Forex Market

The Impact of Supply and Demand In the Forex Market

To become an expert in the field, any tennis player will have to learn how to yield the racket, move across the court, apply different strategies, and prepare mentally for both wins and losses. They will also need to distinguish between different surfaces and how these affect the style of the game, which is all true for forex traders as well.

The spot forex essentially revolves around currencies, so to answer the question in the title, we first need to acknowledge that it is money that moves this market primarily. Then, after coming up with the definition and its span, we can see the connection between the money we know today and the concept of supply and demand.

The story of trade started many years before we even had the currencies of today. People would exchange goods for other things they needed. So, they would weigh whether the value of their eggs and flour would equal the materials they needed to sew their clothes for example. The currency of the time was anything people made or obtained from nature.

While the barter system persisted, especially in times of war and crisis, people turned to using commodity money or the money made of copper and silver. When money came into existence, it was still used as a proxy, mimicking this correlation in value between different products and commodities. The laws of monetary exchange date back to the era before Christ, but the early connection between money and hard assets still reverberates to this day.

In the 1800s, countries across the globe adopted the gold standard which meant that every country would have the money in equal proportion to the quantities of hard assets. For example, before the new dollar emerged, the US government used to print gold, silver, and bronze dollars. 

Depending on the power of individual economies, countries had more or fewer commodity reserves and thus money too. However, as most countries left the gold standard in the 20th century, their official currencies were no longer backed by equal amounts of gold and so they lost their intrinsic value. As a result of these changes, the terms supply and demand hold little relevance to the concept of forex trading. Even though we can easily speak of supply and demand in terms of finance and economics, we cannot attach the same meaning to the currency trading market.

We usually describe supply as an available amount of a commodity, product, or service, while demand is defined as the consumers’ desire and readiness to purchase a certain product or service at a particular price. 

In the world of currency trading, whenever a currency pair reaches a certain peak, sellers often find that selling at higher prices could bring more opportunities. Likewise, buyers typically favor purchasing at a lower price each time a given currency pair drops to a lower level. These zones where the prices reach their extreme levels bear a great number of unfilled orders and are, therefore, considered the most fruitful to trade. 

While individuals cannot generate such friction in the market, big companies and institutions have that kind of buying power to create an imbalance between buying and selling orders. Since this affects the entire market, individual traders can witness quick changes in prices, which leave behind many unfilled orders on the supply or the demand level. At this point, the major players normally wait for their orders to get filled after the price returns to the zone.

Nowadays, there is much room for governments and banks to manipulate the circulation of currencies, increasing the overall money supply. Therefore, to trade in this market and have any hope of being successful, we need to invest in financial literacy. As forex traders, we need to know what we are dealing with.

With an increase in money in an economy, consumers demand more goods and this often results in higher prices. However, any changes in sales and prices also affect the forex market. For example, in 2019, the stock market enjoyed a long period of prosperity and unprecedented growth levels which triggered historic lows in the spot forex. These fluctuations of money between the two markets influence the volume in the currency market as well.

In the forex market, we can also trade crosses that involve different commodities such as silver. However, much of the silver that undergoes production is entirely used up afterward. This limited quantity directly affects supply and demand, like in the stock market. 

Even though the price of currencies does not revolve around traders’ willingness to purchase something at a specific price nor its quantity, silver or gold are inherently different from currencies. That is why trading such crosses requires different strategies from what we would normally use in trading currencies.

As supply and demand are not the best terms we could use to define the spot forex market, we can discuss other topics that are more relevant for currencies, such as reserve currencies, general interest in trading specific currency pairs, and the concentration of the majority of traders in one part of the chart at a specific point in time.

Historically, there have been a few currencies that are considered to be a safe haven. In periods of crisis, governments consider currencies such as the CHF to be the safest options to hold due to the stability of their countries’ central banks and governments. 

Also, the USD is typically one of the most traded currencies in the world, which is why it often attracts the attention of big banks that see the potential from controlling the market with so many participants. 

