What Factors affect Currency Values?

According to Investopedia, there are 5 main factors that affect currency values. Understanding these factors will help you make educated decisions when trying to playing in the Forex Markets.

1. Gross Domestic Product (GDP)

GDP is considered the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility. The GDP is somewhat analogous to the gross profit margin of a publicly traded company in that they are both measures of internal growth.

2. Retail Sales

The retail-sales report measures the total receipts of all retail stores in a given country. This measurement is derived from a diverse sample of retail stores throughout a nation. The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy. Revisions to advanced reports of retail sales can cause significant volatility. The retail sales report can be compared to the sales activity of a publicly traded company.

3. Industrial Production

This report shows the change in the production of factories, mines and utilities within a nation. It also reports their 'capacity utilizations', the degree to which the capacity of each of these factories is being used. It is ideal for a nation to see an increase of production while being at its maximum or near maximum capacity utilization.

Traders using this indicator are usually concerned with utility production, which can be extremely volatile since the utilities industry, and in turn the trading of and demand for energy, is heavily affected by changes in weather. Significant revisions between reports can be caused by weather changes, which in turn, can cause volatility in the nation's currency.

4. Consumer Price Index (CPI)

The CPI is a measure of the change in the prices of consumer goods across over 200 different categories. This report, when compared to a nation's exports, can be used to see if a country is making or losing money on its products and services. Be careful, however, to monitor the exports - it is a focus that is popular with many traders because the prices of exports often change relative to a currency's strength or weakness.

Some of the other major indicators include the purchasing managers index (PMI), producer price index (PPI), durable goods report, employment cost index (ECI), and housing starts. And don't forget the many privately issued reports, the most famous of which is the Michigan Consumer Confidence Survey. All of these provide a valuable resource to traders, if used properly.

So, How Are These Used?
Since economic indicators gauge a country's economic state, changes in the conditions reported will therefore directly affect the price and volume of a country's currency. It is important to keep in mind, however, that the indicators discussed above are not the only things that affect a currency's price. There are third-party reports, technical factors, and many other things that also can drastically affect a currency's valuation.

Of course all of this information is only helpful once you understand how to best apply this to your investment strategy, lucky for us investopedia continues below…

Here are a few useful tips that may help you when conducting fundamental analysis in the foreign exchange market:

1. Keep an economic calendar on hand that lists the indicators and when they are due to be released. Also, keep an eye on the future; often markets will move in anticipation of a certain indicator or report due to be released at a later time.

2. Be informed about the economic indicators that are capturing most of the market's attention at any given time. Such indicators are catalysts for the largest price and volume movements. For example, when the U.S. dollar is weak, inflation is often one of the most watched indicators.

3. Know the market expectations for the data, and then pay attention to whether or not the expectations are met. That is far more important than the data itself. Occasionally, there is a drastic difference between the expectations and actual results and, if there is, be aware of the possible justifications for this difference.

4. Don't react too quickly to the news. Oftentimes, numbers are released and then revised, and things can change quickly. Pay attention to these revisions, as they may be a useful tool for seeing the trends and reacting more accurately to future reports.

Conclusion
There are many economic indicators, and even more private reports that can be used to evaluate the fundamentals of forex. It's important to take the time to not only look at the numbers, but also understand what they mean and how they affect a nation's economy. When properly used, these indicators can be an invaluable resource for any currency trader.

Tips for Online Investing

Here are some general tips for novice and pro investors. These tips are provided by the SEC and can be found at http://www.sec.gov.

Tips for Online Investing:

What You Need to Know About Trading
In Fast-Moving Markets

The price of some stocks, especially recent "hot" IPOs and high tech stocks, can soar and drop suddenly. In these fast markets when many investors want to trade at the same time and prices change quickly, delays can develop across the board. Executions and confirmations slow down, while reports of prices lag behind actual prices. In these markets, investors can suffer unexpected losses very quickly.

Investors trading over the Internet or online, who are used to instant access to their accounts and near instantaneous executions of their trades, especially need to understand how they can protect themselves in fast-moving markets.

You can limit your losses in fast-moving markets if you

• know what you are buying and the risks of your investment; and
• know how trading changes during fast markets and take additional steps to guard against the typical problems investors face in these markets.

