Forex is a global currency exchange market where trillions of dollars worth of transactions are made every day.
Exchange rates are determined by many factors, which can be divided into fundamental, technical and psychological.
GDP is one of the key indicators of a country’s economic health.
Its high level strengthens the national currency.
Central banks regulate interest rates to manage the economy.
High interest rates can attract foreign investors, which increases demand for the currency and its exchange rate.
Political events such as elections, wars, and political crises can significantly affect the exchange rate.
A stable political situation strengthens the currency, while instability can weaken it.
The balance of trade (the ratio of exports to imports) also affects the exchange rate.
A trade surplus (more exports than imports) can strengthen a currency.
Market participants use charts and historical data to predict future movements in exchange rates.
Technical analysis includes the study of patterns, trends, and indicators (e.g., moving averages, RSI).
Liquidity (the ability to buy or sell an asset quickly) and trading volumes in the market affect the stability and fluctuations of an exchange rate.
High liquidity contributes to smaller fluctuations, while low liquidity can lead to sharp exchange rate spikes.
All factors are interrelated and affect the exchange rate at the same time.
For example, an increase in interest rates by central banks can increase the attractiveness of a currency, leading to more investment with a strengthening currency.
However, if there is political instability in a country, this can neutralize the positive impact of rising interest rates.
Determining exchange rates is a complex process due to many factors, both fundamental, technical and psychological.
In a globalized world and interdependent economy, knowledge about the mechanisms of exchange rate formation becomes an integral part of successful Forex trading.