Many novice traders wonder what causes the massive fluctuations in the currency pairs price. This is not a question that’s the answer should be understood only by rookie Forex market participants. Rather, the answer covers areas that, once captured, have the potential to boost the profit-making ability of even a veteran trader. Because success in an environment without knowing what moves that environment is nothing but the outcome of fortuity. Most of the time, the one who succeeds doesn’t know what has made his success possible. Likewise, he won’t know what will make him fall, and eventually, he will fall.
Knowing the market propellers will enable people to set greater control over his success and failure. The very essence of doing something still and always will lie in having as much knowledge as possible about the task one is doing. It makes the doer powerful. It makes him invincible.
Key Forex Market Drivers
This post discusses and lays all the basic information traders need to make their journey a long pursuit. Let’s get on to the details.
Central Bank Interest Rate
If you think to form the macro level, you will see nothing has more impact on the exchange rate than the interest rate decision taken by central banks. In a general sense, central banks raise interest rates when they observe growth in their economies. That growth makes them optimistic about their future and consequences in pushing the rate of interests.
Conversely, the plummeting rate of interest reveals the economic distress of a country. Being skeptical about the economic condition in the near future, Central Banks lower interest rates.
Traders can get a broad and sure perception of a central bank by observing the movement of those rates. They must choose the currencies of countries radiating positive economic potential by hiking their interest rate. So, investors who trade commodities should be always stay updated with the interest rate decision as it can cause massive fluctuations in the market.
Intervention by Central Banks
Infliction of undue harm sometimes may occur on an economy by its currency’s value. The infliction can rise at a concerning level that Central Banks often decide to step ahead and influence the effect in their favor.
Nations, dependent massively on exports, don’t expect and want too much appreciation for their currency. They don’t want their currencies to gain more value than necessary. For the situation where currencies incur a rise in demand and value, central banks step into the scenario to take control. They flood the market, releasing their reserved currencies. This heavy surge in the amount instantly dilutes the value of the money, and the currency gets naturally devalued.
Traders may find it a little harder to take advantage of such Central Banks’ intervention. Not a single forecast is usually given by the Central Banks before they take the measure, unlike the lowering or raising the interest rates. However, there will be signs radiating from an overvalued currency, and traders can watch out for such indications. Though it will be a challenging task, retail traders can easily overcome this issues.
Most of the traded volume in the FX option is mainly for international commercial purposes. That means businesses if they want, can hedge the risk inflicted by a currency’s value change. However, a considerable portion of that volume is also going towards speculation.
Among all those options, Double No Touch (DNT) options are the most favored ones by traders.
These types are normally placed on popular currency pairs round numbers. They often get targeted by intensely liquid investors.
Fear and Greed
Fear and greed can turn an about to fall instruments into utter panic and greed and an about to rise market into a prevalent buying spree.Again, many opportunities get avoided by the traders only out of their fear of the unknown. Among those trades, mostly avoided are the ones that don’t appear to follow or create any known pattern.
So, these are the major instigators of the market, and traders should keep their eyes on them to detect and forecast viable trading opportunities.