First things first. You’ve gotta get a grip on the current “fundamental forces” that are driving a particular currency either up, or down relative to others. For example, if you were told that the U.S FED has plans to continue printing USD to effectively “manage” their current debt crisis – to a degree that will eventually drive the price of “things” to infinity. Would you consider this to be a good thing for the currency? Or (fundamentally) a negative?
Ok, now you find out that Australia’s (or Canada’s for that matter) economy is currently pounding on all cylinders…with job creation, and increased housing starts, growing exports of commodities etc – and even talk of “raising” interests rates rattling around the net. Same question – good or bad for the currency “fundamentally”?
I think you’ve just framed your first trade – solely based on fundamentals! Now these factors change rapidly, and at times can be 100% completely reversed ( for example when investors are scared – they run back to the “safe havens” – regardless of the poor fundamentals). You wanna know why?
If the world ended tomorrow, or if suddenly we were faced with global panic / fear or whatever……which currency would you rather have in your pocket? I don’t think you’d have much luck “buyin guns” with a bag full of Swedish Krona.