Why Forex Exchange Rates are So Confusing

Forex exchange rates seem to often defy common sense, and even the best of technical chart patterns. This is so because each currency pair has its own secret.

Forex Exchange Rates can Defy All Logic

Forex exchange rates can often defy all logic and common sense, because of hidden factors. The US dollar for example, is such a currency. It obeys technical analysis for days and days on end, but it may suddenly defy all of technical signals, without much explanation. The US dollar is a great example, of a currency which can work as a safe haven, for investors losing their risk appetite. So what really happens is that heavy and fast buying of the US dollar takes place, and the currency rises sharply. It defies all bearish technical forex signals seen on various forex charts. And it leaves technical traders defeated in the process, unable to see the larger picture. Believe or not, the US is a safe haven country. Despite the massive national debt, whether a country is strong or not, it all boils down to military strength, diplomatic power, and nuclear deterrence. In other words, if the US wasn’t armed with nuclear weapons, the US dollar would not act as a safe haven. And investors would not buy the US dollar at times of panic and global unrest. Which is why nobody buys currencies of peaceful countries, at times of global uncertainty. So this safe haven factor comes and takes control of the US dollar, every now and then, defying all logic technical analysis. The most common technical analysis method which fails the most is Fibonacci retracements and extensions. Traders would use a forex calculator to work out these levels, and they do so correctly. But they tend to believe too much in what is a collective trading action phenomenon, and not a real indicator. So Fibonacci trading tools are the first to fail, no just with US dollar but with many more currency pairs. They are simply too ambiguous, and about as useful as coin-flip based predictions. You can in fact match Fibonacci trading performance by simply flipping a coin and trade on the outcome. The rest is all hype by the vendors of these products.

 

Forex Exchange Rates are Country-Specific

Many more forex exchange rates are impacted by factors, similar to how the safe haven factor impacts the US dollar. Some currencies are impacted mostly by trade balance, others by inflation, and others by entirely different data. Even expectations on the outcome of a national election, can impact a country’s currency on the weeks leading up that election day. Generally, economic numbers do impact currencies to a great extend, but each quarter of the financial year is seen as unique. So an economic report on employment may always play some role. Whereas inflation reports may act in either way, and impact the exchange rate in question either in a positive or in a negative way. It all depends where inflation stands, where it has come from, and how the economy has progressed from one quarter to the next. Very low inflation is bad, high inflation is always bad. And the country in question wants to continue to attract foreign investors, real estate buyers, and keep an influx of foreign money in place. Anything that would disturb that influx of foreign capital, will make the national currency go down.