Fundamental Analysis In The Currency Market Is Anything But Dead And Buried

May 6 13:51 2008 Donald Saunders Print This Article

In spite of the fact that the majority of forex traders have turned away from fundamental analysis in favor of technical analysis this does not mean that fundamental analysis is dead and indeed it remains a very valuable tool in predicting currency movements.

For many years the basis of analysis in foreign currency trading was fundamental analysis but in the past few years this has been increasingly replaced by technical analysis. So,Guest Posting is fundamental analysis for foreign currency trading trading dead?Fundamental analysis is essentially an examination of economic and political events that might affect currency prices and these events are reflected in such things as a country's published economic policy, growth rates, inflation and unemployment rates. So, by understanding the historic effects of economic and political events on the value of a country's currency it is possible to predict the effect that present events will have upon the currency today.Like other markets the currency market is affected by both supply and demand which are themselves influenced by economic conditions. In particular, both supply and demand are affected by the strength of the economy (as seen in its gross domestic product, foreign investment and trade balance) and also by interest rates.For the forex trader fundamental analysis means looking at current economic conditions which are reflected in the various indicators like producer price indexes, consumer price indexes, durable goods orders and retail sales which governments release on a regular basis.One main indicator for currency traders are interest rates because changes in interest rates can both strengthening and weakening a currency. For instance, whilst high interest rates might trigger stock market investors to sell in the belief that increasing interest rates will mean higher borrowing costs for companies hitting their share price, those same high interest rates might also strengthen the currency so that it is an attractive currency to trade in.Yet another main set of indicators for the currency trader are international trade indicators. Whenever a country is showing a deficit on its trade balance it is generally seen as an poor sign as money leaving the country to pay for foreign goods and services could well devalue the currency. For the forex trader however fundamental analysis might well indicate that market expectations mean that a trade deficit in some circumstances is not at all bad. For instance, some countries frequently operate with a trade deficit and so unless there is an unusual increase in this deficit then the currency will already reflect this fact.There are presently some twenty-eight main indicators in the United States that currency traders look at to make their trading decisions because all of these indicators have a strong influence on the behavior of the financial markets. At the same time countries around the world with well traded currencies also publish a similar set of indicators that once again have a major influence on their own markets. Foreign currency traders need therefore to be familiar with these indicators and have at least a basic understanding of just how they affect currencies.Fundamental analysis is not simple and requires traders to deal with large quantities of information which often require quite extensive analysis. Nowadays however the advent of high-powered personal computers and fast access to the Internet mean that currency traders can now not only quickly access the information which they need to carry out fundamental analysis but also have access to some very powerful programs with which to analyze that information at the click of a mouse.

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Donald Saunders
Donald Saunders

LearningForexTradingOnline.com is the ideal place to learn forex and even includes its own in-house world currency calculator

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