Factors influencing exchange rates
If you learn to determine what affects exchange rates, you can consider yourself almost successful in Forex trading.
After all, this aspect is the basis of trading on the currency exchange; it is enough to simply know after what event the price will go up, and what news will cause an increase in the exchange rate.
The main thing is to correctly determine the weight of the event that occurred and its degree of influence on the trend.
Factors influencing the exchange rate are nothing more than the appearance in the press of reports about changes in the economic or financial situation, which in one way or another relate to a specific currency.
In other words, these are fundamental factors that are closely related to a particular currency and put pressure on its price.
Most of the so-called news trading strategies .
Types of news and their impact on exchange rates
First of all, all events should be divided into two groups: planned and unexpected.
1. Planned news is news that can be found out in advance using the economic calendar.
These include speeches by central bank governors, financial statements, and index releases. Usually, even before the news itself is released, the market already reacts to the upcoming news, and you can earn good money simply by waiting.
Trading on such news is more planned and simpler; it is advisable to use only the most significant events for trading, as they appear under three bulls on the economic calendar.
At the same time, one should not understand that economic factors influencing the exchange rate are only news; news is only a display of information, but in reality, everything is deeper.
For example, the price of a national currency is influenced by:
- Inflation rate
- Balance of payments
- The size of gold and foreign exchange reserves
- Unemployment rate
- Economic growth rate
- Volume of money supply
- National Bank discount rate
- Stable economic and political situation
And now changes in all of the listed indicators are reflected in the media, after which the price of the currency reacts to them.
2. Unexpected news – reports of disasters and terrorist attacks, bankruptcies and weather disasters, as well as other news, the appearance of which is not known in advance.
They are tracked using a news indicator or by subscribing to a news channel. The former option is preferable, as it not only allows for a quicker response to the signal but also allows for a currency filter.
Typically, the appearance of such news causes a sharp and short-lived jump or fall in price. Using these signals for Forex trading can lead to significant profits, but the trading itself is quite risky.
You must independently identify the main factors that influence the exchange rate, assess their significance, and filter out false signals. To do this, simply compare the historical exchange rate movements with key events over the same period.
When using fundamental analysis factors as a source of forex signals, it should be remembered that not every piece of news can cause a price change; in practice, it often happens that the currency does not react to the release of even the most powerful news.
Therefore, you should not rush into opening a new trade until you are absolutely sure of the trend direction.
