We already know that Forex market is the largest of all markets. Each day, it trades almost $3 trillion in volume.
This shows how this market has a high level of liquidity and there are always buyers and sellers in the market 24/24 and 6 days a week ready for it.
That is why it is not always possible to explain every minor move of the market, but we can usually explain what causes major changes understanding the factors that affect exchange rates.
Before explain what moves the currency market, it is important to understand who are the participants. Central Banks such as BE, FED, BOJ; large Institutions/Corporations; Treasuries; Private Equity; Hedge Funds; Large Sovereign Buyers; Banks and Retailers.
The currency pairs are influenced by the utterances of those participants as well as geo-political and technical factors, not to mention economic realities.
First of all we should talk about interest rates. Central banks have a very big power to influence foreign exchange rates, simply because they can make policy changes. Yet, traders are very careful when it comes to what the Finance Ministers/Treasury Secretaries and Central Bank Governors have to say on the economics of their countries.
Market participants will be keen to see how the government and central bank manage inflation, economic growth and other factors. Any material change in economic or political policies, has incredible power to influence exchange rates and the currency market so on.
Mostly it can be said that to capitalize on higher investments, it is important to keep an eye on the rise and fall of the interest rates in a particular country.
Currency analysts, economists and central bankers have been trying to understand what moves Forex market since national currencies come into being. There are two types of analysis when it comes to understand the future trend of the market: fundamental and technical analysis.
To analyze leads to conclusions that are then disclosed on community, forums, etc. … And here begins the speculation.
Currency speculators can only cause large exchange rate moves in liquid markets if they trade large amounts. Even so, it is possible to move the market with low trade volumes if there aren’t many traders in the market. In any case, it is important to remember that low volumes in the Forex market can still be huge.
The most dramatic price movements, however, occur when unexpected fundamental events happen: this is the case of geo-political events.
Just think about what happens to the oil price during the political unrest and war in the Middle East. The outbreak of a war or a sudden earthquake can be vital to decide the outcome of a currency pair.
Sometimes, looking at the financial news or economic calendar it would be enough to reveal what is causing exchange rates to move, but in other cases it won’t be that easy. The truth is that the market is always pricing currencies and it is not possible to explain every little move.
In conclusion, what moves the currency market is the relative strength or weakness on the fundamental news. This will move the currency market and the volume pressures of buyers/sellers will move the Forex market.