Forex Fundamental Analysis
Forex Fundamental
Analysis
Every Trader Should Know
Currency
prices reflect the balance of supply and
demand for currencies. Two primary factors
affecting supply and demand are interest
rates and the overall strength of the
economy. Economic indicators such as GDP,
foreign investment, and the trade balance
reflect the general health of an economy,
and are therefore responsible for the
underlying shifts in supply and demand for
that currency. There is a tremendous
amount of data released at regular
intervals, some of which are more
important than others. Data related to
interest rates and international trade is
looked at the closest.
Interest
Rates
If
the market has uncertainty regarding
interest rates, then any bit of news
regarding interest rates can directly
affect the currency markets.
Traditionally, if a country raises its
interest rates, the currency of that
country will strengthen in relation to
other countries, as investors shift assets
to that country to gain a higher return.
Hikes in interest rates, however, are
generally bad news for stock markets. Some
investors will transfer money out of a
country's stock market when interest rates
are hiked, causing the country's currency
to weaken. Which effect dominates can be
tricky, but generally there is a consensus
beforehand as to what the interest rate
move will do. Indicators that have the
biggest impact on interest rates are PPI,
CPI, and GDP. Generally the timing of
interest rate moves are known in advance.
They take place after regularly scheduled
meetings by the BOE, FED, ECB, BOJ, and
other central banks.
International
Trade
The
trade balance shows the net difference
over a period of time between a nation's
exports and imports. When a country
imports more than it exports, the trade
balance will show a deficit, which is
generally considered unfavorable. For
example, if U.S Dollars are sold for other
domestic national currencies (to pay for
imports), the flow of dollars outside the
country will depreciate the value of the
currency. Similarly if trade figures show
an increase in exports, dollars will flow
into the United States and appreciate the
value of the currency. From the standpoint
of a national economy, a deficit in and of
itself is not necessarily a bad thing.
However, if the deficit is greater than
market expectations then it will trigger a
negative price movement.
back
Also visit
online forex
trading
|