As we can see, many different factors can influence the forex market, but these do not involve individuals’ demand for specific currencies or the money supply in some markets per se. Rather, it is big banking institutions that cause the prices to fluctuate, along with news events or other geopolitical facts.

As currency traders, we all need to develop systems that allow trading to function regardless of what is happening in the world or the market. Forex is recession-proof, which means that your trading strategies and algorithms extract profits from both, bull and bear markets.

To ensure security against the involvement of big banking institutions, traders should apply money management and risk management skills and avoid currencies more susceptible to outside interferences.

Elections, wars, and economic reports, among others, are certainly good reasons to avoid specific currencies where the market is increasingly prone to “trick” you. We should not aim to beat these influences but rather learn how to avoid them, it is not something we can control. Supply and demand levels in forex are not bound to limits or logic.

Forex Elliott Wave Forex Market Analysis

EURJPY Advances from Demand Zone Forecasted

In mid-November, we commented about the technical market context of the EURJPY cross, as its big picture displayed in its weekly chart revealed a technical formation identified as a triangle pattern, which continues progressing since mid-2014.

Moreover, our previous mid-term Elliott wave analysis in its 12-hour chart revealed the advance of an incomplete corrective structure of Minor degree, which currently advances in wave B in green.

In this regard, our main outlook anticipated the progress in its wave ((b)) of Minute degree identified in black. The internal structure also suggested a limited decline toward the demand zone between 122.951 and 122.317. Once reached, the price could have completed the internal wave (b) of Minuette degree labeled in blue. 

Once the cross completed its wave (b), in blue, the cross should begin its wave (c), in blue, with a potential target in the supply zone between 125.285 and 126.123.

Technical Outlook

Currently, the EURJPY cross in its 12-hour chart reveals the bounce from the previous demand zone forecasted, where the price began to advance in its wave (c) in blue.

In the previous chart, we distinguish wave (c)‘s upward progress, which should evolve in a five-wave sequence according to the Elliott Wave theory. The figure also shows the potential target zone between 125.285 and the psychological barrier of 126.

This price landscape brings us three potential scenarios for the current upward movement:

  • First scenario: The EURJPY cross reaches the supply zone between 125.285 and 126.123, completing its wave ((b)) in black, and the price starts to decline in an internal five-wave sequence corresponding to wave ((c)).
  • Second scenario: The cross’ short-term rally fails to surpass the end of wave (a), in blue, and begins to decline. This scenario should be indicative of strong bearish pressure.
  • Third scenario: EURJY price action surpasses the invalidation level located on 127.075. In this case, the cross could be creating a bullish breakout of the long-term triangle, suggesting the continuation of the long-term bullish trend.

Nevertheless, before placing any position on the bearish side or continue on the bullish side, the price action must confirm the end of wave ((b)) in black.

Forex Elliott Wave Forex Market Analysis

Is GBPJPY Brewing a New Decline?

Is GBPJPY Brewing a New Decline?

The GBPJPY cross in its 4-hour chart exposes an upward movement corresponding to an incomplete corrective structural series of Minute degree labeled in black that began at 142.714 on September 01st. In terms of the Wave Theory, the Elliott Wave formation in progress could agree with an incomplete flat pattern. This flat pattern may follow an internal sequence subdivision into 3-3-5 internal waves.

The previous figure shows a corrective rally corresponding to wave ((b)) of Minute degree labeled in black. This structural series shows the breakdown that the GBPJPY cross did after the price found resistance on 140.315. Moreover, the breakdown and consolidation below the intraday upward trendline suggest the completion of the wave ((b)) identified in black.

On the other hand, according to the Elliott Wave Theory, the next move that would correspond to wave ((c)) should follow an internal sequence subdivided into five movements of the Minuette degree labeled in blue.

The current consolidation sequence that is still in progress could correspond to wave (b) of the Minuette degree. However, while the price action doesn’t confirm the breakdown below the low of the November 13th at 137.541, wave (ii) will remain incomplete.

Finally, the wave ((c)) could extend its drops until the short-term ascending trendline that connects the end of waves ((a)) and (b).

