When we speak of fluctuations in the currency market, the two best indicators that help determine in advance the price movements are capital and trade flows. This is because these targeted in particular the supply of demand for some currencies, which in turn determine the price.
The flow of capital is a measure based on the flow of money in and out of an economy based on investment. This would include the purchase of bonds and stocks, and the cost involved in mergers and acquisitions. This concerns the recording of money spent on capital goods.
Modern technology has made globalization a reality, not only in terms of movements of people, but in terms of a globalized economy. It's easier than ever for businesses and individuals to move money around the world, quickly and in large quantities. So, no matter where an investor is based, may seek investment opportunities in other countries. Investing in stock securities of a foreign country is now as easy as investing in the same National Stock Exchange.
The way in which currency prices are determined depends on the meeting of demand and supply, ie the price that both parties are willing to pay, and sell. So the demand for the currency shall be related to the amount of investment flowing between two economies.
Similarly, the trade flow, as its name implies, measures the movement of money in and out of an economy based on spending or sale of goods and services such as professional services and consumer goods. Everything from toys to vegetables are traded in ever greater quantities worldwide, and the movement of these goods can pay for them in the form of FX trading (foreign exchange).
Again, the basic economics of supply and demand determines the relative prices of currencies when associated with trade flows. The export demand for the currency, will increase demand and raise its value against other currencies. By contrast, an import economy will sell more of its own currency to buy foreign exchange, to pay their bills, leading to a decrease in the value of its own currency.
The net effect is that the flows described separately or in combination can produce an effect on the amount of money flowing in and out of an economy, and demand that determines the currency of that. Through follow the corresponding flows, it is possible to determine a future position in the currency pairs and therefore provide an investment opportunity in the market Forex.