Trends, including both short-term and long-term price trends, are the basic requirements for any forex trades. Trends are what cause profit and loss. There are many things contributing to forex market price trends. Here are some major ones.
- International Trades and Transactions: Countries that export more are bringing money into their country and countries that import more are allowing money to flow away from their country. The first scenario strengthens their currency over time and second scenario weakens their currency because the more money in a financial system, the better growth stimulus it got.
- Governments and Central Banks: the monitory policy and fiscal policies of governments and central banks include actively managing currency interest rates and money flow. They can actively intervene in forex market to keep the currency exchange rates at optimum range for them.
- Supply and Demand: like all other financial instruments currency prices also depend hugely on supply and demand. If there is demand but the supply is low, then the price is obviously going to rise, and in opposite scenario fall.
- Speculation and Expectation: everyone related to a financial system have expectation about what the system holds them for the future. These expectations can shape both existing and future trends. The level of how much these expectations and speculations come true can cause positive or negative trends in the market.