Technical Outlook

The intraday Elliott wave view unfolded in the following 2-hour chart illustrates the sideways movement corresponding to an incomplete wave (ii) of the Minuette degree identified in blue. At the same time, the internal structure reveals the price action developing its wave b of Subminuette identified in green.

The previous chart suggests that GBPJPY could develop a limited recovery until the supply zone bounded between 138.65 and 138.965. Likewise, the price action could extend its gains until level 139.32. The cross could find fresh sellers expecting to incorporate their limited short positions with a potential profit target zone of the third wave of Minuette degree in blue locates in the demand zone between 136.45 and 136.03.

The bearish scenario’s invalidation level locates at 140.315, which corresponds to the downward sequence’s origin that remains in progress.


Forex Signals

GBPUSD Reacts in the Supply Zone


The GBPUSD pair in its 2-hour chart exposes the bearish reaction in the supply zone located between 1.32619 and 1.32882, corresponding to the bearish movement developed by the pound on the past week when the price found fresh sellers at 1.33135.

On the other hand, the cable’s downward movement during the past week, which penetrated below the previous swing low at 1.31280, falling to 1.31050, carries us to expect further declines for the following trading sessions.

The intraday bearish reaction observed in the cable suggests the potential decline, which has a potential profit target in the congestion zone located at 1.3153.

Finally, the bearish scenario’s invalidation level locates at 1.32985, which is placed above the supply zone.


Trading Plan Summary


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Forex Elliott Wave Forex Market Analysis

EURCAD Advances in an Incomplete Triangle Pattern

The EURCAD cross reveals a mid-term consolidation formation that looks like an incomplete triangle pattern. This pattern continues in development since March 18th, when the price topped at 1.59914. In this context, this chartist pattern suggests the continuation of the previous movement, in the

The following 12-hour chart depicts the EURCAD action consolidating after a sharp rally, the cross began on February 19th when it found fresh buyers on 1.42637 and ended on 1.59914 on March 18th.

In terms of the Elliott Wave Theory, the corrective pattern presents a three-wave subdivision; the last downward move of Minute degree identified in black began at 1.59791, and current advances in its wave ((c)) in black. Likewise, its internal structure unveils four internal moves of the Minuette degree labeled in blue. 

Considering that the wave ((c)) in blue looks unfinished, the EURCAD cross could develop a new decline corresponding to its fifth wave. On the other hand, the breakout of the line that connects the end of waves (ii) and (iv) should confirm the new upward sequence that could boost the price likely toward the psychological barrier of level 1.59.

Short-term Technical Outlook

The short-term Elliott wave view unfolded in the following 4-hour chart, reveals the incomplete descending wave ((c)) of Minute degree labeled in black, which could start to advance in its fifth internal leg marked in blue.

In this context, the price could decline and found fresh buyers in the demand zone between 1.5471 and 1.5451; it even could extend its retracement to the area of 1.5408 and 1.5389, where the EURCAD cross could start to bounce.

If the price reacts mostly upward and surpasses the supply zone between 1.5538 and 1.5549, the EURCAD bias should start to turn primarily bullish. Likewise, the short-term bullish target can be found in the supply region bounded by 1.5718 and 1.5739.

Finally, if the price penetrates and closes below 1.5312, the bullish scenario will be invalid, and likely, the cross could extend its declines in “free fall.”


Beginners Forex Education Forex Basics

Forex Supply and Demand Comparative

If you had to make a choice between stock, commodities, forex, and crypto markets, which ones would you say are affected by supply and demand more often than not? Contrary to common belief, forex is actually the only one that does not yield to the impact of the relationship between supply and demand among all four markets. Although the two terms are tightly connected to the subject of price, forex is exempt from such rules regardless of perceived relatedness.

Naturally, one may wonder why we should still learn about supply and demand despite the fact that forex is not susceptible to this type of market push-and-pull motion of prices. Also, can the skills we obtain through doing trading in the forex market be further utilized in trading in the other three markets and vice versa? We are going to discuss here how such inter-market support and information exchange can prove to be quite profitable down the road, what some substantial points of divergence between different markets are, and how the law of supply and demand affects money-making.

