Fundamental Analysis In Forex
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Opposite the Forex technical analysis part, in this Forex tutorial you will learn the advantages and importance of performing fundamental analysis and how to implement this type of analysis in your trading style. It’s quite essential to learn the basic macroeconomic factors that have an influence on global market.
Technical analysis and fundamental analysis are two main parts of analyzing currency markets; the main difference between these two types is that technical analysis mainly studies the cause of market flows, while the other one is focused on the effect of market flows. (For more information please visit: Technical and Fundamental Analysis).
Fundamental analysis is mainly concentrated on financial theories, asset markets, macroeconomic indicators, developments of politics and sets the supply and demand forces. Macroeconomic indicators consist of such figures as asset markets, growth rates, interest rates, unemployment, FX rates, inflation, money supply and productivity. Asset markets include bonds, stocks and real estate. Government sometimes stands in the way of developing of the market, which is performed via affecting the currencies, therefore, intervening to prevent the currencies from reaching to unwanted levels. Currency interventions have quite essential impact on global Forex market.
The major theories of Forex fundamental analysis are PPP (Purchasing Power Parity), IRP (Interest Rate Parity), Asset Market model and Balance of payment model.
One of the primary things you should know about fundamental analysis is the market expectation through indicators. Many financial analysts provide a provable number of indicators to be announced. This has an impact on the market, and accordingly, traders are positioned. The announcement of an indicator influences the market only in case it is different from the one that market had expected. This takes place when public information is already taken into account.
It will be nice to create your own plan. Try to know in advance what important fundamental indicators are to be announced on the following week. This is a little bit difficult for the beginners, but after studying it will be easy.
AT these times there are lots of fundamental indicators. US indicators greatly impact the market, while EU indicators have less impact unless they are much different than expected. Follow central banks head officers announcements and get latest news on inflation and interest rates. Currently these are two drivers of the economy.
One of the advantages of fundamental analysis is that it tells you the lowest price a stock should go. In case you properly manage your fundamental analysis, you can spot improving fundamentals and enter earlier than the public hears of those growing fundamentals.