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📊 BALANCE OF PAYMENTS CYCLES — HOW MONEY FLOWS DECIDE CURRENCY TRENDS
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💡 THE CORE IDEA
Every currency is pulled by one force: money flow.
The Balance of Payments (BoP) shows where money enters a country and where it leaves.
When inflows dominate, currencies rise.
When outflows dominate, currencies fall.
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📊 WHAT IS THE BALANCE OF PAYMENTS?
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The Balance of Payments records all economic transactions with the rest of the world and has two main parts:
1️⃣ Current Account
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Trade balance (exports − imports)
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Services
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Income
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Transfers
2️⃣ Capital & Financial Account
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Foreign investment
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Portfolio flows (stocks & bonds)
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Loans and banking flows
Total must balance — if one side weakens, the other must compensate.
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🔄 THE BALANCE OF PAYMENTS CYCLE
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Phase 1 — Capital Inflows
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Foreign investors buy assets
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Currency strengthens
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Imports become cheaper
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Trade deficit widens
Phase 2 — Trade Deterioration
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Imports surge
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Exports lose competitiveness
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Current account weakens
Phase 3 — Confidence Shift
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Capital inflows slow
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Investors reassess risk
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Currency peaks
Phase 4 — Capital Outflows
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Foreign money exits
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Currency depreciates
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Imports shrink
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Exports recover
Cycle repeats.
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📈 WHY THIS MATTERS FOR FOREX
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Currencies don’t trend forever.
They move in BoP cycles driven by capital and trade dynamics.
Strong capital inflows without trade support = fragile currency.
Strong trade surplus without capital inflows = stable currency.
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📉 REAL-WORLD EXAMPLES
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🇺🇸 United States
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Large capital inflows
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Persistent trade deficit
→ USD strong short term, cyclical pressure long term
🇩🇪 Germany
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Strong export surplus
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Stable capital inflows
→ EUR structural support
🇹🇷 Turkey
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Capital inflows finance deficits
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When inflows stop → currency collapses
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⚙️ PRO TIP — WATCH THESE SIGNALS
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Current Account % of GDP
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Portfolio flow data
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Sudden FX reserve changes
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Bond yield spikes
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Capital control announcements
These often signal the turning point of the cycle.
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🚀 TAKEAWAY
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Forex is not just charts — it’s balance sheets.
Currencies rise when capital and trade support each other.
They fall when deficits rely on fragile inflows.
Understand the Balance of Payments cycle,
and you’ll know where currencies are in their life cycle — not just where price is today.
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📢 JOIN MY MQL5 CHANNEL FOR MORE FOREX FUNDAMENTALS AND REAL-WORLD TRADING INSIGHTS:
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