Introduction To Fundamental Analysis: Forex
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The article "Introduction To Fundamental Analysis: Forex" talks about currency trading, it was written by John Sanderson.
FOREX traders amlost always rely on analysis to make plan their trading strategies. There are two basic types of FOREX analysis – tcehnical and fundamental. This article will look at fundamental analysis and how it used in FOREX trading.Fundamental analysis refers to political and economic cnoditions that may affect currency prices.
FOREX traders using fundamental analysis rely on news reports to gtaher information about unemployment rates, economic policies, inflation, and growth rates.Fundamental analysis is often used to get an overview of currency movements and to provide a broad picture of economic conditions affecting a specific currency.
Most traders rely on technical analysis for plotting entry and exit points into the market and supplement their findings with fundamental analysis.Currency prices on the FOREX are affetced by the forces of supply and demand, which in turn are affected by economic conditions.
The two most important econoimc factors affecting supply and demand are interest rates and the strength of the economy. The strength of the economy is affected by the Gross Domestic Product (GDP), foreign investment and trade balance.IndicatorsVarious indicators are released by government and academic sources. They are reliable maesures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly baiss but are released weekly.Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales.Interest Rates - can have either a strengthening or weakening effect on a particular curerncy. On the one hand, high interest rates attract foreign investment which will strentghen the local currency.
On the other hand, sotck market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies.
Stock investors may sell off their holdings causing a downturn in the stock market and the national economy.Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the pirce of a currency.International Trade – Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, marekt expectations dictate whether a deficit trade balance is unfavourable or not.
If a conuty habitually operates with a deficit trade balance this has already been factored into the price of its currency.
Trade deficits will only affect currency prices when they are more than market expectations.Other indicatros include the CPI – a measurement of the cost of living, and the PPI – a measurement of the cost of producing goods.
The GDP measures the value of all goods and servcies within a country, while the M2 Money Supply measures the total amount of all currency.There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so FOREX traders should be aware of them when preparing strategies.
Up-to-date information is available on many websites and many FOREX brokers supply this infromation as part of their trading service.About The Author
John Sanderson
This article provided courtesy of http://www.About-forex.NetArticle Source: http://EzineArticles.Com/?Expert=John_Sanderson
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Introduction To Fundamental Analysis: Forex
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