Know what is the fundamental analysis in Forex and how to get the most out on their investments. High profitability when using this strategy to invest money in foreign currency. Of course, as in all financial markets, with buying and selling, the market moves to the rhythm of supply and demand, that is, when there is greater demand prices rise when demand is lower prices come down. It’s simple!
But what is increasing the demand for a currency? A large part of the value of a currency is based on the economic strength of the country of origin of the currency and this economic strength is measured by various economic indicators that refer to micro and macroeconomic aspects and that are influenced by economic factors, political, etc. Some of these indicators are the Gross Domestic Product (GDP), unemployment rate, foreign debt, trade balance with the outside, the price index of output, among other data.
Guide on fundamental analysis
If we compare the economic strength of the two countries, we can determine that the currency is stronger and, therefore, will be priced at a higher price. Of course it helps us to make a decision in the medium to long term, not the short term due to high speculation that exists in the foreign exchange market.
Increasingly traders are operating at the time of publication of news and economic data, this movement is known as “trade the news.” This makes it happen several very important movements in the price of a currency pair in the later minutes, which is really attractive. Most brokers offer an economic calendar with the date and time of publication of economic news, such as the ForexFactory site where you can find a very complete economic calendar classified by currency and importance.
There are many economic indicators but not everyone has the same importance and impact. Among all of them stand out five indicators on the market, in order of importance. Let’s take the case of the US, but can be applied in other countries you are interested in trading currencies. The most important indicators for the US dollar are:
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Unemployment Rate – This indicator measures the rate of new jobs created in the United States. Many jobs created in one month is an indicator of economic growth, as companies are increasing their workforce to meet demand. It is published on the first Friday of each month at 8:30 am in the US time (or 13.30 in Portugal).
Interest Rate – The Federal Open Market entity (FOM) decides the percentage of the interest rate, which is the percentage that the Federal Reserve Bank charges member banks for loans. The interest rate is decided during the meetings of the FOM with regional banks and the Federal Reserve. They are held 8 meetings per year.
Trade balance – This indicator measures the difference between the goods and services that an export and the products and services that matter. If deficit indicates that imports were higher than exports, and it does not favor the currency. It is published on the second Friday of each month.
Inflation – Inflation measures the price of basic consumer goods in a country. High prices are considered negative for the economy, so the Central Bank usually responds to inflation with higher interest rates, and often the currency value. It published the middle of each month.
Retail Sales – This is the indicator of sales in detail, indicating the economic moment in a country relying on its economic activity.