What Makes the Forex Market shift?
Like every financial market, the Forex market also moves based on supply and demand. Seemingly it’s a very simple explanation: If more traders want to buy a certain stock, commodity or currency than there are those willing to sell, then the market moves up in price.
However, things are not so simple. 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.
In order to help simplify things, we made a list of factors that could potentially trigger different reactions in the Forex Market. This will help you have a broader view on factors that can cause fluctuation in their portfolio:
1 – Major countries and political 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.
The election of Donald Trump for the American presidency at 2016 had an immediate effect. Forbes Magazine estimates that the US job growth pace has slowed as the economic recovery ages, as Trump took office in the midst of 75 straight months of job growth.
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 – Global corporate merging and 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 depends on one major company, such as 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 other cases, when 2 major companies merge, it may also have an immediate influence on the global economy. For example, the AT&T and Time Warner merge on October 22, 2016 was estimated at the market price of $86 Billion, and had an influence on the US job market the following day.
3 – News and Scandals
Scandals in countries such as Europe and the US can trigger a chain of events that will have a massive effect, felt in places around the globe and far away from the source. While it’s impossible to predict scandals, traders must unfortunately be ready for such a scenario to accrue. A scandal like Brazil’s fintech sector influenced the country’s economy.
While scandals are often spiced with controversial tones, news can affect the markets in both ways. Regular news 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 to be on par with market sentiments.
4 – Social shifts and sentiments
How people behave is one of the most unpredictable and far reaching factors that cause fluctuation of the Financial Markets. 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.
The power of confidence was patently demonstrated in late 2008 with the collapse of Lehman Brothers and the subsequent slump in global consumer and business sentiment. This was accompanied by an unprecedented collapse in global trade volumes, industrial production, investment and importantly risk-taking.
This concludes our list of factors responsible for fluctuation. While this is quite a comprehensive list, many other things can make the markets shift. Events such as Natural catastrophes, major global events like war, and even Market gurus and online analyses can have a considerable influence on the economy. If this feels like much, feel free to consult with our top traders and even follow their trading moves.