Do You Know the Driving Forces of Forex?

Although technical analysis is more commonly seen in the retail forex trading industry, it is equally important to have a solid understanding of a few fundamental factors that are the main driving forces in the currency markets.

Any government's fiscal and monetary policies are the most critical factors in economic decision-making. The forex market closely monitors central bank decisions that affect interest rates for any changes in key rates or policymakers' future outlook. For example, the U.S. dollar skyrockets due to America‘s hawkish stance, whereas Japan’s dovish stance causes the Yen to drop drastically.

The political landscape influences a country's overall outlook and, as a result, the perceived value of its currency. Foreign investors find a country with a low risk of political unrest to be a far more appealing proposition. As a result, political stability has the potential to have a significant impact on currency rates.

Several organisations are constantly polling consumers and business leaders to compile sentiment reports. Although they produce a staggering number of reports they shape the market's future expectations. Retail traders can keep a close eye on the release dates of these important reports through the economic calendar function on the free WikiFX mobile app.

Purchasing manager indices (PMI) assess the current direction of economic trends in a given industry based on the purchasing managers' perspectives. They are used to gauge the overall health of a sector. A PMI score of 50 or higher indicates that managers believe their company is performing better in the current month than in the previous one.

If it is less than 50, managers have seen less activity this month than the previous month.

If it is 50, the current month equals the previous one.

In its most basic form, fear can turn a falling instrument into an all-out panic, while greed can turn a rising market into a blind-buying frenzy. While it is simple to identify the effects of fear and greed on markets after they have acted, it is difficult to determine when they will flip in the present. Being able to make sound judgments despite having human emotions is what makes or breaks a forex trader.