Currency interventions and their impact on the forex market.

Any market is sensitive to any change in supply or demand, and the foreign exchange market is no exception. These two factors are fundamental in determining the value of currency pairs.

It's important to note that a significant change in supply or demand for the currency in question is required for the exchange rate to change. The volumes must be large enough to be noticed by other market participants. In this case, they will begin to trade in the direction of the emerging trend, thereby accelerating its movement.

While the average trader cannot execute a large trade, participants such as national banks are quite capable of executing trades worth billions of dollars or handling larger sums.

Foreign exchange intervention is the action of national banks to buy or sell foreign currency in order to change its exchange rate in relation to the national currency.

Reasons for currency interventions.

1. Maintaining the exchange rate of the national currency - a stable exchange rate is an indicator of well-being in the economy and financial sector. It is quite difficult for a country with hyperinflation to obtain loans from a global bank, and a constant depreciation of the exchange rate entails inflationary processes.

Therefore, the country's leadership and the Central Bank decide to sell a certain amount of foreign currency on the interbank exchange (most often, the US dollar is this currency).

With this type of intervention, national banks usually act according to two scenarios -

• Satisfying demand for existing orders, in this case, the exchange rate of the national currency does not change much, it only stabilizes.

• Coming out with their own offer at lower prices than those currently existing on the market.

2. The second reason is less common, but it is the basis for interventions on the Japanese Yen and the Swiss franc.

The leadership of these countries has been concerned about the strengthening of the exchange rates of national currencies for several years now and often takes measures to weaken it. It should be noted that this is much easier to do than to cause an increase in the price of the national currency.

The question arises: why is this necessary? It all comes down to the cost of goods produced by these countries. After all, if a country's currency exchange rate has risen by 10%, this means the price of goods produced in that country has also risen by 10%, making it more profitable to find alternatives.

Let's consider an example of such an intervention on the USD/JPY pair. The Bank of Japan buys 50 billion dollars for the Japanese yen, not all at once, but in several stages, while simultaneously distributing information about these actions in the media.

As a result, the supply of the Japanese yen increases and demand for the US dollar rises, causing the dollar to rise and the yen to fall. And if we look specifically at our currency pair, an uptrend .

Currency interventions have long been an excellent time for forex speculation, with some traders managing to make fortunes during these periods. The key is to receive information about the onset of this event in time.