The two most commonly used methods for forecasting exchange rates are −
● Fundamental Approach − This is a forecasting technique that utilizes elementary data related to a country, such as GDP, inflation rates, productivity, balance of trade, and unemployment rate. The principle is that the ‘true worth’ of a currency will eventually be realized at some point of time. This approach is suitable for long-term investments.
● Technical Approach − In this approach, the investor sentiment determines the changes in the exchange rate. It makes predictions by making a chart of the patterns. In addition, positioning surveys, moving-average trend-seeking trade rules, and Forex dealers’ customer-flow data are used in this approach.