Market psychology affects Forex in numerous ways. There may be many unsettling international events that can have a big impact on Forex. This can lead to ‘flight to quality’. It is a type of capital flight where the investors refrain from taking any financial risk and shift their money in a safe place.
It is seen that currency markets have visible long term trend. The growth of currencies is not as obvious as growth of other businesses and commodities but it can be felt over a length of time. Market psychology depends largely on word of mouth and this can affect forex business too. Rumors like the market is oversold or over-bought spread like forest fire and this affects the business.