The foreign exchange market is huge, all-encompassing, the premier financial market in the world; it never sleeps and involves the world’s largest volume of business and, not surprisingly it accurately reflects the planet’s financial dynamics in terms of its pairs of currencies. There are, of course, many tools and alerts available for the trader new to this market and the decision which pair to choose for your trades will depend on your circumstances and also on your own financial plans and needs. It does, however, also behove you to consider what future developments in other markets will have on forex trading, and vice versa.
For instance the forex market is dominated by the behavior of the US dollar, not surprising considering the still dominant position of the US economy. If one of the components in the pair you hope to trade is the dollar, then it will pay you to learn what people are saying about the future behavior of the world’s dominant reserve currency. There was much speculation all across the financial world at the start of 2018 about what the new year would hold for the dollar. The general consensus seemed to be that the weaker dollar evident since the end of 2016 would continue for the next twelve months. There were many reasons for this, some connected to the price of crude oil, some with matters such as internal American concerns about the rate of the Federal Reserve’s rate hike programme, the less than predicted resulted of President Trump’s tax cuts and the tightening up of the Euro-zone’s interest rate policy (the looseness of which had, for some time, almost been a joke.) The weakening of the dollar had been placed into sharp relief by the decision of hedge fund managers to start shorting the dollar against the euro from the beginning of 2017. Here is an indication of how forex trading reacts to events in the wider financial world and vice versa.
It was widely predicted that the weak dollar would jibe with an increase in the value of gold and other precious metals and also perhaps provoke spikes in the popularity of various cryptocurrencies; the former were already enjoying spikes as fears of a large-scale stock market correction increased. The volatility of the latter in some ways matches that of gold and is used by some investors in a similar fashion. The weakness of the dollar might, it was speculated, cause an upturn in the price of crude oil, predictions for which were cautiously optimistic for 2018.
Of course, all of this might seem rather remote and academic to the rookie forex trader who simply wants to choose which pair to invest in, but in such a market and trading such products, often leveraged, you can never know too much. This was especially true for the first weeks of 2018 when the situation in many of the world’s financial markets was fluid and fast developing.
Spread betting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.