Fundamental analysis is the economic, social and political factors which may have effect on a currencies’ supply & demand of a currency, as well as the value of said currency.
One method to monitor current economic reports of a country (such as GDP, CPI, employment change) is to consult with our retail sales team, which give an overview of the conditions from one period of time, to the next.
For more information, please visit Forex Tigon LTD’s essential economic indicators.
Such reports may be accessible online, and are simultaneously update on economic calendars, such as the one provisioned by Forex Tigon LTD. Several market participants monitor the release of such figure since it may trigger huge market moves related to Forex.
Due to such instances, trade-related journalism/media is an easy, quick and efficient method of the application of fundamental analysis with regards to ForEx trading.
Please note: events in the economic calendar may be affiliated with the impact that they create, due to top-tier releases tending to be the affecters of strong (ForEx) market moves, rather than small ones.
Also, the economic calendars include the agreement of a number of analysts; this means that whether or not the results defy the expectations, the factors that the currency reacts to, as well as the reaction itself may be affected.
If the client is a long-term trader, which prefers to join trader trends, or to catch a quick reversal, then the trader may choose to make use of the fundamental analysis which measure how economic data may affect central banks’ interest rates and the decisions involved in monetary policy action. Interest rates may differ for various economies, and central banks are able to raise, as well as lower them in order to further stabilize (or destabilize) price(s) and to boost (or deflate) economic growth.
As such, weakening economic figures suggest that a central bank of a nation may adopt a dovish stance. In simple terms, this means that the interest rates may decrease, or increase money supply in the near future, which will drive the price of the currency down in the long run. On the other hand, strengthening economic figures imply that the central bank could take a hawkish stance; this means that they could increase rates, or lower the supply of money in the near future, hereby pushing the value of the currency up.
Apart from economic indicators, and political events, headlines may also affect the currency of a country. For example, upcoming elections may bring forth a lot of uncertainty. This may discourage traders from buying the instrument, and therefore affect its value. In another example, a hung parliament or the lack of majority in such bodies may lead to the delay of legislation, necessary for the spur of economic activity – which may lead to a weak currency at the end of the day.
Lastly, social conditions such as war or unrest may also influence a countries’ fundamental analysis. In such cases, these conflicts may possibly lead to the closure of businesses, widespread protesting, economic activity stand-still, weaker business conditions, consumer spending, which may translate to lower growth and the lack of desire for the currency of the nation in question.
Due to such factors, headlines may also influence the ForEx price action (volatility/fluctuation) of such currencies, especially since traders typically pair strong currency, versus weak currency in order to take advantage of larger price moves.