(Trading)LIEN_What_Moves_The_Currency_Markets_(Kathy.Lien,2004,currency_trader)_[pdf].pdf

Currency
BASICS
What makes currencies
WH A T MOVES tick? Find out which
the currency market? economic factors help
shape the short-term
and long-term forex
la n d s c a p e .
BY KATHY LIEN
trends. More than 80 percent of curren-
cy trading volume is speculative in
nature and, as a result, the market fre-
quently overshoots and then corrects.
Also, many of the macroeconomic
catalysts and events traders use in the
equity or futures markets — including
gauging interest-rate changes and eco-
nomic releases — are also integral to
forex trading. In addition, price moves
in modities or indices are
highly correlated to currency moves.
For example, Australia is the world’s
t h i rd - l a rgest gold pro d u c e r, which
explains the Australian dollar’s 80-per-
cent positive correlation with gold
prices. As a result, modity
traders can trade forex to spread their
risk or leverage certain positions.
The most actively traded curren c y
pairs are, in orde r , the euroc u r re n c y / U . S .
he stock market has traditionally received the dollar (EUR/USD), British pound/. dollar (GBP/USD), .
lion’s share of attention in the trading industry, dollar/Japanese yen (USD/JPY) and the . dollar/Swiss franc
but foreign currency (forex) trading has surged in (USD/CHF). Table 1 shows the historical trading ranges of these