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Fundamental Analysis

Fundamental Analysis

Fundamental analysis  is based on a study of the actual facts affecting the economies of individual countries and exchange rates, respectively. The basic postulate of fundamental analysis is that all the changes in exchange rates in the world, due to the release of economic, political and social news, as well as the publication of economic indicators. Under the influence of the news, stockbroker performs certain actions, which in turn affects the exchange rate fluctuations. You must also mention another important result - the state of the economy is reflected in the course of its currency. This rule also is the basis of fundamental analysis. It is safe to say that the opinions of technical analysts and supporters of fundamental analysis differ substantially mirror. If you remember the basics of technical analysis, the essence of it is the repeatability of certain sequences of price fluctuations, and the possibility to predict it in the future.

Fundamental analysis  requires the analyst to serious training in certain disciplines. The study of financial discipline, economics, credit and specifics of international relations will be an excellent base for the analyst frontiering fundamental analysis. Unfortunately, the opportunity to study the above discipline is not at all. Many traders use the indirect method, that is, trusting certain analytical sources, are willing to forecast. There are both paid and free analytical predictions, which can be seen in the print media, the Internet and even on certain television channels. Almost every broker has their information channel through which access to all the most important news and events. Access to this channel is available via the Internet. The largest suppliers of news are DowJones, Bloomberg.

However, without knowing the basis of fundamental analysis method, navigate the vast flow of news is almost impossible. In comparison to confidently use the computer, do not know how the CPU, you need only be able to work in the operating system and various programs, as well as Internet access. Meaningless keystrokes, rash delete system files can seriously ruin your operating system so that it will have to reinstall. If you have not traded on a live account, be sure to learn the basics of fundamental analysis. Earlier it was mentioned that the events are the starting point in conducting fundamental analysis.

All the important events that can be divided into 3 groups:

- Macroeconomic

By these indicators include the following:

  1. Gross Domestic Product GDP
  2. The level of interest rates
  3. rate of inflation
  4. balance of trade
  5. Number of jobs created

 

- Political

By these indicators include the following:

  1. Meetings of the "Big Seven", economic or trade coalitions
  2. All sorts of congresses, meetings of Heads of State
  3. Minutes of meetings of the Central Bank
  4. Election of the President, Parliament
  5. The results of trade negotiations.

 

- Natural

This abnormal natural phenomena and disasters such as:

  1. storm
  2. floodwaters
  3. eruption
  4. earthquake
  5. tsunami
  6. fires

 

       Even rumors can sufficiently influence the price fluctuations. The more weighty figure of rumors, the greater the effect it may have on the rates.

       Also, the event can be divided into:

- Random events

- Expected events

       In these categories include both economic and political, and natural events which subsequently affect the changes in the value of currencies. The only difference is the fact that the expected events, we are ready and able to predict the price movement, but is not possible to predict random unless you yesterday were not a seer.

Part of the events happening completely randomly, but most are planned in advance. Those events, the date of which is known, is expected. For example, seasonality in certain markets or regular publication of financial results. Frequency of data coverage of the trade balance (trade balance) in the United States, is one month. Moreover, data are delayed by two months. Events such as coups or terrorist actions in certain countries is virtually impossible to predict. Sudden events in the greater influence on fluctuations in the currencies in whose country they happen.

Experienced traders must constantly be aware of international developments. Good analytical and information channel events calendar - an indispensable condition for fruitful work in the market. Analyzing the publication of economic indicators, we can easily see that they contain information relating to periods prior to the current. For example, this month published data for the last month. This gives the possibility to calculate the predicted value of this index, before he gets in the official press. Large financial analysts give such predictions beforehand. In many cases, thanks to these forecasts, traders are prepared to change the parameters of the market in advance. That is, if the values of the news or parameters meet expectations, the market is almost not affected. Quite a different situation occurs when the actual figures are very different from those projected. Moreover, the market reaction is directly proportional to the magnitude of error. If the forecast is very different from the reality, the market will react to it immediately.

