Fundamental analysis on Forex market
Most of traders approach to financial market based on technical or fundamental analysis. Main for them to use only one method is key premise for all investors “Simplicity”. If you adopt booth methods, it is easily to get lost, in forest of indicators which commonly telling you opposite.
In this article I will try to explain on which indicators fundamental analysts set focus and how they use them, without comparing to technical methods because I think that every investor has to decide which method is best for him.
Fundamental Analysis as method of evaluation of security to determine its value by analyzing key financial and company data. So every analyst is anticipating periodical statements to see what are company results in previous period(is it profit raising of falling, what happens with sales, what are cost of company) to determine new intrinsic value.
Fluctuations in statements from time to time are the key indicators who will cause the value of a security to rise or fall.
If you apply this on country economy you can easily find drivers for currencies to grow or fall according to other.
GDP or gross domestic product as most important indicator of some economy health and key indicator for fundamental analysis is in focus of analyst who are making valuation of currencies. If it beats expectations currency tend to raise and opposite.
Second most important influences on currency is Inflation since it has ability to destroy purchasing power of currency. High level of Inflation is very bad for economy. Normal rate of inflation is 2-3%, and if it is higher most of Central Banks will rise interest rates in purpose of fighting against high inflation.
Third driver of economy is unemployment rate because people spending’s is backbone of economic growth. If higher country has higher unemployment rate spending is also shorten and economy is slowing down. Country usually fighting unemployment by cutting interest rates to stimulate companies to take loans an employs new workers.
Consumer demand as fourth is essential to the normal, healthy functioning of an economy. If consumers are increasing demand for goods and services, the economy tends to move forward, but when consumers are tending to cut demand for goods and services, the economy halts.
No matter if you are technical trader it is always useful to understand basics of fundamental analyzes.