Fundamental Analysis: Economic Factors That Affect the Forex Prices

Discussion in 'Fundamental Analysis' started by danybrown, Jan 31, 2017.

  1. danybrown

    danybrown Trader

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    In the 2016, major events caused volatility in the price of different markets across the world. As many events came as a surprise, traders all across the world felt the need to keep an eye on fundamental factors. Economical factors that affect the market are different in the forex market. Countries, unlike companies, do not have a balance sheet. If you are new and you are wondering how to determine the future direction of the market, you must give as much importance to economical factors as you give to technical indicators. According to an expert of EasyMarkets, good trading platforms allow new traders to analyse the market using fundamental factors as well. Platforms like mt4 have an economic news calendar, which can be a useful tool if you do not have a deep knowledge of economics.

    The foreign exchange market is a dynamic market with value of currencies changing every second. While the time zone and operational hours of the market is one of the reasons behind the dynamism of the biggest market, economical and political factors also play an important role in shaping the market. Currencies are traded in forex market and currencies are unique to a country. Countries have complex operations that includes maintain trade and relation with other countries. This labyrinth of activities correlates one country to other countries in the world, even when they are not in direct relation. Thus, political and economical development in any part of the world affects the prices of currencies.

    The value of a currency at any time of the day depends on the economic standing of the country to which it belongs. Some factors affect the economic standing of a country and bring changes in value of its currency. Here are some factors that affect the value of currency.

    Capital market

    Although forex is an independent market, the capital markets like stock and bond market affect the forex market. With the constant attention of traders, media, government and other institutions, capital markets are most noticed markets. Securities, commodities and bonds traded through the day affect the economic standing of a country as well.

    Politics

    Government policies, elections, election results and other events that affect the political ecosystem of a country also affect the currency market. If the government is making economic growth related policies, the value of the currency will see a positive change and vice versa. If election results are expected in a country, the prediction or win of a party will drive the change in currency prices. The recent example of the case is U.S presidential election.

    Trade and international relations

    The value currency is dependent on a nation’s relation to other nations. Balance of trade and trends between countries will reflect in forex market.

    Apart from the above, economic releases across the globe, interest rates, rate of employment, etc also affect the prices in the fx market. I feel that as new trader you should focus on these economic indicators. What do you guys think, which are the economic indicators will you use?
     

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