The Currency Market
The forex market, also known as forex, is the largest financial market in the world and, therefore, the most liquid. According to the latest triennial survey of the bank for international settlements-published in September 2016 and with data from April, the volume of trading in the forex market is losing steam.
Figures from April 2016 show that foreign exchange operations have fallen by 5.5% compared to the previous report, up to a daily average of 5.1 billion dollars. The survey also shows that emerging currencies are gaining relevance, while others such as the Euro and the yen are losing weight, although, yes, they continue to be the second and third currency with the highest trading volume, respectively. The US dollar continues to lead, accounting for 88% of transactions
Forex Market Characteristics
It is a global market, which opens 24 hours a day from Monday to Friday and does not operate on any stock exchange, that is, it is an over-the-counter and decentralized market. Therefore, when we want to do foreign exchange operations, what we are doing is operating in the over the counter, better known as OTC, in which foreign currencies are also traded other financial instruments such as commodities, swaps, future, bonds, etc, between two parties
These markets are characterized by not being regulated: there is a counterparty risk since there is no clearinghouse. Another feature is its high degree of leverage and those currencies are always quoted in pairs, for example, EUR / USD (Euro against the dollar)
What Affects The Quote?
The policies of the central banks affect in one way or another quotation from the currency of their country. Thus, what the theory tells us is that, as a general rule, when a central bank decides to raise rates, its currency is strengthened. On the other hand, when it carries out expansion policies, such as QE (quantitative easing), when it injects more money into the economy, the price of the currency in question falls
Another aspect to take into account, in addition to the elements of a political nature, is the current account deficit, which a country can correct by depreciates its currency to favor exports
The Current Scenario: Will The Euro Rally Continue?
2017 has been the year in which the Euro-dollar exchange has ruined all analysts, forecasts. They bet on parity and have ended up seeing how the Euro has strongly revalued against the US currency during the past year.
In this sense, Josep Prats, manager of Abante European Quality, said in a conference with investors that, without a doubt, the most important thing of last summer was the strong revaluation suffered by the community currency against the dollar. A rally that in the whole year has exceeded 15% and that has led the European currency to lay off 2017 at levels of $ 1.20, at 135 against the yen and at 0.89 on its change with the pound sterling.