Factor 1 - Economic growth:

Normally, the stronger a country's economy, the more likely it that its central banks will also raise interest rates to prevent inflation from growing. The higher the interest rate, the greater the participation of investors in that country's financial markets. As you see more and more investors entering the market of that particular country, the demand for that currency increases at random. Greater demand is accompanied by an increase in the exchange rate of the currency.

The chart above shows the correlation between economic growth and the US dollar. The two strongest breakout periods of the USD in 1980 and 2010 until now are associated with a stormy GDP growth rate of the US, everyone!

Factor 2 - Geopolitics:

Nothing captures readers like the breaking news in the local tabloids. It's even more fascinating than the boring economic statistics and dull accounting numbers.

Even so, the news is always disregarded by some traders, as they believe that the core value (or intrinsic value) will dominate it all. However, to make up for this scorn, you will be delighted to know that the currency exchange market is the only financial market globally that can be successfully traded by mastering the news. politics as well as economics. Remember that currency represents a Country, not a company. Any disturbance to the political landscape will sometimes greatly affect the direction of exchange rate movements.

Above is a chart of the Turkish Lira against the US Dollar, also known as the USD / TRY pair. The Turkish Lira has lost its value a lot, but it peaked in 2019. Due to the involvement of Ankara's military campaign against the Kurdish forces in northern Syria, the United States applied for the order. sanctions on Turkey, the Lira immediately devalued by more than 30% within the last few months of 2019.

Factor 3 - Interest rate:

The value of a country's currency coincides with an increase in interest rates. Monetary value-added reflects what is known as an increase in the cost of capital, which in turn gives the investor the opportunity to profit from arbitrage operations. Each currency rate is packaged with an interest rate attached. Income is generated in two steps:
  1. Buy currency from high-interest countries to earn interest.
  2. Make these purchases with currencies from low-interest countries.
Factor 4 - Mergers and Acquisitions:

This is considered the least important of the five factors when predicting the direction in which a currency rate will move. Often, however, this is the most powerful factor when considering short-term currency movements. Mergers and acquisitions happen when a company from a particular economic region wants to buy back a corporation in another country, and in order to do this, the other multinational must own. The currency of the country that the owner needs to sell is based in through the market. Wise currency speculators will always keep up with this type of activity as it helps to predict short-term movements in the market.

Factor 5 - Trade and Capital Flow:

Before making a final prediction on the movement (or trend) of a particular currency, you should determine if that currency depends on the capital flow or trade of that country. Capital flows are the amount of investment a country receives from international sources. Trade flows are income from commercial activities. Some countries may be very dependent on their capital flows, while others are extremely sensitive to trade flows.

To illustrate this factor, lead the whole family to the following article:

On the home chart, it is also clear how large this correlation is. The AUD (Purple) continuously appreciated conquering new highs while the Iron Ore Price and the Iron Ore (Green) demand kept skyrocketing!