Who decides Forex rates?
Elemental analysis is a way of looking at the forex market by analyzing economic, social, and political forces that may affect the supply and demand of an asset.
If you think about it, this makes a whole lot of sense! It is supply and demand that determines price, or in our case, the currency exchange rate.
Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all of the factors that affect supply and demand.
In other words, you have to look at different factors to determine whose economy is rocking like a Taylor Swift song, and whose economy sucks.
You have to understand the reasons of why and how certain events like an increase in the unemployment rate affects a country’s economy and monetary policy, which ultimately, affects the level of demand for its currency.
The idea behind this type of analysis is that if a country’s current or future economic outlook is good, their currency should strengthen.
The better shape a country’s economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country’s currency to obtain those assets.