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5 economic factors that influence the forex market

 

Filled with buyers and sellers from the entire world, Forex market handles trades over trillions of dollars every day. Since people from all over the world are involved in trading, the market is susceptible to macroeconomic events. Here, let’s discuss certain economic factors that will play a major role in the market’s movement.

Impact of Macroeconomics

Macroeconomic events that occur influence the Forex market. They affect the decisions of a trader and thereby, determine the currency’s value. An economy of a country determines its currency value. Current events and happenings that occur daily define the overall functionality of the economy.

The Activity of Forex and Capital Markets

Diverse fluctuations that happen in the market are the indicators of public information like corporate dealings and government events that have been released publicly. As most economies like Canada’s commodity market are sector-oriented, the movement of the commodities like metals and crude oil are directly in proportional to the Canadian dollar. Since Forex traders are dependent on economic information for executing the trades, it will have a direct impact on the market.

Balance in Trade Levels

Trends that occur among the nations and balance in the trade levels also play an important role.
Favorable position for Forex currency happens to that country whose services or goods are high in demand internationally. A country’s surplus and deficit in trade enhance its international standing. A Country that imports goods largely deals with buying the exporter country’s currency, which might not favor the importing country’s currency.

Influence of Politics

The country’s currency value and its economy are greatly influenced by its politics. Any political events that happen around the globe are constantly monitored by the Forex traders. The government’s monetary and fiscal policies decide the country’s economy. Interest rates of the currency are affected by the decision of central bank.

The Release of Economic Reports

Since the economic strength and performance of the country is measured in GDP, it is important to follow a nation’s GDP before trading. Yet, it is not very much useful as it is a report of trends and events that happened already. Inflation also acts an important factor that decides a country’s economic standing in the FX market. Other deciding factors are capacity utilization, retail sales, manufacturing indexes and employment levels of a country.

The aforementioned reasons act as deciding factors that influence the Forex market. Having a complete knowledge of these will help you in predicting the market. Partnering with one of the reliable Forex brokers like WesternFX can aid in enhancing the skills and knowledge needed to carry out a successful trade.