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What Types of Factors Affect the Forex Market?

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The forex market is constantly evolving and changing. buyers and sellers are participating in the market from all corners of the globe every day, and this global marketplace has ensured that macroeconomic events now affect the market even more than they did previously.

If you’re new to forex, there are some events and trends that you should be aware of.

The forex market is mostly driven by macroeconomic factors that then influence the decisions of the traders who will decide the value of each currency at a point of time. When it comes to the economic health of a country’s economy, this is influenced by numerous bits of information and economic events which change daily.

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Capital markets are generally the most visible indicators of how healthy an economy is. Obviously stock and bond markets are the most noticeable since the constant coverage by the media and information on different corporations means that most public information is taken under advisement by the capital markets.

When it comes to the bond markets, these are crucial to what is going on in the forex market since both currencies and fixed income securities rely heavily on interest rates.

Another key point is international trade. Balance of trade trends and levels between nations give a good indication of the demand of good from a country. Nations with goods or services that have a high demand will usually have an appreciation of its currency, since buyers must purchase in that currency, increasing the demand.

Obviously political conditions play a huge role in the economic outlook for each country, and therefore how much its currency is valued at. This is why Forex traders constantly monitor political events and news. If a country is expecting an election currency markets will change since exchange rates will have a more favourable reaction to parties which have fiscally responsible platforms and governments who show their willingness to pursue economic growth.

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Economic reports are also very important to forex traders. In fact if they want to stay in a market place that fast-paced, they need to maintain an economic report calendar. Inflation is also a good indicator, as it shows whether price levels are increasing and if purchasing power is decreasing. The trouble is that inflation is considered to be a double-edged sword since many people consider it to be something which puts downward pressure on a currency since there’s less purchasing power. Although it can also mean that currency appreciates since it can force central bankers to increase the rates to put a stop to rising inflation levels.

While inflation is debated constantly amongst economics, the fact is it always has an effect on currencies.

Other important reports include retail sales, employment levels, capacity utilisation, and manufacturing indexes. These all show important information about the current strength of both the economy and its currency.

It’s important to understand that the forex market is constantly evolving and changing due to many of these factors. Economic factors are indications of how strong a country’s economy is, which is why knowing which indicators and factors to look out for can help you understand the world of forex.

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