Lesson 7: Fundamental Analysis
In this part of our study we will look at Forex fundamental analysis, which is the study of macroeconomic phenomena, political news and other events in the world that have an impact on exchange rates. Proponents of fundamental analysis of forex market are of the opinion that the primary in relation to changes in exchange rates is the event (news). It entails a chain of trading on Forex, which in turn is reflected in the change in exchange rates. As can be seen, the fundamentalists, unlike the followers of technical analysis, have diametrically opposed views on the source of the price movement. After all, as we remember, technical analysts are of the opinion that future changes in prices laid solely at their historical trends.
In order to become a guru of fundamental analysis may take many years of studying such disciplines as "Economy", "Finance and Credit", "International Economic Relations". Of course, that ordinary internet trader has neither the time nor the inclination to spend as much time training. Therefore, the majority of Forex traders have only a superficial understanding of the basics of fundamental analysis - in the course of their work in the foreign exchange market, they listened to the views of professional financial analysts. Analysts' forecasts are published in newspapers and magazines, they are referred to in the financial announcements on special television and radio channels. Most brokers on the Internet provide their clients with access to information systems that publishes information of a fundamental nature. Such systems include Reuter, Dow Jones Telerate, Bloomberg, etc.
But despite the abundance of Forex market analysts, to understand the basics of fundamental analysis is necessary for every online trader. Drawing an analogy, let's say that you can not understand the device the car, but you have to understand the principles of management and they know the rules of the road. Otherwise, you've done a lot of trouble on the road - the same is true for the Forex market. Before you start trading for real money you need to clearly understand what is the role of fundamental analysis in the prediction of changes in exchange rates.
As we have said, the basis of fundamental analysis is an event. Events can be classified as macro-economic, political, natural, etc. Examples of events include also rumors that at times can lead to perceptible changes in the Forex currency quotes, especially if they come from a well-known and influential people in the world politics.
Events can be divided into two broad categories: the expected and random. The expected time of occurrence of the event is known in advance. These events include the output of various economic indicators, the onset of various seasonal events. For example, the trade balance data (trade balance) in the United States is published in the second half of each month for the last month, so is the expected event. By random events include natural disasters, political upheaval, acts of terrorism. Such events are usually instantly recognized on the exchange rate dynamics involved in these countries. This once again underlines the fact that trading in the Forex, you must have good information support to not miss an important global event.
An interesting fact is that almost all economic indicators for a given country are published with a delay - for the last or before last reporting period. This means that the estimated value of the index can be calculated prior to the date of its official publication. Typically, the world's leading financial analysts are speculating on such indicators and Forex market at the time of their release has already adapted to the expected value. Thus, if the published values is the same as predicted, the dynamics of the exchange rate does not change. Interesting things happen in Forex, if the published values of economic indicators is very different from the forecast, especially if the difference is going in the opposite direction. In such cases, the more unpredictable - the faster the reaction of the market. It is important to understand that the financial markets, including the Forex market is not so much the value of the value of the economic indicator, as its deviation from the expected value.
Various fundamental news have different effects on the dynamics of exchange rates. For the duration of impact on the Forex market news to classify on the news with a long cycle and short cycle life. Long cycle lasting from a few weeks to several years. This cycle is caused by factors in the general state of the economy, such as the dynamics of inflation, unemployment, interest rates. On the basis of such news can build strategic forecasts of exchange rate changes to long-term investment. Short cycle lasts several minutes to several days and can be caused by a release of some not very important economic indicators and various political events.
Exchange rate and its economic condition of the country are interconnected. This relationship can be associated only with a neural network - it is so complex that it is unlikely for it can display a single "magic" formula. Fundamental analysis aims to systematize this relationship, but sometimes it leaves more questions than answers. Forex market does not always behave as described in textbooks - often leads to a news outlet opposite reaction. We can only with a certain probability to talk about this or that statement. And, nevertheless, have more or less working system - it's better than nothing. Fundamental analysis is important when analyzing the forex market. Together with the technical analysis it provides Internet trader a distinct advantage over other, less knowledgeable participants in the FX market. Understanding the basics of macroeconomics, financial systems, devices biggest powers in the world - an important step on the way to becoming a successful Forex trader. Subsequent chapters Portal Forex Arena will focus on key aspects of fundamental analysis.
Forex reaction to the political instability
The political developments worldwide, usually immediately find their resonance in the international foreign exchange market. Despite the fact that such events directly from foreign currency transactions are not related, psychological sentiment of currency exchange their effect on the painting of currency rates. The world's main reserve currency today is the U.S. dollar, so all the events affecting in any way the American politicians or military operations of the U.S. Army are reflected on the balance of demand and supply of the U.S. currency, which means that almost all traded on the Forex currency pairs.
