The History Of The Forex Market
In 1944, the Bretton Woods Agreement was established. It's aim was to provide international monetary stability. The dollar was then set at a rate of 35 USD per ounce of gold.
Before the Agreement, it was the days of gold exchange, which at that time dominated the international economic system. That was between 1876 and World War I. But the gold exchange was not the perfect solution, it had its drawbacks. It created "boom-bust" patterns prevailing through out the era of the gold standard, until World War I, when there no longer a free movement of gold.
In 1971, the Agreement was abandoned and the US dollar was no longer exchanged for gold. The 1970s gave rise to new financial instruments, market deregulation and emerged trade liberalization and the Forex market grew.
Then came the era of computer technology in the 1980s and Foreign exchange transactions from billions a day in the 1980s went to trillions a day in just a few decades.
The Euro-USD
The price at which the worldwide demand for USD equaling the worldwide supply of Euros is known as the Euro-USD exchange rate. There are several factors affecting this exchange rate namely:
- Relative prices in the traded and non-traded goods sectors
- The oil price
- International real interest rate
The Euro zone also has a lot of trading taking place with the countries of relatively high inflation rates while from early 2002 to 2004, the USD has had a steady decline against the Euro.
Forex Forecast
There are two basic Forex Forecast methods, namely Technical Analysis and Fundamental Analysis. A forecast will basically predict a price or movement on the market. A combination of both methods is sometimes applied for more profitable results.
Technical Analysis
In a Technical Analysis, the point of focus is what actually happens in a market. In this method, price movement is predicted from analyzing what has occurred in the past in the form of charts.
Factors taken into account to create the charts are:
- price of instruments
- volume of trading
- open interest (for future purposes)
Fundamental Analysis
Fundamental Analysis is based on the principle of what ought to happen in a market, to forecast future price movements. Trading strategies are usually developed from a combination of technical and fundamental analysis.
Factors taken into account to understand the market closely are:
- supply and demand
- seasonal cycles
- weather
- government policy
And remember Forex trading involves substantial risks, do not get involved into it if you can not afford to lose the money you invested in the extreme case.
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