Observing the beneficial need to follow more than one market, we have already mentioned the bond yields. It comes the turn to say something about the currency futures.
Derivative instruments, like currency futures are also wonderful to confirm the short-term trends in exchange rates.
On the capital markets, stock brokers and traders will pay attention to the market volume in confirming of the investment. Forex traders, instead, will use foreign futures with open interest in measuring market demand for a currency. This type of information can be used to predict future demand not only for currencies, but also for goods.
Although some analysts or strategists observe both non-commercial and commercial transactions, the key would be to look non-commercial positioning. Non-commercial positions are usually realized by people who speculate in the market. The trick here is to see the high demand in a particular currency in confirming or hint of potential market direction, for example two months interest for high Australian dollar. Thus, considerable interest in the currency means that a large share of the market is on one side of the market, making the opposite outcome more likely to happen. If every trader on the market is long or bullish, what happens when they all want to sell?
To be continued…