What affects the Forex Market?
Take an event which must have been measured as a 9 or greater on the Richter scale in the Forex market: the recall of millions of toys by major American toy companies. The toys were made in China, and contained lead, and/or small magnets. The months of the recalls were August and September, which is the height of the Christmas season for toy manufacturers and distributors.
The first effect of the recall was the lower volume of imports from China. Forex is a child of foreign trade. It is the trade that moves the exchange rates. The second effect is the difficulty which American toy companies, distributors, and toy stores will be/are facing in stocking their shelves for the Christmas season. If alternative sources are not found, one can expect lower sales this Christmas.
The third effect, is the replacement of the Chinese origin toys with toys of other origins; this will alter trade flows and trade flows determine exchange rates.
To look at the simple statement of an event in recent history and to attempt to determine on a minute by minute or day by day basis, the value of traded currencies requires research on the part of the prospective trader. To attempt to trade into this market without doing some analysis of the effects of this situation would not be wise. But, to base all of your calculations of the relative values of various currencies on this single event in the supply chain, no matter how big an event in total dollars it may be, is also not wise.
Active traders in the Forex market watch such numbers as the changes in national banks' interest rates, and changes in various national monetary policies. Since today we are all operating within a single interdependent global economy, any glitch in the economy of any national economy can have far reaching effects on the global economy as well as the specific exchange rates of various currencies.
In a brief look at the United States economy we can see a fairly transparent reporting process. With regular and regulated periodicity, the United States Government or non-governmental organizations within the United States report on such indices as: new housing starts; new applications for unemployment insurance compensation; new jobs created; bankruptcies filed; balance of trade; hiring practice surveys; new durable equipment orders, and; many other indices including the ILEI, or “index of Leading Economic Indicators.” All of these reports have implications with respect to the American economy and to the stability of the American economy. The problem with this abundance of data is in determining how to turn it into information that you can use to predict whether the USD will rise or fall against the CHF.