Price setters set exchange rates
In all markets there is a price setter. We tend to want to think in terms of capitalism and competition and laissez-faire free market stuff, but the reality is that is not the case nor has it ever really been the case.
In today's highly complex world where governments and large enterprises preside over policy or consumption and pricing decisions (Saudi's and OPEC, for example) there is always a price setter. Exchange rates either directly or indirectly are set by someone.
Central banks rarely intervene anymore
I can remember when I was a floor trader back in the 1980s central banks routinely intervened in currency markets to try to protect some exchange level or, to move markets. One of the most massive, coordinated efforts was the Plaza Accord of 1985. That was when the central banks and monetary authorities of the United States, West Germany, France, the U.K. and Japan got together at the Plaza Hotel (thus, its name) and decided to conduct coordinated intervention to push the dollar down against the yen.
I can remember day after day of massive dollar sales. The dollar fell sharply over the ensuing year or more and that was the end of its period of soaring exchange levels.
Nowadays central banks are much more focused on influencing exchange rates via interest rate setting, but that is still price setting. The interest rate percolates though to all prices as the cost of credit gets passed along from producer to consumer.
Large exporters set exchange rate via commerce
In the foreign exchange arena large multinational firms are now more or less in control of price setting on exchange rates either directly or indirectly. Their actions of price cutting or price hikes set the exchange rate in various currencies.
So for example if Daimler or Siemens wants to cut prices to retain market share of exports going to the United States, that is a de-facto downward adjustment in the euro. Similarly, if Toyota or Honda was to raise prices of their vehicles that are being exported to the U.S. then that can also be seen as an upward adjustment n the yen or to say it differently, a downward exchange rate adjustment in USDJPY.
Forex course teaches how to spot trends
In my Forex course I teach how easy ways to look for signs of large exporter price setting. This will give you the definitive direction of the trend of exchange rates as these entities are the price setters of the foreign exchange market.
