The forex market is a volatile one. Currencies fluctuate every minute of the day and savvy traders capitalize on this for both short and long-term gains. If you want to make the most of forex fundamentals, it’s a good idea to learn as much as you can about how the markets work and what drives those changing currency values.
One of the main things that affects the markets is economic data. Interest rate changes, GDP data, unemployment rates and house prices can all affect the value of a currency. Traders are constantly watching the news, paying attention to political speeches and information from central banks in an attempt to get a feel for the strength and prosperity of major economic powers. Interpreting this data takes skill and practice, but once you learn how different industries and economies are linked, you can predict many market fluctuations fairly accurately.
Changes in Fund Activity
Market fluctuations are driven by investor activity. If there is a rush of profit taking, prices fall, if everyone wants to buy a currency (or a share), prices increase. Fund managers have a lot of buying power and when they apply their capital towards a particular currency, that can have an impact on the price of that currency. It takes huge amounts of money to have any impact on the trend line, but if a few major fund leaders act at the same time the effect can be quite noticeable.
Forex Market Politics
Just as raw economic data can have a big impact on the value of a currency, so can political statements. The forex market can be effected because of tensions between countries can drive investors away because they don’t want to be stuck holding the currency of a country that is heading for war. Shake-ups in the government of a country may be seen as good news, or a de-stabilizing influence. Some investors may choose to ride out short term instability or recessions, while others prefer to move their money to a traditional safe-haven until a country is performing well once again.
Tracking forex fundamentals is a full-time job and most people don’t have the time or patience to pore over all of the data. For this reason, many investors prefer to rely on technical analysis. This kind of analysis allows you to see support and resistance points and look at the forex market’s overall trends, without having to worry about why those trends are being followed.