What if I told you that understanding one simple concept could help you stop chasing markets and start positioning early for the big moves?
No backtesting.
No magic indicators.
Just understanding why currencies move in the first place.
The core concept is this:
Currencies move on interest rate expectations.
That’s it. That’s the secret.
Every big currency trend whether it be EUR/USD, GBP/JPY or AUD/NZD. All of them are driven by how markets expect central banks to act next.
When one country is expected to raise rates, its currency strengthens.
When another is cutting rates, its currency weakens.
The difference between those expectations?
That’s what drives the FX market.
Some proof?
Take a look at the chart of EURNZD:
The candlestick chart shows the currency pair.
The blue line represents short-term European bond yields (EU02Y).
The green line tracks New Zealand short-term yields (NZ02Y).
Since June, European bond yields have been rising, while New Zealand’s have been falling.
That’s the market telling us something before the headlines did.
The ECB held interest rates steady at 2.15%.
The RBNZ has been cutting from 3.25% down to 2.50%.
So on one side, you’ve got a central bank saying “we’re steady.”
On the other, one saying “we’re easing.”
The result? EURNZD rallied hard.
Not because of RSI or Fibonacci levels but because the rate differential shifted in favor of the Euro.
How You Can Use This
Here’s how to turn this from theory into action:
Track Rate Expectations, Not Just Rate Decisions
Watch short-term bond yields (like 2-year government yields).
When one country’s yield starts rising relative to another, that’s your early signal.
Pair Strong vs Weak
If one central bank is hawkish (talking tough on inflation) and another is dovish (talking about cuts), the trade idea is clear.
In this case? EUR strong, NZD weak → EURNZD long bias.
Combine Fundamentals + Technicals
Use technicals for timing entries, stops and targets.
But let fundamentals tell you what direction you should be trading in.