Building a Foundation of Financial Literacy

First of all, to be able to take part in the forex market, each trader must build on financial literacy. To trade money, one needs to comprehend the language of money, which implies the understanding of basic terms, trends, and laws of finance. While people who do not possess this knowledge may exist, such an approach should not be your goal or rule to live and work by. We can admit that we do not know a particular field or that committing to behaving in a specific way is not one’s forte, but the lack of feeling the urge to develop one’s skills and pool of information probably reflects the person’s mindset, rather than being an individual trait. Therefore, as financial literacy certainly isn’t an imperative, if you desire to become a professional forex trader, wouldn’t you want to do everything in your power to secure this future affluence?

Once you become really good at trading forex, you have naturally absorbed the knowledge and skills which can help you grow further and, if you feel the need, you have the chance to expand to other markets as well. Trading currencies can teach you the universal language of trading and thus help you apply this system to any other market of choice. The very necessary analysis and risk management skills used in forex can protect you and allow you to multiply your profit through expansion. If you have a stable foundation, you can allow yourself to think big and start acquiring other necessary pieces of information that such a transition could require. As expected, although general principles of trading are vital for shifting from trading in one market to trading in another, copy-paste mentality will not work. Regardless of one’s trading expertise, every individual should invest in growing context- and market-specific knowledge in order to be able to generate capital and make a profit.

The ability to trade in several markets, spreading your know-how from forex into other markets, puts you in a desirable position. At this stage, people will not only look up to you as a successful forex trader, but they will also be interested in trading any other commodity (such as grains, oil, etc.) or stocks. The possibilities are countless in this scenario because you are perceived as marketable. Nonetheless, if you are not eager to make this move, do not push yourself into undergoing this transition. Despite a degree of accompanying convenience, incentives, and benefits, spreading out should be a conscious choice, not a decision made just because.

The Importance of Diversification

Another important side of trading includes diversification – we do not only need to focus on shifting to other markets here. Diversification should be a constant approach in your trading, which pushes you to make career decisions that would support you in your search for additional sources of profit. Not only is this a good decision from the financial point of view, but it is also very smart to adopt as much knowledge about other markets as possible (e.g. cryptocurrency) due to the nature of trade. One day, hypothetically speaking, currencies as we know could disappear and knowledge of other currencies, for example, could not only alleviate the incurred challenges but help you prosper as well. We may not be able to control global events, yet we can adopt such a mindset to both prevent any possible losses and build a sustainable money flow.

Having an array of strategies to earn money at your disposal secures financial gains regardless of external factors. If you are successful at forex trading alone, you are already safe despite market trends, sudden highs and lows, or even recession. Nonetheless, no matter how dexterous a trader you may be, a time may come when a local change in laws and regulations affects this market or forex loses its significance globally, so you should consider different ways to fortify your foothold.

Devising such a clever plan always implies exploring several options and building on knowledge, as we discussed above. Even history has shown how a number of stock traders who turned to forex initially failed precisely because they resorted to the same strategies they had previously used to trade stocks. These early-on attempts to incorporate supply and demand, some old indicators, the highs and lows of the market, etc. only made them quit, thinking that forex is unsafe, unpredictable market with no future whatsoever. Even if you wanted to apply forex strategies in the stock market, for example, you would not be able to succeed without making certain adjustments. Therefore, we need to truly invest in understanding the differences and why our long-term plan could suffer unless we alter a particular approach which bore fruits in some other setting before.

In the context of supply and demand, we always have a similar situation whether we are talking from the perspective of a manufacturer, instructor, or consumer. Let’s assume that an individual possesses all of the aluminum there is on the planet, so they could always tap into this supply and trade it for whatever price they desired. As we know that aluminum can be used in a number of industries (e.g. automobile, construction, etc.), this individual would always enjoy considerable demand because everyone needing this commodity would turn to them regardless of the price.

