8 Factors responsible for Forex fluctuation
All Financial Markets are subject to fluctuation due to a variety of factors. One of their main differences is the degree to which they shift according to outside events. Compared to other markets, the Forex Market in particular is very volatile and tends to suffer much more dramatic shifts. A minor fluctuation that can often go unnoticed in other markets can be felt as a shock wave in the Forex Market.
This is why, in order to trade foreign currencies, one needs to understand well how the market moves and what type of events can affect it. As knowing is the first step to prevention, Tradeo advises investors to be as informed as possible before conducting their trades.
Therefore, we have compiled a list of factors that could potentially trigger different reactions in the Forex Market. This will help people have a broader view on factors that can cause fluctuation in their portfolio. We hope this will serve as a guide for both the novice as well as the expert trader.
Below are the 8 main factors responsible for Forex fluctuation:
1. Countries’ policies and geopolitical shifts
Often, a country’s interest rate can soar or plummet depending on its foreign and economic policies. Conflict of interests and geopolitical shifts are also responsible for major currencies’ fluctuation. It’s also important to remember that people are behind these decisions and mistakes are also bound to occur along the way. Lobbies and big companies also play a heavy hand on determining the strength of a currency, for people often try to curry favor with government authorities to shift the markets in their direction.
2. Major companies’ results and corporate decisions
Some commodities companies that are either private or belong to the state are responsible for a big share of a country’s GDP. Often, hundreds of thousands of people’s jobs depend on its performance. In many cases, the entire country’s economy hinges on it, like many countries in the Middle East that depend on their oil production. Therefore, these numbers can heavily affect a country’s economy, and consequently, its currency’s power.
In more developing countries like those in South America, scandals can be commonplace, so they don’t affect companies or economies so much. In others, like those in Europe and the US, scandals can trigger a chain of events that will be felt in places very far away from the source. While it’s impossible to predict scandals, people must unfortunately be often on the lookout for indicators of them in order to prepare for the bad scenarios.
While scandals necessarily bring to light bad events, “regular” pieces of news (like the publishing of the non-farm payroll in the US), often spiced with controversial tones, can inspire a lot of suspicion in traders. This can trigger important shifts and can happen especially if something important is being reported by many news outlets at the same time. Tradeo advises traders to always accompany a few global news outlets in order to be on par with market sentiments
5. Market gurus and online analyses
Market gurus and online analyses carry a lot of power in influencing people. Often, they are paid by companies or governments in order to mask a bad side or simply be partial when giving opinions. While many of them are honest, it pays to have more than one opinion on every matter, especially when dealing with Forex.
6. Major global events
Some major global events like the non-proliferation treaty of nuclear weapons can severely influence currencies. This could be particularly true if, for a example, a country such as Iran was imposed global sanctions. In the end, events such as these can influence the entire geopolitical landscape of the world and, consequently move currencies.
7. Natural catastrophes
As part of our world, natural catastrophes play has huge influence in people’s lives and can heavily change the market in a single event. When Japan was afflicted with its Tsunami, the Yen plummeted just as when the Katrina hurricane hit the US, the dollar fell hard. There’s practically no way one can predict natural events, but
8. Social shifts and sentiments
Finally the last Forex factor to watch out for is how people behave. This is one of the most unpredictable and far reaching factors that cause fluctuation of the Financial Markets because ultimately, it’s people who decide the price of assets. Cultural norms, fashion, trends and all other social phenomena dictate how people act and ultimately can have a lasting impact in a certain currency.
This concludes our list of factors responsible for fluctuation. While this is quite a comprehensive list, many more can arise.
Tradeo is here to help you. If you have any questions, don’t hesitate to contact us.
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