July 19, 1990 The Iraqi army invaded Kuwait, triggering Middle East crisis. In response, the U.S. military command has decided to go to war in the Persian Gulf. January 17, 1991 began "Operation Desert Storm". As part of Operation Joint UN army began to put missile and bomb strikes on the Iraqi army. Forex market reacted to the strengthening of the U.S. dollar. February 24th launch a ground phase of the operation, and on February 27 the Iraqi army was defeated, and Kuwait was liberated. The forex market responded with an even stronger appreciation of the U.S. dollar relative to other currencies.
Events August 19, 1991 marked the collapse of the Soviet Union and in the annals of history were recorded as "August coup." USSR at the time of the event was the largest debtor in Germany, so the Forex market on that day the German mark collapsed. But once the debts have been recognized by Russia, the course of German Marks returned to their former positions.
October 30, 1998 NATO air forces begin to check flights over Kosovo. November 13, 1998 NATO decides to drop troops in Macedonia in order to assist the observers of the OSCE Mission in Kosovo, if necessary. The U.S. dollar during this period on Forex is growing significantly. 24 March 1999, NATO launched the first phase of the allied operation "Allied Force" with the bombing strategic targets in Serbia and Montenegro, resulting in Belgrade broke off diplomatic relations with key NATO countries - the U.S., Germany, France and Britain. June 9, 1999 between the Serbian military and NATO signed an agreement on the border of Yugoslavia and Macedonia, and June 10, 1999 NATO Secretary General orders the suspension of the bombing. The UN Security Council adopts a resolution to ensure international security presence in Kosovo. All of these events were accompanied by certain strengthening of the U.S. dollar in forex trading.
Events 1998-1999,. around the scandal of sexual relations existing at the time of U.S. President Bill Clinton with intern Monica Lewinsky were reflected in the Forex market. On the agenda of the November 19, 1998 in the House of Representatives was considered the prosecution of Bill Clinton's false testimony at the trial, and a number of other charges. Charges on the two issues were supported and forwarded to the Senate panel of judges, which took place January 7, 1999 On the agenda, thus, the question of impeachment of the President. Because of the uncertainty as to who will be the new president, and what will be the policy of the U.S., the dollar on the Forex market has fallen sharply. The Senate rejected the allegations on both issues, retaining the Bill Clinton presidency, but about the love affairs of the American President has had a long talk in the world.
May 12, 1999 came the news of the resignation of the Prime Minister, EM Primakov stressed that political instability in Russia. As a result of the euro against the U.S. dollar on the Forex dropped significantly. A little later came the news that the U.S. Treasury Secretary Robert Rubin resigned instability that has characterized the U.S. financial system. The forex market has reacted to it reversed the appreciation of the euro relative to the U.S. dollar, that is, the fall of the dollar.
September 11, 2001 shocked the world of the terrorist act in the United States, which claimed thousands of lives. Immediately after the terrorist attack on the U.S. dollar Forex plummeted. The next day trading was suspended, and the day was declared in the United States as non-working. In the next few days the market has consolidated.
August 15, 2003 after the official close of trading in the U.S. as a result of the human factor in large power plants the U.S. and Canada, there have been failures, resulting in the largest cities of the two countries practically left without electricity. While still considered a terrorist act version, the rate of the U.S. dollar against the euro in the Forex market fell nearly 100 points, but after the resolution of the situation has returned to its previous level.
March 21, 2003, the war in Iraq. Initially, the expectation that the military operation forces the anti-Iraq coalition goes according to plan, a positive impact on the U.S. dollar in the foreign exchange market. Positive impact on the dollar and the publication of data on the level of inflation in the United States. But subsequent events of March led to a decline in the U.S. dollar. Analysts attributed this drop in the market's fears that the military presence in Iraq, coalition forces could take longer schedule, which will result in an increase in U.S. government spending on the military. The negative impact on the dollar provided reports on the losses of the American army and reinforce the fighting. But when April 3, 2003 in the U.S. media reports suggested that the coalition forces are located a few kilometers from Baghdad, then there is hope for a speedy end to the possible military campaign in Iraq, causing the dollar to Forex stabilized.
February 20, 2004 exchange rate of the U.S. dollar against the Japanese Yen rose nearly 250 points. Precipitous drop in the yen, analysts attributed the level of preparedness of the Japanese government security forces to the maximum level in connection with the bombings near the building of the Ministry of Defence. Many then described these bombings as a protest against the deployment of Japanese troops to Iraq.
As we can see, the Forex market is very thin mechanism and responds to the events of the political instability in the world. This is not surprising, because such events are inextricably linked to the global economy and its future development. They quickly spread throughout the world by the media. Keep abreast of world events - an integral part of trading on any professional Forex trader. Therefore, if you do not want to be caught off guard, so stay tuned!
