There are two methods used to analyse market movements: Fundamental and Technical Analysis.
Fundamental analysis is very useful for determining trends within a currency pair. By focusing on long term economic factors that affect countries, fundamental analysis predicts long term trends.
When the dollar weakens the EUR/USD will rise. If the USD recovers then a strong foreign demand will send the EUR/USD lower. If you think the U.S. economy will become weaker and hurt the US dollar, you can buy the EUR and sell the USD. If you think that there will be increased foreign demand for US financial instruments such as equities and treasuries that benefit the US dollar, you can sell the EUR and buy the USD as you are expecting the euro to lose value against the dollar.
Technical analysis is a methodology for predicting the direction of prices through the study of past market information, primarily price and volume. The foundation behind technical analysis is to find trends when they first develop and follow them through until the end.
The field of technical analysis is based on three assumptions:
- The market discounts everything.
- Price moves in trends.
- History tends to repeat itself.
Carefully think about your goals and develop a trading strategy . Use both fundamental and technical analysis to make better decisions about your positions, and choose instruments that are likely to remain strong going forward.