Fundamental analysis

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Fundamental Analysis covers the study of economic indicators, social factors and international government policies which help forex and CFD traders forecast price movements and trends. Fundamental analysis is a method that attempts to predict the intrinsic value of an investment. It is based on the theory that the market price of an asset tends to move towards its ‘real value’ or ‘intrinsic value’. Fundamental analysis in Forex entails predicting the price valuation of a currency and its market trends by analyzing current economic conditions, government policy and societal factors within a business cycle framework. Forex Traders gauge a country’s economic state by examining macroeconomic indicators covering. Macroeconomic indicators are statistics that indicate the current status of the economy of a state depending on a particular area of the economy (industry, labor market, trade, etc.). They are published regularly at a certain time by governmental agencies and the private sector. IBR Broker provides an Economic Calendar for the dates of critical fundamental announcements and events. When properly used, these indicators can be an invaluable resource for any Forex trader. In truth, these statistics help Forex traders monitor the economy’s pulse; thus it is not surprising that these are religiously followed by almost everyone in the financial markets. After publication of these indicators we can observe volatility of the market. The degree of volatility is determined depending on the importance of an indicator. That is why it is important to understand which indicator is important and what it represents.

  • Interest Rates Announcement

    Interest rates play the most important role in moving the prices of currencies in the foreign exchange market. As the institutions that set interest rates, central banks are therefore the most influential actors. Interest rates dictate flows of investment. Since currencies are the representations of a country’s economy, differences in interest rates affect the relative worth of currencies in relation to one another. When central banks change interest rates they cause the forex market to experience movement and volatility. In the realm of Forex trading, accurate speculation of central banks’ actions can enhance the trader’s chances for a successful trade.

  • Gross Domestic Product (GDP)

    The GDP is the broadest measure of a country’s economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility.

  • Consumer Price Index

    The Consumer Price Index (CPI) is probably the most crucial indicator of inflation. It represents changes in the level of retail prices for the basic consumer basket. Inflation is tied directly to the purchasing power of a currency within its borders and affects its standing on the international markets. If the economy develops in normal conditions, the increase in CPI can lead to an increase in basic interest rates. This, in turn, leads to an increase in the attractiveness of a currency.

  • Employment Indicators

    Employment indicators reflect the overall health of an economy or business cycle. In order to understand how an economy is functioning, it is important to know how many jobs are being created or destructed, what percentage of the work force is actively working, and how many new people are claiming unemployment. For inflation measurement, it is also important to monitor the speed at which wages are growing.

  • Retail Sales

    The retail sales indicator is released on a monthly basis and is important to the foreign exchange trader because it shows the overall strength of consumer spending and the success of retail stores. The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy.

  • Balance of Payments

    The Balance of Payments represents the ratio between the amount of payments received from abroad and the amount of payments going abroad. In other words, it shows the total foreign trade operations, trade balance, and balance between export and import, transfer payments. If coming payment exceeds payments to other countries and international organizations the balance of payments is positive. The surplus is a favorable factor for growth of the national currency.

  • Government Fiscal and Monetary policy

    Stabilization of the economy (e.g., full employment, control of inflation, and an equitable balance of payments) is one of the goals that governments attempt to achieve through manipulation of fiscal and monetary policies. Fiscal policy relates to taxes and expenditures, monetary policy to financial markets and the supply of credit, money, and other financial assets.

An economic indicator is an economic release by a country pertaining to its economic health. An example is a country’s GDP release or its inflations numbers for a quarter or year. There are so many economic indicators that the key for online traders is learning which indicators will help your portfolio and subsequently affect what you are trading. IBR Broker’s Economic indicators page provide information about world economic indicators. We have divided, for your convenience, in an easy to understand format. US Economic Indicators will release everything from the inflation rate to the NFPs. European Indicator page will allow our clients who trade EU instruments access to breaking news from the EU and our Asian indicator section will focus on breaking news from China, Japan and the Pacific Rim. View the economic calendar to see upcoming economic events.

United States

There are a number of Economic Indicators out of the United States. After all, this is the world’s largest economy. Here are some of the most widely watched indicators you must be aware of.

