The financial markets have been quite volatile lately, and there are several events which have contributed to this. These include the Quantitative Easing program announced by the European Central Bank; the lowering of interest rates in many countries in an attempt to increase growth and reduce unemployment; and the strengthening of the US dollar and the devaluation of other currencies. Over the past week, the Russian currency fell by 10.1%. The initial pressure came from the downgrading of Russia’s credit rating by the S&P, and then because of the decision of the Central Bank of Russia to lower its key interest rate by 2% – from 17% to 15%.
Interest rates in particular are an important factor in the economy. If we talk in general about economic processes and the impact of central banks, they set the interest rates which affects all the other agents in the economy. The key rate of any Central Bank is the rate offered on transactions with other credit institutions (retail banks).
Low interest rates often stimulate both lending and borrowing because if credit institutions can borrow cheaply from the central bank, they will continue to give loans at comparatively low rates, and thereby increase overall economic activity. High interest rates increase the level of savings… people would take advantage of the higher rates in order to build up their savings, and they would also be less likely to apply for a loan if the higher interest rendered the potential repayments excessive.
We at the Academy of Financial Trading, being technical analysts believe that all fundamentals are immediately reflected in the price. If you are analysing fundamental causes of change in the price of an asset for a long time, it is possible that you will miss the opportunity to enter a market. We monitor the market and analyse the price action. If we spot the emergence of a new trend, then we will certainly take the opportunity.