Fundamental Analysis in Forex
- June 21st, 2009
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No matter what you’re trading – stocks, options, CFDs, forex, oil or other commodities, you should first invest your time in learning the market. In this article I’d like to focus on the forex market because it became so favourite in the current years. One way to learn this market is through fundamental analysis. In fundamental analysis forecasts and predictions are based on the following:
a. Indices – Gross Domestic Production (GDP), Consumer Price Index (CPI), Producers Price Index (PPI), Balance of Payments (BOP), etc.
b. Financial indicators – stock prices, interest rates, bonds and such.
c. Political events of a country are used to measure the stability of its national economy having short / long-term effect on supply/demand ratio of a certain currency.
For instance, since the exchange rate of a currency is based on the interest rate of its country, it rises along with the nation’s interest rate. Why? Because the interest rate indicates the economic situation – if it’s high, the economy is blooming and the country’s currency is in demand. And the currency demand makes the exchange rate to go up. So it wouldn’t injured to follow central banks’ interest rates declaration in order to seize an opportunity when it knocks.
The fundamental analysis also takes into statement traders’ expectations before indices are released. For example, the Weekly Inventory Report is released each Wednesday, so each Wednesday prior to the release the oil prices change. Or another example from the US housing market – when The Existing Home Sales or The New Homes Indices increase, the US dollar usually rises as well. Traders know or should know these things not to miss out on a profitable deal. The expectations themselves have the power to influence currency quotes because increased investments in a certain currency (based on positive expectations) strengthen it.
Fundamental analysis is especially important in our volatile times and markets. With everything that’s going on in the euro-zone: Greece and Portugal credit rating is downgraded, so the euro’s quotes are constantly declining; UK can’t pull itself out of the crisis and the pound is also not so “hot” right now.
So even if you, the investor, are using the ideal of trading platforms, you should be considering all the things mentioned above and following various indicators and news, because they all influence the forex market as well as others.
For more information about fundamental and technical analysis and online trading news you can visit the Metatrader website. Also on the website information about other trading instruments such as CFD, commodities, oil, etc.