Know The Fundamental Analysis

Fundamental analysis is a type of market analysis that revolves around the study of economic situation of the country to trade currency in more effective way. It provides information relating to big economical and political events that influence that currency market. Traders opt for fundamental analysis to predict the impact of economic, political and social events and the influence of unemployment and inflation on the price of any given currency. Depending on the data trader place their position with the main objective of making profit.

What influences the price of currencies?

Statements & figures given in the speeches of economists and big politicians are taken as economic announcement in the eyes of Forex that has a huge impact on the currency market movements. There are many brokers who provide market commentary and news, which are freely available on their websites. To analyze the rates of foreign exchange, the trader should focus on four main factors.

Employment: Employment and unemployment are key indicators that show the health of any nation. In case the country has high unemployment rates, it means that the economy is not healthy enough so that it could provide jobs the nationals, which ultimately results in decline in the value of currency. It has the immediate effect on the nation’s economy as it leads to the fall in spending power of consumer as got less money to spend. At the same time ones who are employed worry about the future and they also start spending less to save for upcoming days.

Employment and unemployment are key indicators that show the health of any nation. Best forex brokers, stock brokers and traders also consider this factor. In case the country has high unemployment rates, it means that the economy is not healthy enough so that it could provide jobs the nationals, which ultimately results in decline in the value of currency. It has the immediate effect on the nation’s economy as it leads to the fall in spending power of consumer as got less money to spend. At the same time ones who are employed worry about the future and they also start spending less to save for upcoming days.

Interest rates: Every currency has the overnight lending rates, which can be determined by central bank. In case the inflation is quite high, bank may probably raise the rate to balance the economy, on the other hand if it is sluggish, bank can reduce the rate to provoke growth. Generally, less interest rate usually depreciate the value of currency as it attracts carry trades. Carry trade is technique in which trader sells the currency with lower interest rate and buy the currency with high interest rates.

Trade Balance: Trade balance means the total value of exports minus total imports. If the outcome is positive, the country has favorable trade balance. In case the results is negative that means the nation is facing the trade deficit. This balance impacts the demand and supply of currency. The time when the nation has trade surplus, it will increase the demand for that currency as buyers have to spend more currency to buy those goods while trade deficit rise up when the supply exceeds the demands which lead to the devaluation of the currency.

Trade balance means the total value of exports minus total imports. If the outcome is positive, the country has favorable trade balance. In case the results is negative that means the nation is facing the trade deficit. This balance impacts the demand and supply of currency. The time when the nation has trade surplus, it will increase the demand for that currency as buyers have to spend more currency to buy those goods while trade deficit rise up when the supply exceeds the demands which lead to the devaluation of the currency. Geopolitical events: These are the important international political events that affect the Forex market. These events not only affect the Forex but also other markets as well.

PS. Changes in the value of currency affects everyone no matter whether you’re Forex trader or planning your vacation or shopping online from other country. Just like commodity the value of currency falls and rise with the economical rule of Demand and supply.

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