Home Financial Trading Blog Fundamental Analysis

Fundamental Analysis

Fundamental Analysis

What is a basic analysis? It is the study of how the global economic news and other news events affect the financial markets. A fundamental analysis includes every news event, corporate profits, important federal changes, but above all the most important, namely the basic data that is important in the foreign exchange market (the country’s interest rates and its interest rate policy).

The whole idea of ​​a basic analysis is to strengthen the country’s currency, because if the country’s current or future economic image is strong, their currency should also be stronger. Everyone knows that a strong economy attracts a lot of foreign investment and companies. This means that foreigners will buy the country’s currency to invest or start a business there. Hence, always remembering the supply and demand, with a strong economy, the demand for the currency is increasing, which in turn reduces supply and drives the value of the currency.

An example:
Assuming that the Australian economy is increasing, the Australian dollar will increase in value compared to other currencies. How can the country’s currency become more valuable? As the economy grows and grows in one country, interest rates increase in order to control inflation and growth. For a foreign investor, high interest rates are very attractive. In order to invest in Australia, they have to buy Australian dollars, which drives demand and the price, as well as decreasing the number of offerings, of course, as more buyers buy.

GDP Report – The Key Financial Indicator!
GDP is the overdue measure of the overall state of the economy.
GDP = the total value of all goods and services produced by the entire economy during each quarter. However, GDP does not include the international activity. 8:30 on the last day of each quarter, the golden GDP is released, this is a very important figure to look for.

Trade Balance = Measurement of the difference between expo & import of tangible goods and services.
The country’s trade balance is an important indicator for gaining an overall understanding of the country’s economic situation. Having more exports than imports is definitely the best for the country, as exports increase the economy and reflect overall health in the manufacturing sector.

CPI – Report
The CPI measures the change in the cost of consumer goods and services monthly. Its the best measurement of inflation and the most used. You will find the report on the 15th of every month at 8:30, important to understand that it reflects the previous month’s information. CPI stands for consumer price index.

CPI - Report

Also one of the most important measures for inflation, then together with the CPI. This report will also be released at 8:30 AM EST during the second full week of each month and reflects the previous month’s data. It stands for the producer price index and measures prices for the goods at a wholesale level. Thus, the CPI counteracts the amount of producers receiving the goods, while the CPI measures the cost of consumers for goods.

Labor market
It is important to keep track of the labor market as well. You will find the most important message regarding the labor market on the first Friday of each month at 8.30 EST. This report shows unemployment (the proportion of unemployed labor), the number of new job opportunities, the average hours worked per week and the average hourly income. This is a report that is also usually of great importance to the economic market movement. You will often hear analysts mentioning “NFP”. NFP = A report on non-agricultural employment, there is a report every month that has the greatest significance regarding the power to move the markets.

Product orders that are long lasting
This report is released at 8.30 EST on the 26th of each month and gives you some insight into the future of the manufacturing industry. It reports on durables and makes a measure of how much people spend on long term (products lasting more than 3 years) purchases.

Retail Sales Index
Measurement of the goods sold in retail stores, ranging from local stores to the distora chains. A sample picked out a set of retailers across the country. Retail Sales Index is released at 8.30 EST around the 12th month; It reflects data from the previous month. This report is often revised quite significantly after the final figures have come out.

Housing Data
The number of new homes that a country began to build that month as well as existing home affairs. An extremely important reason for the country’s stimulus and should be followed by Forex participants. It is also a good measure of the economic strength in the country. At low numbers, it is a sign of a sluggish or weak economy.

Wha about the interest rates?
As you already know, interest rates are the absolute premier driver in the Forex markets. All of the above-mentioned economic indicators are followed very carefully by the Federal Open Market Committee to measure public health in the economy. These tools use the Federal Committee so that they can lower / raise or leave the rate unchanged depending on the evidence they have collected on the economic health of a country. But do not forget that ALL of the above-mentioned economic indicators are also very important.

Technical Analysis VS. Fundamental Analysis.
These are the two main schools in the financial market regarding trade and investment. Regarding the technical analysts, they look at the price movement on the market and use this information to make predictions about future price orientation. Medan’s fundamental analysts look at financial news (elements).
At present, almost all global news events can affect the world’s financial markets, technically every news event can be financial news. This is an important point! Nevertheless, there are many basic analysts who ignore this …

The absolute premier reason why our members (including myself) prefer to trade primarily with technical analysis. This is because there are literally millions of different variables in the world that can affect the financial markets at some point. Forex is affected by macro events: the country’s interest rate policy, GDP number but also of other important news events such as war or natural disasters of course. Since most believe that all world events are introduced in price and clearly visible through analyses. Then there is simply no reason to try to follow all the financial news that happens every day in order to trade with the markets.

An argument I read about solved was as follows:
that past price data can not predict or contribute to predicting future price movements, and instead, you must use future or upcoming news (basic principles) to predict the price movement in a market. This is how the basic analysts argued against the technical analysts. Therefore, I give the following answers to technical analysis:

A. If you see below on the Gold chart above, we can clearly see that support and resistance levels are important to watch. All basic analysts, who want to say that the charts do not matter, are simply wrong. The more time you spend yourself, you will obviously study some price charts in the same way.

Gold chart

B. Next argument as a fundamental analyst: that you can accurately predict a market price movement by analyzing future Forex news events.
MEd’s sufficient experience usually knows that markets usually react the opposite to an imminent news event. Are there times when the market moves in the direction of a news event? Yes for sure! Can we really build up our trading strategy around this? No, for sure not!

The reason is that the markets are working on future expectations.
I do not really understand how some people still ignore the technical analysis. You should always focus mainly on the technical analysis according to me. See explanation below:

If wages for non-farm wages come out (the main economic report) and the market expects 100,000 more jobs added last month, the market is likely to have already moved in anticipation of this issue. As there was no more work than expected, the market is likely to be lower. Thus, while 100,000 new jobs can be a good number, the fact that the actual report did not exceed expectations bad for traders and investors. Do you understand the confusion?

By reading the above text, I suppose you now understand that even after the news has been released, you can still use the technical analysis to trade price movements. This is a clear indication of the technical is the most practical and most useful way of analyzing the market. It’s definitely good to use the remaining as a supplement, though sparingly. Do you feel unsure? Check the charts and read the price measure. The fundamental technology should only be used to support your technical view or of ren nyfikenhe. My conclusion is never to rely solely on the Fundamental Technoligin.

funimg1 - Fundamental Analysis