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 the strength of their influence on exchange rates
First of all, all events should be divided into two groups - planned and unexpected.
1. Planned news is those about the exit that can be found out in advance using the economic calendar.
These include speeches by the heads of central banks, publications of financial statements and index indicators. Usually, even before the news itself comes out, the market is already reacting to the upcoming news and you can make good money just by waiting.
Trading on such news is more planned and simpler; it is advisable to use only the most significant events for trading; in the economic calendar they are under three bulls.
At the same time, economic factors affecting exchange rates should not be understood as just news; news is only a display of information, but in fact everything goes deeper.
For example, the price of a national currency is affected by:
- Inflation rate
- Payment balance
- Size of gold foreign exchange reserves
- Unemployment rate
- Economic growth indicator
- Volume of money supply
- National Bank discount rate
- Stable economic and political situation
But changes in all of these indicators are reflected in the media, after which the price of the currency reacts to them.
2. Unexpected news - messages about disasters and terrorist attacks, bankruptcies and weather disasters, as well as other news, the appearance of which is not known in advance.
Monitor their occurrence using a news indicator or subscribing to a news channel. The first option is more preferable, as it not only allows you to react to a signal faster, but also makes it possible to enable a currency filter.
Typically, the appearance of such news causes a sharp and short-term jump or drop in price. Using these signals for Forex trading, you can earn quite a lot, but trading itself is quite risky.
You must independently distinguish the main factors that influence the exchange rate, assess their significance and filter out false signals. To do this, simply compare the history of exchange rate movements and the main events over the same period of time.
When using fundamental analysis factors as a source of Forex signals, one should not forget that not every news can cause a price change; in practice, it often happens that a currency does not react to the release of even the strongest news.
Therefore, you should not rush to open a new trade until you are absolutely sure of the direction of the trend.