What do FOREX rates tell you

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forex rates

FOREX rates come in pairs unlike commodities or stocks. The reason is because they are showing you the strength of one currency against another currency.

The stock of a company will go up when the company is performing well, and will go down when the company is performing badly.

A FOREX exchange rate will go up when the base currency is performing better than the quote currency and will go down when the base currency is performing worse than the quote currency.

It is said that the strength of a country’s economy is depicted on its currency. Therefore the FOREX rates are telling you how well a country’s/region’s economy is performing relative to another country’s/region’s economy.

Let us say you buy EUR/USD. It means you are expecting the Euro and hence the economy in the Eurozone to perform better than the US Dollar (US Economy).

An FX rate will go up if

  • The base currency (its economy) is strengtheningforex rates
  • The quote currency (its economy) is weakening
  • A combination of both

An FX rate will go down if

  • The base currency (its economy) is weakening
  • The quote currency (its economy) is strengthening
  • A combination of both

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