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Common Forex Signals That Can Herald Changes In The Foreign Currency Trading Market

Like any financial market, the foreign currency trading market is always subject to change. The governing factors are exchange rates between the various currencies. There are a number of different adjustments within the countries themselves, the world economic climate, or even the perceptions of the thousands of active traders which can change the way the market behaves. These adjustments are commonly referred to as forex signals, and learning to recognize them is crucial to successful foreign currency trading.

Political Changes

The most obvious types of forex signals involve political adjustments in a country of interest. Countries of interest may be places whose currency you frequently buy, but they can also be adjustments in a country with a very dominant share of the world market. For example, political changes within the United States might impact someone who only trades within Europe or Asia simply because of how much power the United States has in the world market.

Change In Safe Havens

Regardless of how risky your usual currencies are, there are always “safe havens” which are considered to be secure places to store money in the short or long term. In cases of panic, investors tend to flock to currencies like the US dollar or even commodities like gold to hold money quickly if they fear for the safety of riskier investments. Anytime there is substantial change in one of these it can shake market confidence generally and impact foreign currency trading.

Economic Policy

These adjustments are the most complex to predict and the most difficult to analyze. One country may change their policy in a way that seems to have no direct bearing on foreign currency trading, yet the entire market may see a ripple effect. The reasoning behind this lies in the nature of how currency is priced. Money is purchasing power, meaning that a certain amount of a certain currency gives you the power to purchase goods or services of a particular value. The idea is that the same good or service has a substantially similar absolute value worldwide, but that different currencies have different values relative to those absolutes. So it may take twice as many Euros to purchase a loaf of bread in France as it would take US dollars to purchase the same loaf of bread in the US not because the value of bread is any different, but because of the relative strength of the Euro and the dollar.

Thus, any time a country adjusts its economic policy, it can potentially influence the market if it changes the amount of purchasing power attached to one unit of its currency. That makes even the most minute and seemingly innocuous policy changes valuable forex signals for veteran traders. Learning how to recognize all of these different signals and make the most of what they tell you is the most important skill any trader can develop.

Author is a freelance copywriter. For more information about forex signals, please visit