1. Expectation of data release as well as the release itself. Data can be understood as a publication of countries economic indicators, where the traded currency is national, news about interest rate changes, economic reviews and other important events influencing the currency market.
Pre-event period and the event itself can strongly affect currency fluctuation. Sometimes it is hard to define what causes more effect – waiting of the event or its coming, but serious occurrences always cause significant and often continuous fluctuations.
Time and date of the upcoming event is reported beforehand. The information about the most important events in a certain country is published in economic calendars. Before the event comes, predictions about its impact on a certain currency exchange rate are published in analytical forecasts. Therefore, anticipating an event the exchange rate starts moving in the predicted direction and often, after the forecast is confirmed, the exchange rate reverses into opposite direction. It happens because traders close positions opened in expectation period.
2. Fund activity (investment, resignation and insurance funds) has the biggest impact on long-term currency fluctuation. Fund activity includes investing in various currencies. Their substantial capital enables them to turn the exchange rate to a certain direction. Capital management is run by fund managers.
They have their own methods, therefore, the position opened by a manager can be short-term, medium-term and long-term. Decisions of position opening are made after thorough analysis (fundamental, technical and other) of the market. When opening positions in time, in the right direction managers pursue a preemptive tactics and forecast the event consequences, indexes and news. Market analysis can never provide a 100% accurate result, but funds with their considerable capital and proven tactics are able to start, correct and intensify the strongest trends.
3. Import and export companies are straight Forex users whose activity affects currency fluctuation, as exporters are always interested in selling currencies and vice versa. Reliable export and import companies have analytics departments. They predict exchange rates for further profitable purchase or sale of the currency.
Tracking trends is also very important for exporters and importers in the context of hedging against currency risks. Opening a deal opposite to the future one minimizes the risk. The influence of exporters and importers in the market is short-term and does not create global trends, as volumes of their operations are insignificant in a market size.
4. Statements made by politicians during meetings, press conferences, summits and reports can make a serious impact on currency fluctuation. Their influence can be compared to the one of economic indicators.
Mostly their date and time is determined a priori, and their consequences are presupposed in forecasts. However, sometimes they are unexpected and cause strong and often unpredictable fluctuations. Statements containing data about long-term consequences (like changes in interest rate or federal budgeting) can start a long-term trend.
When the rate is critical the statements may cause central banks’ intervention. This is supposed to have a huge influence on the market. In a few minutes the exchange rate may move hundreds of points in the direction of intervention.
5. Government influences the market via central banks. Currency exchange operations being carried out without any intervention of central bank will make national currency of a certain country become free floating. Nevertheless, this is very rare situation. Countries with such rate can sometimes try to influence it via currency operations.
Countries interested in consumption growth and industry development regulate exchange rates. They mostly use direct and indirect regulation. Indirect regulation allows for inflation level, amount of money in turnover, etc. Direct one includes discount policy and currency intervention. The latter is connected to sharp discharge and intake of big volumes of currency from international markets. Central banks do not reach the market directly - they use commercial banks. Volumes amount to millions of dollars; therefore, interventions severely affect currency fluctuation. Sometimes central banks of different countries run joint interventions in the currency market.