This article is to help traders gain an understanding of how various events occurring in the world affect the movement of the forex market and hence enable the trader to make the right move at the right time. Many things can cause a lot of volatility in currency pairs, be it political elections or natural disasters.
The Effect of Political Elections
The political elections can cause substantial changes in a forex market because the uncertainties and speculations are high. The most popular currency pairs such as EUR/USD and GBP/USD are affected a lot by the elections held in the United States, the European Union or any other large economy. Similarly, a Singapore forex broker may want to keep an eye on the latest developments in the ASEAN and other local political organisations. Traders have to watch the election results, campaign statements and people’s moods to determine how the market will likely respond, which can help traders make money off of it or at least prepare for it.
Oil Prices and Commodity Correlations
Products such as oil have a one-on-one effect on the value of currency especially for countries that export or import oil. The oil prices affect the value of currency like CAD and RUB of Russia. Commodity market trends and forex movements are linked and traders should be aware of this because a change in oil price can be a chance or a threat in specific currency pairs.
Health Crises
The spread of COVID-19 revealed that health risks can cause economic distress and, as a result, major forex market volatility. In the pandemic, the currency value may vary as a result of economic closure, government incentives and changes in business across the world. Moreover, health-related news is always important to follow, as well as its effects on currencies, because the global economy is very sensitive to such issues.
Economic Reports
Several factors that the economic indicators include GDP growth, employment rate and inflation rate are the main determinants of the forex market. These reports help the trader understand the stability of the economy of the country and the value of its currency in the market. For instance, positive employment figures in the US may lead to an appreciation of the USD, while high inflation rates in the European region may depreciate the EUR. These are some of the most important reports that a trader needs to keep track of in order to make the right trading decisions on the market.
Central Bank Decisions
Central banks are a force to reckon with in the forex market through their financial policy such as changes in interest rates and quantitative easing. Such things as changes in interest rates announced by the Federal Reserve, European Central Bank and other bodies can make currency rates jump or drop. These decisions should be watched by forex traders and appreciated in terms of their effects on currency strength in the longer run, although traders should also expect high volatility during the announcement period.
Geopolitical Tensions
Geopolitical affairs for instance war or a political standoff between two or more countries are a direct influence on forex markets. Such currencies as USD, EUR and JPY are quite volatile because traders look for safe-haven assets or respond to restrictions. For example, tensions in Eastern Europe have earlier on caused instability in the EUR and the ruble. It is to the benefit of traders to keep an eye on geopolitics for them to be in a position to predict the market trends and thus make their moves.
Natural Disasters
Natural calamities for instance earthquakes, hurricanes and floods have an immediate impact on the forex market in the affected area. These events affect economies and therefore industries like agriculture, manufacturing and tourism which in turn affects the value of currency. To avoid such events, it is only wise that forex traders come up with backup plans and ensure they get updated on the events as they happen in order to make the right decisions in the market.
Trade Wars and Tariffs
It should be noted that trade wars and tariffs are the main factors for volatility in the forex markets especially in emerging market currency. When large economies slap tariffs or participate in trade wars, it affects international trade and affects the changing value of currencies. For instance, the US-China trade war produced a lot of risk and fluctuations in Asian and Latin American currencies. Knowing the effects of trade policies on forex will assist the traders to prevent risks and search for new trade opportunities at the time of the tensions.
Forex traders can use these pieces of information to better appreciate the effects these global events have and thus be in a better position to manoeuvre through the market. It is for this reason that the trader has to be very vigilant about the political, economic and environmental conditions in the world for successful trading in forex.
