Ask yourself on what basis you'll make your trading
decisions -- fundamental analysis or technical analysis?
Fundamentals are the broad grouping of news and information
that reflects the macroeconomic and political fortunes of the
countries whose currencies are traded. Most of the time, when
you hear someone talking about the fundamentals of a cur-
rency, he's referring to the economic fundamentals. Economic
fundamentals are based on:
Economic data reports
Interest rate levels
Monetary policy
International trade flows
International investment flows
The term technicals refers to technical analysis, a form of
market analysis most commonly involving chart analysis,
trend-line analysis, and mathematical studies of price behav-
ior, such as momentum or moving averages, to mention just a
couple.
We don't know of too many currency traders who don't follow
some form of technical analysis in their trading. Even the
stereotypical seat-of-the-pants, trade-your-gut traders are
likely to at least be aware of technical price levels identified
by others. If you've been an active trader in other financial
markets, chances are, you've engaged in some technical
analysis or at least heard of it.
Followers of each discipline have always debated which
approach works better. Rather than take sides, we suggest fol-
lowing an approach that blends the two disciplines. In our
experience, macroeconomic factors such as interest rates,
relative growth rates, and market sentiment determine the
big-picture direction of currency rates. But currencies rarely
move in a straight line, which means there are plenty of short-
term price fluctuations to take advantage of -- and some of
them can be substantial.