What Maintains A Trend On A Currency?

12 June 2016, 08:42
Sherif Hasan

What maintains the trend on a currency i.e. how can we differentiate between when a pair will rally and then sell off and when a pair will rally and remain at new highs. The answer lies in the fundamentals and is in a nutshell a reflection of whatever the central bank that pertains to that currency’s policy is, so, if a currency rallies based on positive news i.e. good UK GDP data, the GBP would then rally. However if in the overall picture relating to that currency is bearish the market will sell it off again seeing as it’s had a little flurry and will over time loose appeal to those investors looking to get into the market at a revised price level.

When a currency rallies and remains at an altered price it’s generally with good reason, all currency prices are driven by interest rates. So if a central bank states that they will increase interest rates in the next 3 months the currency will rally and it will stay there, it may come under some selling pressure upon reaching highs buy it won’t retrace very far as there is good reason to justify the revised price level.

This is what maintains a trend on a currency; whether that is bullish or bearish over a prolonged period of time and the longer those expectations grow the more likely it is for a trend to continue.

Effectively the more directly any news is linked to an interest decision (e.g. CPI) the more likely it is to maintain an overall trend where as the more removed the data is from an interest rate decision the less that the trend caused will run for.


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