Intermarket Analysis  |  FEB 1992

Intermarket Analysis And The Deutschemark by Richard Forest

Intermarket Analysis And The Deutschemark by Richard Forest Richard Forest, a two-time Traders' Challenge winner, becomes a S TOCKS & COMMODITIES author with this monograph on how intermarket analysis — that is, analyzing elements across more than one market and across countries to predict the outcome of seemingly disparate elements — can be used to trade the Deutschemark or other currencies. Forest points out that the U.S. dollar and the Deutschemark are interrelated and the dollar and interest rates are interrelated, and thus, by watching interest rates the behavior of the Deutschemark and the dollar may be predicted. He goes on to write that an analytical indicator called a dual moving average crossover (DMAC) works well to predict when currencies change trends because that indicator is most accurate in long-lasting trends instead of brief fluctuations. Intermarket analysis, a method by which a trader may compare pricing elements of two markets that are related or inversely related to one another, can be applied to straightforward technical analysis to successfully trade the Deutschemark or other currencies. One of the elements in question can be a direct influence on the other correlative element: For example, the behavior of the Deutschemark is closely linked to the U.S. dollar. In turn, the value of the U.S. dollar is closely linked to interest rate behavior. By monitoring interest rates, therefore, traders can make predictions about the price trend behavior of the U.S. dollar and the Deutschemark. In general, a currency with high interest rates will attract large amounts of money due to the high return on investment for lenders and investors. On the other hand, falling interest rates are bearish for a currency, as investors will shy away from it and instead gravitate toward investment possibilities with higher rates of return. Thus, falling interest rates in the United States and increasing interest rates in Germany will decrease the value of the U.S. dollar but increase the value of the Deutschemark.

by Richard Forest