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Simple fundamentals for Forex beginners
Written by: PaxForex analytics dept - Friday, 29 August 2014 0 comments
It is known that in order to successfully trade on Forex market, in addition to the technical you also need to learn fundamental analysis. This article will be especially useful for those who just begin to research the specifics of the financial markets as we will show a simple picture of impact of the fundamental factors on currencies.In a nutshell, fundamental analysis is the study of the economic and political development of a state.
Fundamental analysis determines the root causes on which one currency will rise and another fall.
There is avery simple rule: the fastest growth will show the currency of a country where:
a) Rates of economic growth are higher; b) The interest rate of the National Bank (hence, this currency will be popular among investors all over the world because of conditions for bank deposits) is higher.
But sometimes there are situations (force majeure) when these rules do not work: the global economic and political crisis (political upheaval is a threat of capital investors) or natural disasters (floods, earthquakes and so on).
So, how to measure the rate of economic growth? This can be done
- GDP; - Industrial production; - Current account balance; - Trade balance; - Unemployment rate and other.
In total, the market takes into account the data of several tens of macroeconomic indicators.
And here is a hint now: a novice trader just need to remember how the markets react to the output of main economic indicators. The higher positive rate for each of them (except unemployment - everything is exactly the opposite there), the better for a country’s economy and its currency respectively. So during the global economic growth the rate of the economies of the UK, Australia, Canada or New Zealand is growing faster than in the United States, hence related currency pairs show:
- Growth – if the currency is first in the pair, prior to the USD: GBP/USD, AUD/USD and others. - Fall - if the currency is second in the pair, after the USD: USD/CAD, as an example.
Thus, we see that fundamental analysis is not something terribly complicated but quite logically simple system. And also quite interesting-)