The Forex market obeys to trends. Many factors can spark a negative or positive trend and it is critical for any Forex trader to know what these factors are. Let me enumerate some of the most influential factors that can influence a currency:
Governmental economic policies
Governmental economic policies comprise of fiscal policies, which are basically the spending and budget balancing policies of a said government, and monetary policies dictated by a central bank. One major influential factor that can affect a currency is a variation in the money supply. A central bank can squeeze a currency by lifting the interest rate or they can make more money available by lowering interest rates. Higher interest rates result in making a currency rarer, thus increasing the chances of the currency's price to rise. Loosening money supplies often affects a currency negatively since the said currency is easily available.
Deficits or surpluses
This one is a no brainer. Big deficits are usually a bad omen for any economy and the currency attached to it. Surpluses are often indicators of a healthy economy and will usually increase the demand for a certain currency. Please keep in mind that a currency's value is directly correlated to the willingfullness of potential investors to invest in a certain economy. Some investors might be wary of trading with a country in financial turmoil, but might be more interested in working with a country with a good and stable fiscal policy. However, some investors might be interested in economies that seem to reform their fiscal policy after many deficits.
Political state
Political unrest will have a negative effect on any currency. Think of it this way, would you build a condo in Lebanon right now? No really, would you? Stable countries often have stable economies and countries in political unrest NEVER do, so keep that in mind next time you think about buying or selling a currency.
Economic numbers
Some of the most important economic numbers to look for when assessing a currency's value are employment rates , inflation, money supply and trade balance figures just to name a few. But a good employment rate or positive trade balance is not enough to know if a currency will do good or bad. The important factor to know is how good these results are compared to what the analysts where predicting. If a certain country had a positive job growth on a certain quarter, but that the job growth was lower than what was expected, that could actually affect the currency negatively...
These are only some of the indicators that might affect a currency, but these are some of the most important too. Make sure you use all the info at your disposition before thinking about investing a single penny on the Forex market.
About the author:
John Taylor is a full time Forex Trader who has made a successful living using Forex Robots to help with automating foreign exchange currency trading.Read more at Johns Forex Robots Blog. |
