be observed if you use intermarket analysis. Below are some of the instruments that give you a more complete view of what's going on in the financial markets:

  1. S&P 500, DJIA (USA shares index).

  2. VIX (CBOE volatility index).

  3. US Dollar Index (USDX).

  4. Short-term interest rates (such as Fed Funds Rate).

  5. U.S. Treasury Yield Curve.

  6. Oil price.

  7. Gold price.

  8. LIBOR.
Intermarket analysis is not as difficult as imagined. I use only a few indicators, particularly stocks index and commodity prices as a supplement in the decision-making process on the forex trading.

Of course, you will need time to be familiar with the various economic indicators and customize it with your own trading style, and continou yor forex trading training..!

1 comment:

  1. […] is happening on the price, volume, and volatility (technical). For this, we try to learn it through Intermarket analysis […]