Fundamental analysis applies to forex research, research on world economy, financial and political factors, relationship and impact on foreign exchange rates. This will enable you to understand what affects the chart. Technical analysis is market statistics. The difference between basic analysis and technical analysis is that it is based on statistical analysis of regional and political economic indicators.
Economic changes, political elections, financial institution regulation, natural disasters – all of these factors can affect foreign exchange rates. If one of these factors is unpredictable, the other are predictable. Date and time of speaking the pre-existing indicators. There is an economic calendar for important information and indicators. Thus, if you analyze and predict the indices, you can predict the future movement of foreign exchange rates and make a profit. Do not analyze too detailed. You may be at risk of overloading the information. Even experts have been caught in this case and the trend cannot be speculated.
Among the macroeconomic parameters, it is possible to classify the most important indicators for the movement of foreign exchange rates:
There are no economic and financial indicators to track the movement of foreign exchange rates as important as interest rates. First of all, to understand again productivity is an instrument to influence the national economy of the central bank. Short-term interest rates represent the central bank's lending rates to commercial banks. If in the case of high inflation detection, the central bank, depending on the policy, will have an impact on the national foreign currency, by changing interest rates. If a decision is made to lower inflation, the central bank will raise interest rates. This will lower the amount of working capital in the market and will reduce inflation. If the decision is made to increase the amount of money circulating in the market, there will be a decision to lower the interest rate. If the interest rate of the national currency is different from that of another country (the interest rate difference), it will create the demand of foreign investors to buy foreign currencies domestically and send high interest rates. In other words, high interest rates will make the currency highly demanded to invest in the international market, and thus the domestic foreign currency will be in high demand and will appreciate.
Gross domestic product (GDP)
GNP (Gross National Product) – is the price for all domestically produced services and goods for a given period (month, quarter, year). Updated information on GDP is released quarterly. This is one of the most important indicators, which can assess the nation's economy. When the prediction and the real index differ greatly, the exchange rate can move sharply. GDP growth reflects a stronger national economy and will lead to an increase in the national foreign currency price.
Nonfarm payrolls (NFP)
Number of new jobs, not in the agricultural sector in the month. This index is released by the unemployment monitoring agency monthly and shows the trend of US economic personnel.
Payroll – is the salary index paid to workers. This includes just over 500 industries (manufacturing, construction, business, services, real estate, finance, insurance and so on) selected from 40,000 companies and called establishment employment. The index includes an estimated 50,000 home-based jobs. Self-organizing jobs – household employment. Nonfarm payrolls – a very important indicator, showing the change of personnel in the country. Growth this index will reduce unemployment and will increase the dollar price. Many people also call “market volatility indicator”. There is a rule that increasing this index to 200,000 per month will result in a GDP growth of 3.0%. The index usually goes out on the first Friday of the month at 8.30 EST (New-York).
Consumer price index (CPI)
Show prices in each commodity and service group over a period of time (month, 3 months, year). Created to compare consumer and service prices with current and previous or previous month's prices. In baskets is usually 44.0% of goods and 56.0% of services. This index is an early inflation indicator. Considered the best indicator to calculate the target price for living standards. Growth in this index often leads to an increase in domestic interest rates, and will lead to an increase in the national currency exchange rate. This index can create strong waves on FOREX market, in the news, foreign exchange rate can change from 50 to 100 points in 1 minute.
Industrial price index (PPI)
Express price changes with industrial goods. The PPI index covers all phases from: raw materials, intermediate stages, finished products, as well as all fields: industry, mining and agriculture. PPI does not include prices of imported goods and services related to imports. Movements of the index usually precede the CPI, and experts often use to predict future inflation.
The ratio of total exports and imports. If the total price of exported goods exceeds the import price, the trade balance is called active (surplus), if the import is greater than export – passive (shortage). If the balance is active, it means that the economy is developing and will increase the national foreign currency price.
Unemployment rate (Unemployment rate)
Shows the percentage of unemployed people with total employment. As one of the important macroeconomic indicators “the market engine”. Employment data is difficult to predict, and real values often conflict with predictions and cause immediate adjustments. Increased unemployment (reduced employment), often accompanied by a devaluation of the currency. Published monthly, simultaneously with «Nonfarm payrolls».
… and many other indicators. Above I would like to introduce to you some of the most important indicators in forex basic analysis. I wish you successful transactions.
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