The movers and the shakers in the FX market

The movers and the shakers in the FX market

The movers and the shakers in the FX market

The movers and the shakers in the FX market
The movers and the shakers in the FX market

It is widely understood that day traders in the aggregate do not move the currency market much. They buy and sell and at the end of the day they have no net long or short position. Therefore they have not changed the demand/supply equilibrium and accordingly have not in the aggregate had a lasting effect on the price of a currency.

What moves the currency market is the other time frame; central banks, hedge funds, financial institutions, and corporations. These guys buy or sell huge amounts and their time frame is generally weeks to months, possibly years. Their transactions unbalance the market, requiring price adjustment to rebalance demand and supply.

Furthermore, changing fundamentals or longer-term technicals generally triggers the actions of the other time frame. Their affect on the price is therefore two-fold; in addition to causing a demand/supply imbalance, their actions generally reflect a price change that may have needed to occur even if they did not get the ball rolling through large transactions.

Evidence that this is so can be found in the unusually large price moves that often occur after significant scheduled economic news releases. Oftentimes the move is much greater than what would appear necessary given the deviation of the expected versus actual number (more on this later).

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