I found that some time when there is no economic data are released for a currency pair, the price of that pair still move quite a lot and quite volatile.
Some time, even when there is some economic data are released, the price of the currency pair move in opposite direction or just did not move, it seem like there is some other factors that are affecting the movement of a currency.
Anybody here can list down any possible factors that may affecting the price of a currency?
Hi Mason, there are lot of different things that can move price that are unrelated to actual news events. For example, corporations all over the world are constantly buying and selling foreign currencies to enable their global operations. Speculators are constantly buying and selling for profit. Even tourists exchanging money in a foreign country is a FX operation.
That’s a great question without an easy answer. In a perfect world, yes, it would be enough to just follow the news but in reality it is not the news that drives the exchange rate – it is how the market interprets that news. So, in essence, what drives the exchange rate is a combination of rationale and trader emotion. For example, in 2009, when the global markets were very “worried” about bank defaults every news event was viewed through the prism of “risk appetite.”
Complicating that is news speculation. For anticipated news events, like interest rate decisions by Central Banks, traders regularly speculate what the next interest rate decision will be, or what the next several interest rate decisions will be, and if enough traders speculate in the same fashion then the market expectation is more important than the actual reported value, if that makes sense.
Appreciate that. It look like what we are trading now is the trader’s psychology around the whole world.
I think predicting the crowd psychology is not easy but interesting.
Is it only veteran traders with a lot of experience can predict the trader emotion accurately?
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