The Economic Forces Affecting the Forex
Trading in the foreign exchange has always been touted as very different from the trading done in other financial markets particularly the stock market but actually, there are some similarities between the two that is more apparent than most of us think.
Foremost is the fact that like the stock market, wherein traders are investing in certain corporations, traders are likewise doing so in the forex, with the only difference being the corporation replaced by a nation that has a currency in the foreign exchange.
Failure to recognize this similarity has led to a not so few failures in the world of foreign exchange. Because of this, forex traders should familiarize themselves to the economic forces that drive the economy of a country as its economy directly affects its currency as well.
Apart from that, forex trading is actually investing on the success of a particular country economically as the success of the country is the success of its currency as well. So here are the economic forces that affect currency prices to track when trading in the forex:
Most of us are familiar with the concept of the Gross Domestic Product or GDP of a country. This economic force is the summation of a particular country's production in a year. GDP affects the strength of its country's currency and it reflects the country's work force and its productiveness so the higher the GDP of a country, the more likely that its currency will be bullish and stable.
The Current Events
Current events that are happening in a country are very influential economic forces. Particularly influential are the current events that are negative as they are really the ones that send jitters to the financial markets including the foreign exchange. News ranging from approaching hurricanes to impending coups are enough to weaken a country's currency in the forex.
The Consumer Price Index
The consumer price index or CPI is a major price index that lists the evaluation of a country's wages, pensions, price of commodities, etc. The index serves as a summary that determines whether a country is making or losing money with all the work that it is doing. Being an economic force in the forex market, it affects the currency price of a country in such a way that the currency will be upbeat and buoyant if the CPI is positive for the country. Otherwise, the opposite will be the effect on the currency.
These economic forces are as important for a country who wants to grow as for traders who want to make it big in the foreign exchange market as these forces have great impact on the price movement of currencies in the market and by knowing so, a trader can make accurate forecasts which can translate into big profits.