In this part of our study we will look at Forex fundamental analysis, which is the study of macroeconomic phenomena, political news and other events in the world that have an impact on exchange rates. Proponents of fundamental analysis of forex market are of the opinion that the primary in relation to changes in exchange rates is the event (news). It entails a chain of trading on Forex, which in turn is reflected in the change in exchange rates. As can be seen, the fundamentalists, unlike the followers of technical analysis, have diametrically opposed views on the source of the price movement. After all, as we remember, technical analysts are of the opinion that future changes in prices laid solely at their historical trends.
In order to become a guru of fundamental analysis may take many years of studying such disciplines as "Economy", "Finance and Credit", "International Economic Relations". Of course, that ordinary internet trader has neither the time nor the inclination to spend as much time training. Therefore, the majority of Forex traders have only a superficial understanding of the basics of fundamental analysis - in the course of their work in the foreign exchange market, they listened to the views of professional financial analysts. Analysts' forecasts are published in newspapers and magazines, they are referred to in the financial announcements on special television and radio channels. Most brokers on the Internet provide their clients with access to information systems that publishes information of a fundamental nature. Such systems include Reuter, Dow Jones Telerate, Bloomberg, etc.
But despite the abundance of Forex market analysts, to understand the basics of fundamental analysis is necessary for every online trader. Drawing an analogy, let's say that you can not understand the device the car, but you have to understand the principles of management and they know the rules of the road. Otherwise, you've done a lot of trouble on the road - the same is true for the Forex market. Before you start trading for real money you need to clearly understand what is the role of fundamental analysis in the prediction of changes in exchange rates.
As we have said, the basis of fundamental analysis is an event. Events can be classified as macro-economic, political, natural, etc. Examples of events include also rumors that at times can lead to perceptible changes in the Forex currency quotes, especially if they come from a well-known and influential people in the world politics.
Events can be divided into two broad categories: the expected and random. The expected time of occurrence of the event is known in advance. These events include the output of various economic indicators, the onset of various seasonal events. For example, the trade balance data (trade balance) in the United States is published in the second half of each month for the last month, so is the expected event. By random events include natural disasters, political upheaval, acts of terrorism. Such events are usually instantly recognized on the exchange rate dynamics involved in these countries. This once again underlines the fact that trading in the Forex, you must have good information support to not miss an important global event.
An interesting fact is that almost all economic indicators for a given country are published with a delay - for the last or before last reporting period. This means that the estimated value of the index can be calculated prior to the date of its official publication. Typically, the world's leading financial analysts are speculating on such indicators and Forex market at the time of their release has already adapted to the expected value. Thus, if the published values is the same as predicted, the dynamics of the exchange rate does not change. Interesting things happen in Forex, if the published values of economic indicators is very different from the forecast, especially if the difference is going in the opposite direction. In such cases, the more unpredictable - the faster the reaction of the market. It is important to understand that the financial markets, including the Forex market is not so much the value of the value of the economic indicator, as its deviation from the expected value.
Various fundamental news have different effects on the dynamics of exchange rates. For the duration of impact on the Forex market news to classify on the news with a long cycle and short cycle life. Long cycle lasting from a few weeks to several years. This cycle is caused by factors in the general state of the economy, such as the dynamics of inflation, unemployment, interest rates. On the basis of such news can build strategic forecasts of exchange rate changes to long-term investment. Short cycle lasts several minutes to several days and can be caused by a release of some not very important economic indicators and various political events.
Exchange rate and its economic condition of the country are interconnected. This relationship can be associated only with a neural network - it is so complex that it is unlikely for it can display a single "magic" formula. Fundamental analysis aims to systematize this relationship, but sometimes it leaves more questions than answers. Forex market does not always behave as described in textbooks - often leads to a news outlet opposite reaction. We can only with a certain probability to talk about this or that statement. And, nevertheless, have more or less working system - it's better than nothing. Fundamental analysis is important when analyzing the forex market. Together with the technical analysis it provides Internet trader a distinct advantage over other, less knowledgeable participants in the FX market. Understanding the basics of macroeconomics, financial systems, devices biggest powers in the world - an important step on the way to becoming a successful Forex trader. Subsequent chapters Portal Forex Arena will focus on key aspects of fundamental analysis.
Forex reaction to the political instability
The political developments worldwide, usually immediately find their resonance in the international foreign exchange market. Despite the fact that such events directly from foreign currency transactions are not related, psychological sentiment of currency exchange their effect on the painting of currency rates. The world's main reserve currency today is the U.S. dollar, so all the events affecting in any way the American politicians or military operations of the U.S. Army are reflected on the balance of demand and supply of the U.S. currency, which means that almost all traded on the Forex currency pairs.
