Although the exchange rates are influenced by many factors, one at the end, money prices are the result of supply and demand. The world of foreign exchange market, as a great melting pot in a large and constantly in motion, a mixture of current events, the supply and demand are in constant development, and the price of a currency in relation to other development accordingly. No other market, distilled and includes more than what in the world at a particular time that the currencies. The supply and demand for each currency, and thus its value, not influenced by, a single item, but from several. These elements are usually divided into three categories: economic factors, the political situation and the psychology of the market.
The economic factors
It is in particular to the economic policies adopted by government agencies and central banks, economic conditions, usually under the economic reports and by other economic indicators. The economic policy of the government includes the budgetary policy (budget Practical issues) and the monetary policy (the means by which a government, Central Bank influence of supply and cost of money that is in the level of interest rates d).
The economic conditions include:
- Government budget deficits or surpluses: The market in general negative impact on the enlargement of the deficits of public administrations, and have a positive effect on reducing the budget deficit. The impact is reflected in the value of the currency of a country.
- Balance the level and trends: The trade flows between countries shows the demand for goods and services, which means in turn demand for the currency of a country to implement the trade. Surpluses and deficits in trade in goods and services reflect the competitiveness of a nation's economy. For example, deficits May, a negative impact on a currency of the country.
- Inflation levels and trends: As a rule, a currency loses value, if there is a high inflation in the country or if inflation is perceived as an increase. The reason is that inflation eats the purchasing power, which for this currency. However, sometimes a currency strengthen May when inflation is rising due to expectations that the central bank raised short-term interest rates in the fight against rising inflation.
- Economic the growth and health: Reports such as gross domestic product (GDP), jobs, retail shops, capacity utilization and others are on economic growth and health of the country. In general, healthier and a strong economy in the country to exercise its currency, and demand, there will be.
The political situation
Internally, regional and international political conditions, and the events can be far-reaching impact on the foreign exchange markets. For instance, a revolution of political instability and may adversely affect the economy of a country. The rise of a political party, as responsible in financial terms may have the opposite effect. The events in a country, a region in May positive or negative in a neighbouring country and hampered their currency.
The psychology of the market
The psychology of the market operators and ideas influence the foreign exchange market in a variety of possibilities:
- Flights quality: unsettling international events, a flight to quality, investors in the search with a retreat. There will be a rise in demand, so a higher price for the currencies more than their colleagues at a relatively low. The long-term trends: foreign exchange markets are often visible in the long-term trends. Although the currency is not a season annual growth as the basis physics, the cycles are not felt. The analysis of the cycle as the longer-term trend in prices in May, the economic or political trends.
- Buy rumor, sell, which is: This market is this truism in many situations as currency. It is the tendency for the price of a currency, the effects of an action before it happens, and if the case is planned to move, react in precisely the opposite direction. This May also as a market oversold or overbought. To the rumour to buy or sell, which can also be an example of cognitive known as Anchorage, when investors focus too much on the importance of events outside the currency.
- Economic numbers: Although many economic, can certainly take account of economic policy, some reports and numbers take on a talisman-like effect: the number itself will be important for the psychology of the market in May and have a direct impact on short-term market moves. What must be observed in the course may change over time. In recent years, such as money supply, employment, trade balance figures and inflation numbers have all recognized the star turns.
- Technical commercial considerations: As in other markets, the accumulation of price fluctuations on a currency pair like EUR / USD clearly can change in the way that operators May trial. Many traders study price of tickets to these models.
