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What affects the Forex market: let’s address the key factors

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What affects the Forex market: let’s address the key factors

What affects the Forex market: let’s address the key factors
January 03
15:00 2017

Forex is a multi-structured market with many participants. Forex is influenced by many factors. Some of them have a slight influence on the market while others affect so significantly that the formation and movement direction of the currency prices fully depend on them.What factors shall a trader pay attention to? You will find an answer in our article.

Forex and factors influencing it

Forex as well as all the markets has many participants. Their main goal is to earn. In case of Forex, it means to buy cheaper and sell more expensive. But the market participants’ functions are not limited by that. The key players also influence the market in one or another way. A trader who knows the key participants in the market and the ways they can influence the market can plan his actions in a right way and maximize earnings.

What are the key players and how they influence Forex? What actions of these participants deserve the trader’s special attention? In what way can these actions be used to make profit?

Let us examine everything step by step.

The key Forex participants

  • Central banks

Central banks are the regulating bodies of the credit system in a separate country or a group of countries. They are also the main market participants and influence the market significantly.

Why are the banks considered the key players of the financial markets?

Exactly, central banks define the credit policy of the country, and set up the interest rate (the interest rate for the interbank loans). Only this regulating body can perform a currency intervention in order to support the national currency at a particular level.

The influence of the central banks of different countries on the market is different, though. The stronger  the country  economically is, the greater contribution  to the global economy it has,  the more influence its central bank  has on the world market.

The main players in the market are the central banks of the USA, Japan, Switzerland and Great Britain.

Ordinary  traders and investors shall reckon with the fact that each decision taken by the central bank of the economically and politically strong country will have a great influence on the market. The consequences can be expressed by sharp price fluctuations of assets and currencies as well as increased volatility in the market.

  • International banks

International banks are also important market participants. Banks  accumulate the funds of their clients from the whole world and operate them. The sums come up to millions of the US dollars. Deals made by them are so significant that can influence the currency prices. Investors can inform themselves about all coming events from news and reports.

  • Commercial banks

 Non-governmental crediting bodies perform operations with funds of individuals and legal entities. They don’t have a great influence on the market state. However, some deals( due to a sufficiently large volume) influence the currency exchange rates.

There are more market participants which do not influence the market in a very significant way. They are just trying to earn or they are a part of the market infrastructure. The stock exchanges, brokers, companies that perform non-trading operations, investors and traders are among them.

Influence of News on Forex

Not only market participants influence the market. There are some more factors and events about which investors shall know and take into account while planning the trading activity.

First of all, it’s news. Obviously that important financial, economic and political news as well as business news greatly  influence the country`s currency. This can influence other currencies in an indirect way, causing the growth or drop of their prices regarding the currency of the country where the published news has reflected the changed situation. For example, a report about VAT was published: if the results are positive, then they currency of the country will be strengthening its positions. Though, if the results were negative, the currency of the country will be decreasing in price. Or, when the news about the earthquake in Japan appeared, the Japanese currency dropped in price.

It’s easier to predict the behaviour of the national currency when the country’s economy is stable. Hence, if one follows the news of a particular country and checks how it influences the price of the national currency, one can learn how to forecast the market movement accurately.

News that influence the currency prices:

– VAT reports publications;

– unemployment reports publications;

– customer prices rates publications;

– industrial prices rates publications;

– nonfarm payrolls publications;

– civil construction reports publications;

– speeches of the country leaders, the leading specialists in the economy field;

– budget announcements, etc.

 News is published in different sources and in languages of those countries that release it. So, it is very difficult to follow all the news if you are just an individual. The probability is too high that you can miss something relevant that will influence the market enormously.

That is why there are financial analysts, who know what you shall pay attention to and which events can influence the currency prices.

We believe that a trader should be aware of at least the main key news in order not to follow the analyst’s advice blindly. A trader needs to know on what basis this or that forecast was made.

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