fundamental analysis is a way of looking
at the forex market by analyzing economic social and political forces
that may affect the supply and demand of an acid now in other words fundamental analysis
as a way of analyzing potential moves of the currency with the strength or
weakness of that country's economic outlook to do this however fundamental
traders study macroeconomic indicators data which is published regularly at a
particular time by governmental agencies and the private sector a key figures
include data releases on the country's labor market economic growth and trade
as well as sectoral releases such as housing data or retail sales figures
fundamental traders follow these data releases and news announcements
religiously this is because in order to piece
together the bigger picture of a currency strengths they use this in
relation to other countries more to the point these events can
represent great trading opportunities now after the publication of these
indicators traders will observe the volatility of the market however the degree of volatility is
really determined depending on the importance of the indicator which is why
it's important to actually understand which indicators are important and what
they actually represent naturally data out of the u.s. tends to have the
biggest impact on the financial markets simply because the u.s. is as we know
the world's biggest economy now let's take a closer look in more
detail and the economic data releases that matter hands down interest rate announcement
play the most important role in moving the prices of currencies in the forex
market and as institutions that said interest rate central banks are the great movers of
markets now interest rates dictate blows of investment and the supplying tomorrow
, nation's currency which is exactly why when central bank Exchange interest
rates they called the forex market to experience movement and volatility and
in the realm of forex trading accurate speculation of central banks actions can
enhance the traders chances for a successful trade now when central bank's change their
interest rates they are also changing the economic environment so we cut all
raised interest rates is always something traders on the lookout for now
alongside interest rate changes any drastic changes in the central bank's
monetary policy including a hint or announcement of non-conventional central
bank actions like quantitative easing we're likely cause some wild swings in
the financial markets especially the forex market here now in general rate
rise will usually cause that economies currency to strengthen on the other hand
a rate card or extreme measures such as asset purchases will cause that
economies currency to usually weekend gross domestic product commonly referred
to as GDP is one of the primary indicators to gauge the health of the
country's economy and it represents the total market value of all goods and
services produced in the country during the year now if the gdp figure is growing it
means that country's economy is doing better and in turn if it is decreasing
or slowing it means the country itself is making less money and is becoming
less competitive now seem to GDP figure itself is often considered a lagging
indicator most traders focus on the two reports that it issued in the months
before the final GDP figures that's the advanced report and the
preliminary report now importantly here significant revisions between these
reports can cause some significant volatility inflation is another prime indicator of
the economic state of a country's economy now the Consumer Price Index or CPI is
probably the most crucial indicator of inflation it represents the changes in the level
of retail prices for a basket of typical goods and services now if the prices for the basic consumer
basket is increasing that means inflation is also increasing remember
inflation is tied directly to the purchasing power of the currency so if the economy develops in normal
conditions the increase in inflation can and technically should lead to that
country's central bank increasing basic interest rate which in turn leads to an
increase in the attractiveness of the currency however in a time when many major
central banks are embarking on QE to stimulate the economy it is not always
strictly the case employment a2 is also a major indicator
as it reflects the overall health of the economy or business cycle now in order
to actually understand how an economy is functioning it is important to know how
many jobs are being created what percentage of the workforce is
actively working and exactly how many people are claiming unemployment
benefits now US non-farm payrolls the all-important us NFP is arguably one of
the most important data releases published for stop in theory a good beat
from the NFP should strengthen the US dollar unless it is significantly below market
view trade balance the producer price index
and other indicators such as the Purchasing Managers Index and industrial
production are all important data releases that all measure production and
demand now if a country of goods are in high
demand that same country's currency will also be in high demand the key is to find and interpret key
data points in the report that are relevant to the overall currently trends
and apply them when initiating a position now the US trade balance is
usually closely watched so let's use that as an example when
considering a long-term position forex traders should always review the
data of the US trade balance report simultaneously when looking at other important data
points for example like consumer prices gdp and of course the Federal Reserve
rate announcements now short term investors will consider
the trade balance report as it relates to market sentiment using the report as
a reason to either buy or sell a position in the currency if we take
industrial production figures as another example as with most of the other fundamental
indicators the markets will actually already have perceived consensus a
consensus number before the release mean that if the difference is larger or
worse than expected that stark or the bond markets will react in the shorter sexual releases such as retail sales and
housing data are also important to keep an eye on retail associate is released
on a monthly basis and it's important to forex traders as it shows the overall
strength or consumer spending and the success of retail stores as well as
consumer demand sentiment which indicates a broad consumer spending
patterns and in turn the immediate health or direction of an economy house
enjoyed on the other hand is one of the most important areas that affect the
decision to increase maintain or cut interest rates by a central bank for
example expectations of an interest rate card in the UK would require evidence of
a slowdown in housing price increases if you're a trader trading the british
pound you would watch UK housing data and retail sales figures are very
carefully as they will help you gain an edge in shaping your trading trash g in addition to using fundamental
indicators as information about the country's economy remember the value of the currency is
also connected to national and international geopolitical events
elections changes in government trade policies and political unrest or tension
in a region which can all cause widespread instability in the financial
markets for example when political tension escalated between Ukraine and
Russia earlier this year the financial markets
were hit hard everything from commodities and 4x to
equities and the prices of sensitive commodities like oil and gas are an
important fundamental indicator as high prices can hurt consumer spending and
confidence and could tell the activities of certain businesses and of course
government services on top of these important economic
indicators the release of company results are a great trading opportunity
for fundamental traders simply because the release date is usually
well-publicized beforehand and therefore reveals everything from the probability
and the health of the company - management outlook and potential
future dividend payments now while it's not part of the company's earnings
report director dealings can also cause wild swings and the company's share
prices this is because investors often use and
to determine whether directors are bullish or bearish about the firm make sure you stay up-to-date on
upcoming schedule economic data releases and use events and company announcements
by watching lcds a week ahead which is every Friday it keeps you in the know about the
financial markets