Forex Supply and Demand: Intermarket Analysis - ForeXposed

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Friday, February 24, 2017

Forex Supply and Demand: Intermarket Analysis

Most forex traders tend to focus only on technical analysis or fundamental analysis as the basis for decision making. I recommend that you begin to understand the underlying forces that move the market (fundamentally) and to understand what is happening on the price, volume, and volatility (technical). For this, we try to learn it through Intermarket analysis view.

Forex Supply and Demand: Intermarket Analysis
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Let's define the fundamental analysis which consists of two categories:

  1. Economic Fundamentals.
Is the factors that reflect growth, trade, and production from various elements of the economy. Included in it are all the news release that we see at the moment of daily forex trading (news trading will be discussed later).

  1. Intermarket Fundamentals.
Included in this category are the interest rate, equity yields, commodity prices, market sentiment (such as institutional commitment of traders (COT) data, volatility (VIX). These data appear unlike a traditional fundamental factor, but in my opinion, this data is much more useful and can be applied directly for trading purposes than any economic indicators issued by the Government through a news release which is lagging.

One of easiness for us in using Intermarket fundamental because it’s is traded on an Exchange. For example, the investor's predictions about where the direction of USA interest rates can be obtained through the live market. Generally, Market-traded information is real-time and come from a variety of sources that reflect the consensus of market participants. Isn't the technical analysts always argue that the value of every news has been reflected in the price, so that if we get the information listed on a stock exchange (exchange-traded) is become much more efficient.


There are two things you should know about the Intermarket fundamental:

  1. The higher yield in a country will increase a demand for its currency, which would eventually strengthen the value of the currency.

  2. The Investors calculate the yield based on the various forms of investments including bonds, stock trading (equity), deposits and other investments such as commodities.
Indeed, because forex instruments move relative to one another, these fundamental factors will only have value if compared to the cross country pair. For example, a yield in Australia is higher than the United States, therefore the currencies AUD experienced strengthening and trending up for some of this previous year.

The difference in yield (see interest rate differences in the two countries) are the fundamental that pushes an Australian dollar (AUD) strengthened against the U.S. dollar (USD)

Where which we get this data? If your trading platform has a live market data from multiple Intermarket components (Oil, Gold, DJIA, S P 500 $, Treasury) you could plotting up the data on the forex chart pairs. For those who don't have market live data, you can use ‘Pre Market’. Data on this CNBC website were updated per 5 minutes.

By looking at the movement of the live market data on other financial markets, we can have a 'vision' of where the smart money is moving. Remember, the money never sleeps, always on the move looking for a higher yield. Therefore you will make your decision easier to buy/sell/wait on your forex trading.

For example, if the price of oil is going down, you can already assume that CAD will be weakened because Canada is a one of the largest energy producing country in the world.

Other examples I will give later. At this early stage, I want you to see and understand first the price movement in other financial markets. Please go to the site above and make it as an additional source of information.

Do not rush do a live trade based on this Intermarket data... At least you have been warned!