There are several factors that come into play when a market crashes or even becomes bullish. But remember, Forex Market does not crash fully like Crypto does, and if you’ve read the news, how TERRA LUNA, a crypto currency crashed within a day from 115$ to 0.00005$! Yes, it lost nearly all its value!
You should also note that when Forex Market crashes, it’s usually one currency that is affected and not the whole, because Forex is a collective market consisting of several currencies, like, EURO, USD, GBP, JPY, CAD, INR etc.
Let’s discuss several factors in details below:
Politics plays a big role in determining a states currency rates. How the perform, what they do affects the value which in returns makes the forex market and stocks go bullish or bearish depending upon the situation. For example, Sri Lanka recently went bankrupt, its stocks crashed and their currency lost value against USD. It happened because of the govt’s faulty policies that were self-centered, this in return made the investors nervous and the markets crashed within months.
Natural disasters cannot be controlled but the damage caused by them can be. When disasters like Earthquake, Volcano Eruptions, Storms etc cause havoc in the town, infrastructure is destroyed in result of which, and also depending upon the scale of the disaster, repairing takes a toll on the currency as the country has to take help of others by taking loans, aid etc, this in results affects the overall forex market and it fluctuates.
Central banks play an important role in the foreign exchange market, and their actions can often have a significant impact on exchange rates. One situation where this may occur is when a central bank intervenes in the market to buy or sell currency. This can happen for a variety of reasons, such as when the central bank wants to devalue its currency or if it believes that the market is overvalued. Intervention can often cause a sudden change in the exchange rate, which may impact businesses and individuals who are involved in international trade. As such, it is important to be aware of when central banks intervention might occur so that you can be prepared for any potential impacts on the market.
Another thing to note is that there are two types of crashes in the Forex Market:
- Long-Term Currency Crashes
- Flash Crashes