Online trading is quick and easy, online investing takes time

With a click of mouse, you can buy and sell stocks from more than 100 online brokers offering executions as low as $5 per transaction. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. You may be able to make a trade in a nanosecond, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment.

Set your price limits on fast-moving stocks: market orders vs. limit orders

To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can't control the price at which your order will be filled.

For example, if you want to buy the stock of a "hot" IPO that was initially offered at $9, but don't want to end up paying more than $20 for the stock, you can place a limit order to buy the stock at any price up to $20. By entering a limit order rather than a market order, you will not be caught buying the stock at $90 and then suffering immediate losses as the stock drops later in the day or the weeks ahead.

Remember that your limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. But by using a limit order you also protect yourself from buying the stock at too high a price.

Online trading is not always instantaneous

Investors may find that technological "choke points" can slow or prevent their orders from reaching an online firm. For example, problems can occur where:

• an investor's modem, computer, or Internet Service Provider is slow or faulty;
• a broker-dealer has inadequate hardware or its Internet Service Provider is slow or delayed; or
• traffic on the Internet is heavy, slowing down overall usage.

A capacity problem or limitation at any of these choke points can cause a delay or failure in an investor's attempt to access an online firm's automated trading system.

Know your options for placing a trade if you are unable to access your account online

Most online trading firms offer alternatives for placing trades. These alternatives may include touch-tone telephone trades, faxing your order, or doing it the low-tech way--talking to a broker over the phone. Make sure you know whether using these different options may increase your costs. And remember, if you experience delays getting online, you may experience similar delays when you turn to one of these alternatives.

If you place an order, don't assume it didn't go through

Some investors have mistakenly assumed that their orders have not been executed and place another order. They end up either owning twice as much stock as they could afford or wanted, or with sell orders, selling stock they do not own. Talk with your firm about how you should handle a situation where you are unsure if your original order was executed.

If you cancel an order, make sure the cancellation worked before placing another trade

When you cancel an online trade, it is important to make sure that your original transaction was not executed. Although you may receive an electronic receipt for the cancellation, don't assume that that means the trade was canceled. Orders can only be canceled if they have not been executed. Ask your firm about how you should check to see if a cancellation order actually worked.

If you purchase a security in a cash account, you must pay for it before you can sell it

In a cash account, you must pay for the purchase of a stock before you sell it. If you buy and sell a stock before paying for it, you are freeriding, which violates the credit extension provisions of the Federal Reserve Board. If youfreeride, your broker must "freeze" your account for 90 days. You can still trade during the freeze, but you must fully pay for any purchase on the date you trade while the freeze is in effect.

You can avoid the freeze if you fully pay for the stock within five days from the date of the purchase with funds that do not come from the sale of the stock. You can always ask your broker for an extension or waiver, but you may not get it.

If you trade on margin, your broker can sell your securities without giving you a margin call

Now is the time to reread your margin agreement and pay attention to the fine print. If your account has fallen below the firm's maintenance margin requirement, your broker has the legal right to sell your securities at any time without consulting you first.

Some investors have been rudely surprised that "margin calls" are a courtesy, not a requirement. Brokers are not required to make margin calls to their customers.

Even when your broker offers you time to put more cash or securities into your account to meet a margin call, the broker can act without waiting for you to meet the call. In a rapidly declining market your broker can sell your entire margin account at a substantial loss to you, because the securities in the account have declined in value.

No regulations require a trade to be executed within a certain time

There are no Securities and Exchange Commission regulations that require a trade to be executed within a set period of time. But if firms advertise their speed of execution, they must not exaggerate or fail to tell investors about the possibility of significant delays.

http://www.sec.gov/investor/pubs/onlinetips.htm

USD / CAD - Buy Recommendation on Now

I've done a little research, and now is the time to buy the US dollar. Many analysts are predicting the Dollar to bounce back from it's recent lows from the last few days.

For more information on the US Dollar vs. the Canadian Dollar, see what these Forex analysts had to say:

http://finance.yahoo.com/news/COT-Data-Speculators-fxcm-15339666.html

and the Canadian Dollar Technical outlook here:

http://finance.yahoo.com/news/Canadian-Dollar-Technical-fxcm-15339598.html

Stay tuned, more to come...