When America abandoned the gold standard in the 1970s the ancient foreign exchange market was re-born. Currencies began to float freely against each other. As time went by the burgeoning online community began to see huge opportunities to trade currencies for profit.
There are constant movements on the forex market. People exploit these movements to make profits and facilitate international trade. The size of the market makes it almost perfectly liquid. This means that traders can always find a buyer or a seller in a state of constant flux. Their trades and many other factors determine the directions in which prices move.
The word ‘news’ is an acronym for north, east, west and south. As the world wide market operates it is influenced by news that floods in from every direction on earth. In periods when the flood is low there may be a lull, but when the flood rises prices fluctuate up and down like bobbing waves, and there are profitable opportunities in these waves that gyrate around pivot points.
Interest rate changes have radical effects on markets. Before actual changes take place there may be months of rumors and speculation about likely future movements. Announcements made by central bankers eventually take place at a moment in time. If an interest rate is raised in a country the value of that countries is likely to rise against other currencies, and it will probably fall if the rate is lowered.
Economic growth or decline in a country will have a bearing on currency prices but is likely to be reflected in trends rather than price jumps. For example, strong economic growth in Germany may not be reflected immediately in the Euro price because that currency is also affected by news about economic decline in other areas.
As might be expected, geo-political events such wars or natural disasters do affect currency prices but not always as expected. Many people might have expected earthquakes to have a negative effect on the price of the Yen, but in fact in rose in reaction to the news of eruptions. Though this may seem irrational it has to be remembered that the relationship between news and market reactions is not always simple.
International trade is the primary reason for the existence of the foreign exchange market. Speculators are peripheral. In a small country like South Africa the sale of shares in a large company to foreigners can strengthen the national currency as foreigners buy it to pay for their shareholdings. As is well known, the weak Chinese currency has allowed that country to become the workshop of the world in recent years as it may export its manufactured goods to other countries at favourable prices. Trading currencies is an intellectually stimulating occupation because it means keep ahead of the game in many ways.
It can be very tempting to compare currency news sites from one another particularly their claims. Countless traders perform forex analysis several times during trading hours, just to be really sure.