Forex rates are always fluctuating. As a currency speculator, you will try to take advantage of price trending. For example, if a country has a huge trade deficit, traders will try and short the respective currency. The general rule of thumb is that as a trade deficit increases, the devaluation of that country's currency soon follows.
Forex rates also act as a guide to stock market investing. If a pronounced devaluation of the dollar occurs, companies with international exposure will benefit. Likewise, companies doing business exclusively in the United States will suffer. During the scenario of a falling dollar, foreigners will buy more U.S. goods. Let's say there is a bachelor in Italy who is making 2,000 lira every month and he has really dirty clothes and needs a washing machine. If the dollar falls, his buying power for U.S. goods increases. Does the price of an American made washing machine down the street immediately fall in his price range? In the short-term, no, but in the long-run, yes. The importer of those machines will be able to purchase more dollars for every lira, which he use to buy more washing machines. The larger supply will lower the price, and the Italian bachelor can now afford an American washing machine.This is the case for all goods. As a result, a falling dollar is not such a bad thing because Americans can now export more of their goods. If you would like to capitalize on these movements, look for companies with a great percentage of their sales coming from abroad.On one hand, you don't need to understand why currencies move to make money, but you should understand how they affect the markets. In comparison to analysts' recommendations on stocks, currency experts are frequently right. Additionally, there are less analysts specializing in currency, so good experts are well known and well respected.
