Currency Valuation and its effect on Forex market

Currency valuation is the setting the exchange rate of a nation’s currency. It is very important as the national government can influence the price rate of the government currency to make some important decisions like boosting their international export and also to lessen the foreign debts sometimes.

We are going to give you some example how a change in currency valuation can affect the Forex market and also the international trade. Remember that when we are talking about Forex market, we are not talking about only Foreign Exchange market, we are also talking about the international financial and investment market and agreements.

Boosting exports by devaluing currency

One of the classic example how a fall in the price of a national currency is the sale of European cars to the US markets. Many US citizens use cars which are made in Europe and imported to the United States. If the European Union devalues their currency, it means the value of Euro will fall against the dollar and people can buy less expensive cars in the US. This is one strategy how countries devalue their national currency to export imports.

What is effect will this devaluation have in Forex? The first effect will be that the Forex market will be volatile. Euro and US Dollar are the two most traded currency pair of the Forex industry. When the price of the Euro falls, it haves an impact on Forex industry as well. Though European government may only devalue their currency for fostering their imports, it will have an effect on the investment and Forex world.

Making the market volatile

Though not all of these currency valuations are taken by pre-measured steps in Forex trading industry, sometimes there are events which may happen to change the value of the national currency. For example, if there is a country experiencing Hyperinflation which has happened in Zimbabwe, they will have more volatility in the market. These volatile markets are one way of making money, but they are also a market to lose your money. You can trade the market from Singapore but still, you will easily experience the impact of global economic change. Many traders in Singapore of consider this as the essential part of trading. In fact, it is true since these major changes of the strength of a certain currency create a high level of volatility in the Forex industry. And if you know the perfect way to do the market analysis then market volatility will be your best friend.

Have you really understood what we want to say?

We have doubts if you really have understood our intellectual discussion. To keep things simple, remember this is a very hard thing to digest and we do not expect you will understand it from top to bottom. As you trade the market, you will see that change in currency valuation is bad for Forex and traders to like to trade in a more stable currency valuation market. Being a currency trader you need to trade with a stable currency pair. For this reason, many Singaporean traders only trade the major pairs. It’s true that the synthetic pair often offers great profit taking opportunity but in the long run, their price evaluation can never be measured with a standard scale. The fluctuation is so high that any trader can lose a huge amount of money in a fraction of a second.

Summary: Currency trading is one of the most difficult tasks in today’s world. But once you learn the perfect way to assess the strength of the economic performance of a certain country, you will see things are a lot easier for you. This type of assessment is often known as fundamental analysis. So make sure that you have solid knowledge about technical and fundamental analysis as a professional currency trader.

Image source