For the trader is very important to understand this basic principle. The impact of events on changes in exchange rates can be very different. Event types are classified according to certain criteria. In the first place, it is a lasting impact on the market, which provides news, as some of the events have a short cycle effects, just a few days or weeks. News with a longer cycle can influence the market for several years. Global indicators such as the economy, reduction or increase in inflation, increase in interest rates on bank deposits or unemployment - all of which can serve as an excellent foundation for serious analytical forecasts. Based on these projections, the trader decides to invest in a particular financial instrument.

When forecasting exchange rates on the basis of fundamental analysis method can not identify some universal formula. Over time, the study of fundamental analysis, you will emerge with more questions than answers. The market does not always behave as well as write in textbooks on fundamental analysis, and at any moment, you can see the opposite reaction to the forecast. Fundamental analysis is not an exact science, it only gives us the opportunity to understand how a particular event can impact on the behavior of the market in the future.

Fundamental analysis  of the currency market is based on principles that do not provide great complexity and most often intuitively understood immediately.

     

Economic indicators  - all indexes that indicate the state of the economy and economic regulators that affect the country's economy and thus affect the exchange rate.

Important regulator that directly affect the exchange rate and the effect of which is most evident are the interest rates of the central banks.

For example, if the rate of the European Central Bank rates above the central bank of Japan, it is inevitable given the strengthening of the euro against the yen. What is the reason?   

The fact is that in the modern economy, the most reliable tools that generate income are government securities and bank deposits, the interest on which is directly dependent on the rate of the central bank. At the present level of freedom of movement of capital, money, rush to where the higher the percentage. For example, if the rate of the central bank of Japan 0.5% per annum, and the rate of the US central bank is equal to 5% per annum, of course beneficial for the yen and buy dollars to take and place them in an American bank on deposit. Such purchases and lead to the strengthening of the currency.

Also there are factors and general economic nature, such as gross domestic product, the country's trade balance, unemployment, etc. All these factors combine to indicate the state of the economy, and consequently affect the rate of the national currency. Prediction and analysis of economic factors are not of great complexity, but we must remember that the driving force of the market are not the factors themselves and their expectations - that is expected by the economic performance of the country. There is such exchange proverb - "buy the rumor, sell the fact." With regard to economic indicators it probably should have been paraphrased - "Buy on expectations, sell the fact."

News  - are events that happen unexpectedly to the public. It may be surprising statements of politicians, central bankers, ministers, economists, manmade or natural disasters. This is the most difficult section of the analysis, since it requires the trader's reaction speed, composure and great immersion in the world of politics and news. The fact that it is very similar in meaning events can lead to very different consequences, such as natural disasters, formally very bad news for the economy, and hence should lead to the fall of the national currency. But it happens regularly floods in Europe have not yet led to some significant changes in the course EUR.

This is explained by the fact that on the one hand, floods are not prejudicial to the basic economic structures, and on the other hand, any country has economic funds for emergencies, which almost completely eliminate the effects of such disasters. There are no news and more difficult for the correct response to them, such as are statements of politicians, because of the complexity and utterance general political situation.

Therefore, experienced traders, most often try not to trade on the news, i.e. abstain from trading on the main output of serious news.

In conclusion, I must say that the main complexity of fundamental analysis is that at the same time on the market has a large number of fundamental factors. Some of these factors act to increase the price. That is, they put pressure on growth, a lot of them and they are very different. Part of the factors that put pressure on the price drop, they can also be quite a lot, and their structure is very complex. In everyday life, most traders do not use fundamental and technical analysis, which is based on the fact that we should not analyze all the fundamental factors that are on the market, as a result of their influence, that is the price chart.

Study of fundamental analysis is necessary, first of all, to correct methods of technical analysis. When used together, the two methods of analysis, you can identify for themselves the positive aspects of both, and in the future, to achieve high results when trading in the Forex market.