Role of the financial factors
The financial factors are especially topical for the fundamental analysis. The changes in the financial or tax politic of the government lead to springing up of changes in the economic which is suffered by the indicators of the currency exchange rates. The financial factors usually start their action after the economical. When the governments start to mess in different parts of the economical life or make extra international arrangements financial factors can take priority over the economical. This is what happened when the European financial system was created in the beginning of the 1990s. The realness of the market economic proved artificial character of this enterprise.
Role of the interest percents
Using interest percents without reviewing the real economical situation is making an expensive strategy. As long as the currency trade is made by the coincident exchange of two currencies the market is obligated to review two correspondent interest percents. Here stays the difference in the interest levels – basic factor on the market. Traders react to their changing not just to change of the interest percents. For example if all the countries of the “Big seven” decide coincidently to low down their basic interests with 0.5% the currency market will not be interested as long as the differentials stay unchanged.
Practically most of the cases the stakes are changing which leads to changing either the interest differentials, either the exchange rate. To the interest percent the traders take away trading on rumors and facts.
For example if the rumor says that the interest percent will be lowed down the currency will be sold until the lowing becomes a fact. After the lowing down of the interest it is possible the currency to be bought back or to be bought another currency analogical to the sold one. Unexpected change of the basic interest will probably drag extremely changing of the rate.
Other factors showing influence on taking of trade decisions are the continuous of the period of time between the rumor and the fact, the reason for changing of the interest and the importance of these changes. Usually the market sets the price leading to the slow changing of the stake under review. If this changing is already done it is not important to the market. If the change of the stake is consequence of political, not of economical reasons, which is normal for the European Financial System, the markets will rise against the central banks, replying to the real reasons but not to the political. This is what happened in September 1992 and the summer of 1993 when the European central banks suffered big financial lost trying to support their currencies without lowing down the basic interest percents. The markets apprehended these stakes as artificial rise and made aggressive sale of the currencies.
Influence of the political events and crisis
When the political events happened in the margins of definite time, crisis starts instantly. Almost always they start unexpected. For currency traders is characteristic handy in reacting during crisis. The operative is important in this case. The reflexes of the traders are fast. Without fast reaction the trader risk to suffer big lost. There is no time for analysis; the decisions are made for less than a second. The crisis threatens the trade using extreme lowing down of the capacities. The prices change fast and the spreads between “bid” and “offer” jump from 5 to 100 points. This makes the end of the market problematic.