However, if another person happened to discover a fresh supply of aluminum, the first individual would not be able to dictate the price as they used to. While the demand for aluminum did not change in this scenario, the supply did. Hence, the other person could set a lower price and therefore take over a significant portion of demand. As time goes by, someone could discover a substitute for this element, which could be used in the automotive industry instead and thus substantially influence the demand. Although this was an invented story, this rule of supply and demand always determines the price in the real world all around the globe.

Remember, Availability Always Drives Price

If we only have a limited number of items for one product, this product will always be in high demand because everyone wants or needs to have it. Moreover, its price will always be high because every manufacturer would want to use this opportunity to earn a profit. Therefore, low supply and high demand always imply high prices. Conversely, with high supply and regular demand, manufacturers cannot charge a high price for such products. In the context of the markets we trade, this phenomenon is closely related to the notion of intrinsic value. If we take all factors surrounding the stock or commodity we want to trade into considerations, everything boils down to what we believe their value is.

Quite interestingly, although markets heavily operate based on this notion, we do not need to know the intrinsic value of a product to be able to effectively trade it. The forex market, therefore, does not depend on this value especially because fiat currencies stopped being tied to the value of gold. The fact that currencies do not have intrinsic value does not imply that they have no value at all, quite the contrary, but they are not connected to anything that has real worth.

Where do supply and demand come into play when we are talking about the stock, commodities, forex, and crypto markets? When we think of the stock market, we naturally think about the worth of assets, people, information, and technology, among others, which naturally fluctuates. With the commodities market, we know that the supply is limited, while the demand can oscillate both up and down. Although involving the notion of currency, the crypto market heavily relies on supply and demand as well. As we stated before, unlike these three markets, supply and demand have no power in the world of forex trading. While there is a great number of people who propose otherwise, turning to disreputable, untrustworthy, and ill-advising sources on one hand or replicating actions and methods used in the stock market on the other can have severe consequences.

Of course, thinking about the supply, we can discuss the impact of quantitative easing and the cases when the government prints more money; however, in reality, we cannot truly predict how this affects the price. Many times we may assume that the price would go down when, in fact, it goes the opposite direction. We can, however, acknowledge the relevance of demand to forex trading. This market often witnesses a unique phenomenon where, if there is too much focus on one currency, big banks enter the picture to push the price down. Nonetheless, the relationship between supply and demand is nonexistent, which is why it does not apply in this market.

Learning from the Past

If a trader does not learn how to see past the differences between markets, they will never achieve the rewards which such knowledge bears. The understanding that the forex market is completely different from other markets must come first, and the awareness concerning supply and demand also belongs here. Likewise, the phenomenon of overbought and oversold, which is directly connected to supply and demand, simply does not apply to spot forex. Unlike other markets, currency pairs act differently to any other commodity or stock, and big banks may move prices in any direction they want.

The only other outside factor which can affect currencies is the government stepping in when a currency is officially too low or too high. However, such interventions are not predictable or regular for that matter. What is more, we cannot create a strategy based on their impact because predicting the change they are going to bring about in advance, or the market’s reaction to them is simply not possible. This entire setting with all of the key factors and players is what undeniably separates forex from any other trading market. These are in fact such essential pieces of information that are inextricably related to one’s likelihood of succeeding in forex trading.

Turning to the markets of intrinsic value, we must apply the same rule put forward for the forex market – we cannot use the same approach. The tools and values used in forex trading cannot be blindly transferred to other markets without previously making any adjustments to those markets’ needs and structures. Of course, we can always acknowledge the existence of some similarities, but to be able to draw any significant conclusions, we must address the basic discrepancies between the stock, commodities, forex, and crypto markets. Nevertheless, this should not stop you from putting some extra effort into becoming an expert trader across several markets. While this expansion might take some more time, diversifying could open up a world of new and exciting opportunities.

Of course, the topic of supply and demand, as well as the notion of intrinsic value, is vital for any long-term success in markets we trade. Most importantly, these markets’ core values and differences are so abundantly clear and straightforward that the knowledge you gather should directly help you go beyond the forex market and secure a substantial profit as a result.