The forex markets are constantly moving, proving traders with opportunities to make money during most times zones across the globe.  The most liquid currency pairs are the best securities to trade if you are attempting to find momentum.  While over the long term, currency pairs are driven by macro factors that are driven by interest rates changes, short term movements are more technical in natural which allow traders to employ technical analysis strategies.

If you are trying to determine the long-term trend in a currency pair, you can look at the interest rates differential which usually move in tandem with a currency pair. For example, the differential between the US Treasury yield and the German bund generally moves in the opposite direction of the currency pair.  Over the long term as yields in the US outpace the yields in Germany, the US dollar becomes more attractive and the EUR/USD moves lower.

Off course that is over the long term, and is a helpful trading strategy, but does not help you with the short-term direction of a currency pair. For this you can use short term technical analysis tools such as trend lines, patterns and momentum.

Trend lines describe the supply and demand of a currency pair. You can draw a trend line by connecting one high to another high and generate a slope.  This is the general format you would use to form resistance.  To generate a support trend line, you would connect the two most current lows.  Usually trend lines are upward sloping but trend lines are often drawn subjectively.

Patterns are another source of generating a trading strategy.  Patterns usually tell you whether prices are poised to continue or reverse.  Patterns that focus on continuation such as flat and pennant patterns, are pauses in momentum that generally refresh.  Reversal patterns such as the “head and shoulder” pattern and the reverse “head and shoulder pattern”, shows specific consolidation attributes before reversing the current trend and moving in the opposite direction.

While trend lines and patterns are, subjective there are a number of specific technical analysis tools that you can use as a strategy. For example, if you are looking for a trend following strategy, you can purchase a currency pair when there is a moving average crossover. A moving average is the average of a specific number of days that changes with every new day.  For example, a short-term trading strategy would be to purchase a currency pair when the 5-day moving average crossover above the 20-day moving average.  You could reverse your trade when the 5-day moving average crosses below the 20-day moving average.  You can alter the number of days in your moving average, along with the risk management to fine tune your strategy.

You might also try a momentum trading strategy such as the MACD (moving average convergence divergence) strategy. This is a crossover momentum strategy where you purchase a currency pair when the spread crossover below the 9-day moving average of the spread.

So, if you are asking yourself what is forex analysis you can answer the question with defining a trading strategy. Long term trading strategies are generally more macro based, but you can also combine your long-term view with short term technical strategies to create the strategy that is right for you.