One of the largest areas of currency risk for an international business is transactional – meaning the risk that the value of the currency will fluctuate in the middle of an overseas transaction. If the rate moves up or down in the middle of making or receiving a payment, you could end up making money – or losing it.
Business owners try to minimize or avoid losing money during these transactions as much as possible. In currency trading, traders will try to make the best trades they can by analyzing the market and tracking market movements. Likewise, business owners can also track market movements to help mitigate their transactional currency risk and forecast their future payments.
The Basics of Tracking and Forecasting
Analysts and traders commonly use the following methods to track currency market movements and forecast where they think the market will move next.
Fundamental or economic forecasting examines the relationship between the two countries in the currencies you’re exchanging and a number of economic indicators in both countries. Indicators can include currency flows and economic data such as employment, inflation, retail sales and manufacturing indexes, or other relevant data. This method looks at both past and present data to analyze currency movements and tries to predict the future price of a currency.
Technical or chartist forecasting is the practice of looking at historical data to identify patterns and cycles in where the currency is moving. It only looks at past data, and assumes what’s currently happening in the market or the world has already been factored into the currency price. Charting market moves allows you to see a visual representation of the data and analyze it.
Charting currency data such as simple moving averages, support and resistance points, and trendlines shows what the market has already done, and can give you a good deal of insight into what the market is doing. An automated tool is the easiest, most efficient way to create and look at charts. These comprehensive automated currency tools use live rates to track currencies and draw graphs to help you to spot patterns and market trends.
Getting the Most Out of Your Tracking
Tracking currency market movements is another tool in your toolbox to help manage your currency risk when making and receiving payments. The ultimate goal of this risk management strategy is to reduce your losses, so they are less than your gains. No one is right 100% of the time, but tracking market movements can help you make good decisions so that you’re right more often than not.
However, it takes time and practice to learn how to analyze market data and forecast trends. It also takes time to monitor the market. The FX market is complex and moves quickly, with over $5.3 trillion USD traded each day. Volatility also affects market movement. Volatility has been high throughout 2020 and 2021, and is also driven up with the increasing number of traders and speculators in recent years.
If you don’t have the resources to monitor the market all day and all night, you could be exposing yourself to unnecessary FX risk. When your business relies on making global payments that don’t lose money, it’s vital that you have a good, automated tool to help make decisions. A tool such as TEMPUS Online helps you protect your profits by giving you live feeds and real-time data in chart form.
You may also want someone on your side that can help you make sense of the volatile FX market. An expert like TEMPUS can advise you on how and when to make your global payments. We use a combination of forecasting methods, have the latest digital tools for automated data collection, and combine that with a thorough understanding of your business and your goals. Our award-winning FX forecasting lets you optimize your global payments while reducing transactional risk, and can mean the difference between a profitable transaction and a loss.
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