July 19, 1990 The Iraqi army invaded Kuwait, triggering Middle East crisis. In response, the U.S. military command has decided to go to war in the Persian Gulf. January 17, 1991 began "Operation Desert Storm". As part of Operation Joint UN army began to put missile and bomb strikes on the Iraqi army. Forex market reacted to the strengthening of the U.S. dollar. February 24th launch a ground phase of the operation, and on February 27 the Iraqi army was defeated, and Kuwait was liberated. The forex market responded with an even stronger appreciation of the U.S. dollar relative to other currencies.
Events August 19, 1991 marked the collapse of the Soviet Union and in the annals of history were recorded as "August coup." USSR at the time of the event was the largest debtor in Germany, so the Forex market on that day the German mark collapsed. But once the debts have been recognized by Russia, the course of German Marks returned to their former positions.
October 30, 1998 NATO air forces begin to check flights over Kosovo. November 13, 1998 NATO decides to drop troops in Macedonia in order to assist the observers of the OSCE Mission in Kosovo, if necessary. The U.S. dollar during this period on Forex is growing significantly. 24 March 1999, NATO launched the first phase of the allied operation "Allied Force" with the bombing strategic targets in Serbia and Montenegro, resulting in Belgrade broke off diplomatic relations with key NATO countries - the U.S., Germany, France and Britain. June 9, 1999 between the Serbian military and NATO signed an agreement on the border of Yugoslavia and Macedonia, and June 10, 1999 NATO Secretary General orders the suspension of the bombing. The UN Security Council adopts a resolution to ensure international security presence in Kosovo. All of these events were accompanied by certain strengthening of the U.S. dollar in forex trading.
Events 1998-1999,. around the scandal of sexual relations existing at the time of U.S. President Bill Clinton with intern Monica Lewinsky were reflected in the Forex market. On the agenda of the November 19, 1998 in the House of Representatives was considered the prosecution of Bill Clinton's false testimony at the trial, and a number of other charges. Charges on the two issues were supported and forwarded to the Senate panel of judges, which took place January 7, 1999 On the agenda, thus, the question of impeachment of the President. Because of the uncertainty as to who will be the new president, and what will be the policy of the U.S., the dollar on the Forex market has fallen sharply. The Senate rejected the allegations on both issues, retaining the Bill Clinton presidency, but about the love affairs of the American President has had a long talk in the world.
May 12, 1999 came the news of the resignation of the Prime Minister, EM Primakov stressed that political instability in Russia. As a result of the euro against the U.S. dollar on the Forex dropped significantly. A little later came the news that the U.S. Treasury Secretary Robert Rubin resigned instability that has characterized the U.S. financial system. The forex market has reacted to it reversed the appreciation of the euro relative to the U.S. dollar, that is, the fall of the dollar.
September 11, 2001 shocked the world of the terrorist act in the United States, which claimed thousands of lives. Immediately after the terrorist attack on the U.S. dollar Forex plummeted. The next day trading was suspended, and the day was declared in the United States as non-working. In the next few days the market has consolidated.
August 15, 2003 after the official close of trading in the U.S. as a result of the human factor in large power plants the U.S. and Canada, there have been failures, resulting in the largest cities of the two countries practically left without electricity. While still considered a terrorist act version, the rate of the U.S. dollar against the euro in the Forex market fell nearly 100 points, but after the resolution of the situation has returned to its previous level.
March 21, 2003, the war in Iraq. Initially, the expectation that the military operation forces the anti-Iraq coalition goes according to plan, a positive impact on the U.S. dollar in the foreign exchange market. Positive impact on the dollar and the publication of data on the level of inflation in the United States. But subsequent events of March led to a decline in the U.S. dollar. Analysts attributed this drop in the market's fears that the military presence in Iraq, coalition forces could take longer schedule, which will result in an increase in U.S. government spending on the military. The negative impact on the dollar provided reports on the losses of the American army and reinforce the fighting. But when April 3, 2003 in the U.S. media reports suggested that the coalition forces are located a few kilometers from Baghdad, then there is hope for a speedy end to the possible military campaign in Iraq, causing the dollar to Forex stabilized.
February 20, 2004 exchange rate of the U.S. dollar against the Japanese Yen rose nearly 250 points. Precipitous drop in the yen, analysts attributed the level of preparedness of the Japanese government security forces to the maximum level in connection with the bombings near the building of the Ministry of Defence. Many then described these bombings as a protest against the deployment of Japanese troops to Iraq.
As we can see, the Forex market is very thin mechanism and responds to the events of the political instability in the world. This is not surprising, because such events are inextricably linked to the global economy and its future development. They quickly spread throughout the world by the media. Keep abreast of world events - an integral part of trading on any professional Forex trader. Therefore, if you do not want to be caught off guard, so stay tuned!
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