Influence of global events on the Forex market
The foreign exchange market (Forex), the daily turnover of which amounts to billions of US dollars, provides millions of traders with an opportunity to earn on currency rate fluctuations of various countries. The distinct feature of any financial market is its reaction to significant events that lead to price fluctuations of financial instruments and allow to earn on the difference between the Ask and Bid prices of an asset.
By trading in the Forex market, traders open positions, relying on technical and/or fundamental analyses of the market. If technical analysis forecasts the further price behavior exclusively on the basis of the analysis of price charts history, fundamental analysis studies the factors that determine the movement in the Forex market.
Factors affecting the Forex market
The volatility of the Forex market depends on the impact of various global factors that can be divided into two large groups:
- Economic;
- Geopolitical.
Economic factors affecting the currency exchange rate of a particular country:
- Indicator of economic growth (GDP);
- Inflation level and inflation expectations;
- State of the trade balance;
- Monetary policy of the Central Bank;
- Unemployment rate, etc.
Any event occurring in the economy of the world's largest powers, instantly affects the Forex market. Thus, when getting involved in currency trading, a trader needs to study and analyze the most important indicators of the world economy, follow the news about the decisions of central banks regarding their monetary policy. Important economic factors confirm or reverse the trend for a long time, while retracements occur under the influence of less significant and unexpected news.
You can learn about the release dates of important news from the economic calendar.
Geopolitical factors affecting the currency exchange rate:
- Political events;
- Natural disasters;
- Wars, terrorist attacks, etc.
Important geopolitical events lead to significant currency exchange rates fluctuations and often become the reason for the reversal of a long-term trend and the formation of a new one. Unlike economic news, the release of which is known beforehand, most geopolitical events, such as terrorist attacks, natural disasters, defaults, etc., are unexpected and literally destroy the currency market, causing exchange rates to rise or fall. At the same time, the effect from the release of such news quickly loses its power and, as a rule, the new trend does not last long. In such cases, traders open positions for a short period of time waiting for the next market retracement.
The Forex market is dependent on many interrelated factors that reflect the economic state of various countries. The knowledge of these factors allows a trader to quickly orient and make proper decisions at the right moment, as well as to assess the time and strength of the influence of fundamental factors on the market trend.
