As you may have noticed, all financial markets are interconnected with each other. The price of one has an impact on the price of other. The price of foreign currencies is also related with the bond spread. As the price of the local currency has an effect on the monetary policy, interest rates as well as monetary policy also has an impact on the price of the currency. If the currency is strong, inflation is kept down. If the currency is weak, inflation will go up. This relationship is often taken into consideration by central banks around the world to manage each country’s monetary policy.
As a foreign currency trader, you must be able to predict how the price of currencies will move in accordance with the monetary policy and vice versa. However, monitoring interest rates can fail to predict the price movement of currencies as there is really no Holy Grail in profiting from forex trading.
If you’re the impatient kind, you’ll probably miss the profits because trading on the basis of interest rates is a long-term strategy. The effect of the difference in interest rates won’t be felt until after a year. If you can’t commit to a long-term trading then you surely won’t be able to capitalize on interest rates as a forex indicator. As there may be temporary imbalances, fundamental analysis will only hold true for long-term trading strategies.
I’m fortunate enough to have found forex indicators provided by TradeKing. I’ve been using it for quite some time now. But as I’ve stated early on, I’ve decided on long-term trading to fully capitalize on the benefits brought about by forex indicators.