Short explanation:
Like any other market, too. If the demand exceeds the supply (more of currency x is requested than there is on offer at a certain price) the price will rise. If the price rises other market participants who hold that currency at the moment will try to seize the moment and offer theirs at a higher price. At some point, we will see an over supply and the price will fall again.
And that is how it works on order book level …
It is all based on a ladder (order book) with different bid and ask prices (the price at which someone is willing to sell or buy). If enough is bought or sold the price will move.
These bid and ask prices reflect limit orders in the market. Market makers will (note to retail traders: you guys often have a warped understanding of what a market maker is) constantly push new bids and offers and may remove older ones - the market maker’s intend is to profit from the spread (the bid-ask difference). He is making the market - he buys or sells to facilitate trade.
Big orders will exceed the available amount of many price-levels (trading jargon: they sweep the book) and the price will move to the next level in the book (ladder) unless new liquidity is added at better prices.
From a practical point of view: many more orders in the same direction will need to come up to effectively move the price (that is why people say prices will change by supply and demand). FX is a very liquid and extremely competitive market place.
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