NAMEDESCRIPTIONDATE
Non-Farm Payrolls Total number of paid US workers excluding government and farm employees.Released first Friday of every month.
Trade Balance or US Trade DeficitIs the total difference between exports and imports.Released every month on the 10th at 8:30 EST.
CPI (Consumer Price Index)Uses a basket of good to gauge inflation. Does not include food and energy.Released every month on the 15th at 8:30 am EST.
Manufacturing ISM ReportA report of manufacturing within US factories and is released by the institute for supply managementReleased every month on the first business day at 10:00 EST.
Michigan Consumer ConfidenceIs a gauge that measures consumer confidence in the US economy. This survey is based a monthly survey of 5,000 US homes.Preliminary report released on the 15th day of every month. On the final Tuesday of the month, the final report is released.
GDP (Gross Domestic Product)The total output of goods and services produced in the country. Quarterly and yearly numbers releasedEvery month the quarterly data is redone and released to the public at the end of the month.
New Orders For Durable GoodsShows what durable goods orders are placed with manufacturers for both immediate and deliveries in the future.This indicator is seasonally adjusted.
PPI – Finished GoodsMeasures inflation at the producer level. This does not include services.Around 15th every month.
US Unemployment Rate (%)The number of those unemployed in the US, given as a percentage (ratio).First Thursday every month.
Residential Building PermitsThese are new homes constructions that have been given permits to build. Both for single and multi units.Third Tuesday Every month.
Industrial ProductionMeasures production in US factories, mines as well as utilities. Measures capacity, available resources and growth.Third Tuesday of every month.
Housing StartsThe actual number of new home construction in the US.Around the 17th of every month.

NAMEDESCRIPTIONFREQUENCY
Euro Zone CPIThis indicator gives us an indication of consumer inflation in the EU and has a key effect on the economic policy released by the ECBMonthly & Quarterly
German Zew PMIIndicates the sentiment of the German Banking sector and its feeling of the economic health of the EconomyMonthly
German IFOIndicator of German ManufacturingMonthly
ECB Rate DecisionUsually watch and listen to the comments made by the ECB Chief after the rate decisionQuarterly

Asia and the entire Asia Pacific Rim has become an important region to watch economically. Not only is the world’s second largest economy (China) located there, but a number of economically developing countries. The Asian and Pacific Rim has become a zone of interest to investors in the Forex, Equity and Commodities markets. Here is a list of indicators of note in the region.This page will give you all of the recent and soon to be released economic indicators from the Euro zone. All the indicators explained so you can make informed trades. Some of the popular indicators to follow are:

China

NAMEDESCRIPTIONFREQUENCY
GDPThis number reflects the total output of goods and services in China.Quarterly and annual
Industrial ProductionReflects the output of a countries factories and indicates whether production is increasing or contracting.Monthly
Retail SalesIndicates whether or not consumers are buying big ticket products like cars or refrigerators.Monthly
Business ConfidenceThe levels of optimism business have regarding the economy.Monthly
Balance of TradeIndicates whether China has a trade deficit or not.Quarterly

Japan

NAMEDESCRIPTIONFREQUENCY
Business ConfidenceThe level of optimism businesses have regarding the economy.Monthly
GDPThis number reflects the total output of goods and services in Australia.Around the 10th of the month
ImportsIndicates the amount of products coming into AustraliaMonthly
Rate DecisionFirst Tuesday of every month
UnemploymentThe level of unemployment in Australia’s workforceAround the 12th of the month


Australia

NAMEDESCRIPTIONFREQUENCY
Business ConfidenceThe level of optimism businesses have regarding the economy.Monthly
GDPThis number reflects the total output of goods and services in Australia.Around the 10th of the month
ImportsIndicates the amount of products coming into AustraliaMonthly
Rate DecisionFirst Tuesday of every month
UnemploymentThe level of unemployment in Australia’s workforceAround the 12th of the month

Conclusion: There are many economic indicators, and even more private reports that can be used to evaluate the fundamentals of forex. It’s important to take the time to not only look at the numbers, but also understand what they mean and how they affect a nation’s economy.

 


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