Forex Market is undoubtedly the most appealing financial market in which currencies between two countries are traded. Currency prices in Forex market aways fluctuate due to demand and supply forces in the market. Forex market is so inconsistent and unpredictable for example within a day the price can change several times. It happens because there are several factors which may impact the currency values like economic condition, political factors, international trades, and many more. An investor should know about countries’ current news or anything related to those aspects to help in the trading. Since the currency value can change in unexpected moment, it is important to ensure the stability of the chosen countries’ currencies.
Economic factors are the most important factors regarding the currency’s price. Anything that affects economy condition whether it is positive or negative will always make impact to the currencies. There are many indicator to be considered if you want to make a trade in Forex. GDP (Gross Domestic Product) is an indicator of industrial growth. It is better to choose stable GDP since it indicates a healthy, growing economy. PPP or Purchasing Power Parity measures comparison of currencies power to buy goods and service between two contries. Interest Parity Rate is also an indicator to compare interest rate of both countries.
Employment Levels of a country indicates how productive the country is. A high level of employment signifies good contribution of people in the growing economy and the other way around. Consumer Spending can also be a sign to determine the economy condition of a country. High consumer spending is a good indicator since it means that the standard living and the purchasing power of average citizen is at a good level.
2. Political Factors
Forex traders have to monitor political news and events to know any moves that will affect economy condition. For example, an election will always affect the market due to upcoming policy that will be run by the next government. Fiscal and monetary policies are the main factors in economic decision making. Fiscal policy deals with the spending of government, thus it determines the government spending of any area including economy sector. Monetary policy deals with the movement of government to maintain or improve the economy.
3. International Trade
International trade level is a good indicator of demand for country’s currency. A country with high demand for its goods and service will be appreciated more on its currencies. To buy goods and services from this country, importing country is required to convert their currencies into the exporting country. Country which has more of their currencies sold to purchase international goods are likely to have low currency’ value.