Thursday, 10 October 2013

Forex And Fundamental Analysis

          A Forex trader must use both Fundamental and Technical Analysis to plan his entry and exit strategy in Forex trading.

What is Fundamental Analysis?

          The fundamental analysis is based on theoretical model of exchange rate determination and on the economic and political factors affecting the foreign exchange rates.
          Fundamental analysis is a very effective way to forecast economic conditions. Fundamentals are classified into economic factors, political factors, financial factors & crises.  Forex trader must watch economical data listed below.
  1. Gross National Product (GNP)
  2. Gross Domestic Product (GDP)
  3. Consumption Spending
  4. Government Expenditure
  5. Interest Rate Announcement
  6. Trade Balance
  7. Inflation Rates
  8. Industrial Production Rate
  9. Unemployment Rate
  10. Non Farm Payroll
  11. Home sales
  12. Crude Oil inventories
  1. Gross National Produce (GNP): - The Gross National Product indicates the economic performance of the whole economy.  This indicator consists of government spending, investment spending, and consumption spending and net trade.  The Gross National Product refers to the sum of all goods and services produced by any country. A higher than expected GNP should be taken as positive as and lower than expected should be taken as negative.
  2. Gross Domestic Product (GDP): - The GDP indicates the sum of all goods and services produced in the country either by domestic or foreign companies. It is the major grown indicator. If GDP went negative for two consecutive quarters the country considered as in recession.  And if it is positive for two consecutive quarters the economy considered as in progression. 
  3. Consumption Spending: - Consumers decision either to save or to spend is psychological in nature. Consumer’s confidence is a major indicator of prosperity.  Consumer’s confidence leads him from saving to buying. A higher than expected reading is considered positive for country a lower one is considered as negative for country.
  4. Government Expenditure: - Government expenditure is a very influential indicator in terms of both sheer size and its impact on other economic indicators.  A higher than expected reading is considered positive for country a lower one is considered as negative for country.
  5. Interest Rate Announcement: - Fundamentally if any country raises interest rate, its currency should become strong and if any country reduces its interest rate, its currency becomes weak. An Interest rate announcement has huge impact in the currency market tries to find the future direction of the interest rate from the authority. A higher than expected interest rate is considered positive for country a lower one is considered as negative for country.
  6. Trade Balance: - This report refers the difference between exports and imports of a country.  It is healthy for a country to have a trade surplus.  Because the foreigners must by the domestic currency to pay for the nation's exports, it may have measurable affect on any currency. A higher than expected reading is considered positive for country a lower one is considered as negative for country.
  7. Inflation Rates: - Consumer Price Index indicates the inflation in country. CPI hints at future rate chance in the country.  Higher inflation rate indicates increasing interest rate and thus strengthen the currency. A higher than expected reading is considered positive for country a lower one is considered as negative for country.
  8. Industrial Production Rate: - The Industrial Production measures the change in the total outputs of the countries manufacturing, mining and other industries.  If represents us a good indicator of strength in the manufacturing sector. A higher than expected reading is considered positive for country a lower one is considered as negative for country.
  9. Unemployment Rate:  - The unemployment rate indicates the percentage of the total labor force that is unemployed but actively seeking employment.  A high percentage indicates weakness in the labor market and lower percentage is a positive indicator the labor market in the country. A higher than expected reading is considered negative for country a lower one is considered as positive for country.
  10. Non-farm Payrolls: - The non-farm payrolls indicate the change in the number of employed people during the last month of all non-farming businesses. Jobs added or lost in the sector is the single most important piece of data contained in the employment report, which considered offering the best overview of the economy. A higher than expected reading is considered positive for country a lower one is considered as negative for country.
  11. Home Sales: - The existing and new home sales reefers the annualized number of existing and new residential buildings that were sold during the previous month. This indicator can be used to analyze the strength of the housing market in the country and which helps to analyze the economy. A higher than expected reading is considered positive for country a lower one is considered as negative for country.
  12. Crude Oil Inventories: - Crude Oil Inventories measures the weekly increase in barrels of commercial grade crude oil held in inventory by domestic firms. The level of inventories influences the price of petroleum products, which may have an impact on inflation and other economic forces.

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