What is fundamental analysis?
When we talk about market analysis, most oftenly we mention two main methods: technical and fundamental analysis.
During this lesson we will dwell on the second method. While technical analysts study movement of prices in past in order to identify trends and predict future trends, fundamental analysts study all available information, thereby determining up-to-date market cost of any specific assets. In future, a search is made for differences between their own assessment and nominal cost of an instrument, on basis of this positions are opened. As an example, a long position can be opened on Apple stocks if they believe that real value of these stocks in future will significantly exceed current quotes.
At the same time, technical analysts are convinced that the stock chart provides all the information they need. Clients of Forex firms analyze large volumes of data, including various factors (social, political, etc.), corporate reporting, and also macroeconomic statistics.
Among the most important macroeconomic information:
The most important macroeconomic data include:
- Interest rates and general monetary policy of central banks;
- information on a labor market in developed countries (primarily employment in the USA);
- Information on Inflation in the UK, Eurozone, USA, Canada and other countries;
- Information on retail sales and industrial production, indices of ISM, IFO;
- Income reports of large companies.
Interest rates
Might cause a direct impact on foreign currencies exchange rates. Often, demand for a foreign currency unit with a higher rate is much higher than for a currency with a lower interest rate.
Labor market
Such information on economic environment as employment in the non-agricultural sector of the United States, has a significant impact on the OTC Forex markets and can lead to increased volatility of stock indices and foreign currency units. Report on activity of the US able-bodied population is published every first Friday of a month as a total number of new paid jobs on all US enterprises.
This environment is extremely sensitive to the indicator, as it plays an important role in determining future inflation paces.
If non-farm activities of citizens in the United States increases, this indicates a steady economic growth. That is why, at excessing expectations of the working-age population, the cost of the American dollar, as a rule, increases. If figures in the report are comparatively worse than forecasted, Forex clients usually sell dollars in expectation of a decline in cost in a foreign currency.
Inflation
The term refers to the speed at which the general price level for basic services and assets decreases or increases. Central banking organizations are trying to keep inflation low, while at the same time trying to avoid deflation in order for a state economy to work properly.
Economic indicators
In addition to employment in non-agricultural sector, there are also other values, that can affect an exchange. For example, this includes retail sales digits. Retail sales – are a very important aspect, as consumer spending accounts for a significant share of economy.
Company earnings reports
Specialists analyze financial statements of an organization of interest to them in order to determine position held by the company in relation to a particular Forex market. These statements include assets, income, expenses, as well as liabilities of the company and other financial aspects contained in quarterly corporate reports.
Economic calendar
You can find all necessary data in the economic forex calendar, which is available on our website.
Each news has a degree of market importance – low, medium or high, that indicates how strong the movements might be during their release.
The calendar indicates a state (or group of states), according to which the news is published, and the currency of which it will affect.
In addition, for participants there is displayed a degree of importance of economic relations, information for a past period (usually for a quarter or a month), and a forecast and actual indicator for news that were published.