Tuesday, August 18, 2009

Fundamental Analysis

Introduction to the fundamental analysis

The most important and complicated component of the currency dealing is ability to analyze the tendency of market changes and therefore to forecast which factors will influence on the currency rate and how. The probability of a quick profit taking and quick losses is included in the price trend. Thus, correct forecast of the market trend, estimation of different events, correct reaction to the speculations and expectations àre the necessary component of trader?s

successful work. There is a great deal of factors which influence on the whole market as well as on the separate instruments (currencies, shares, futures). There are two main methods of the market analysis — fundamental and technical. The fundamental analysis estimates the market situation in the context of political, economical, financial and credit aspects. The technical

analysis is based on the methods of graphical research and mathematical analysis.

In the context of the fundamental analysis monetary, political and economic events in the world are studied. These events may influence on the market development. The most important here is information about economic indicators of the countries, work of exchanges and large companies such as market-makers, interest rates of the central banks, government's economic rate, probable changes in the country's political situation, various speculations and

expectations. The fundamental analysis is the most complicated and important part of the work at the forex market. To perform the fundamental analysis is much more difficult than any other, as the same factors have different influence on the market in different situations and important factors may shift to the insignificant ones. Except some more formal rules experience of work at the market is needed here.

Fundamental factors are usually estimated from two points of view:

Influence on the interest rate & State of the country’s national economy.

Data of Economic Development of a Country

The principle of this sub-group impact is based on the axiomatic statement that the rate of any currency is the derivative of this country economic development. Stability of economic development specifies foreign investors interest in the capital expenditures to the country and, correspondingly, demand on the national currency. The data of economic development of a country include such key indicators as balance of trade and balance of payment, inflationary rates,unemployment rate, GDP etc.In the Forex market a unified system of currencies quotation through the US dollar was elaborated. Thus, the US economic development and the dollar rate

are the key factors, which specify market movement, common to the main currencies. That is why the US dollar and its behavior are in the limelight, as they trigger some specific reaction of other currencies. Frankly speaking, it doesn't eliminate other factors impact, such as policy of the national banks or influence of the related markets, which will be described briefly a bit later. In the USA the main indicators of economic development are released monthly or

quarterly.

Trade negotiations

Trade negotiations are the important part of economic policy of any country. In particular, such the important economic indicator as trade balance represents the difference between export and import. In case the sum of exported goods and services exceeds the price of imported ones Trade Balance is positive (surplus), in case import surpasses export it is negative (deficit). The trade deficit is the main problem for the USA within the last years. It is one of the reasons of the dollar fall against the major European currencies. Results of trade negotiations have an immediate impact on the market.

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