The foreign exchange market (FOREX) has the same two basic forms of analysis that are used in the stock market: fundamental analysis and technical analysis. The technical analysis uses in FOREX are nearly the same: prices are given from the reflection of all speculative news, and the charts are the objects of evaluation and comparison for analysis.
But unlike companies, countries of the world have swings. So many investors wonder about the way the analysis is made on the currency. This assessment is carried out looking at the intrinsic value of an investment, its application in FOREX involves assessing the economic conditions affecting the appreciation of the currency of a country.
Now look at some of the key factors that play a key role in the movement of one currency in FOREX.
Economic indicators are reports released by the government or a private organization that details the economic performance of a country. Economic reports are the means by which the economy of a nation is measured directly, but remember that a lot of factors and policies interfere in the economic performance of a country.
These reports are released at scheduled times, providing the market with an indication of the state of the economy of a country if it has improved or worsened. These effects of the reports are comparable to how earnings reports, deposits and other situations can affect securities. In FOREX, as in the stock market, any deviation from the norm can cause large price movements and volume.
You may have heard about some of these economic reports, for example: the unemployment figures, which are well publicized. Other reports such as housing statistics, receive less coverage. However, each indicator serves a particular purpose and can be useful. Here we highlight four major reports, some of which are comparable to the main indicators used by equity investors.
Gross Domestic Product (GDP)
The GDP is considered the broadest measure of a country’s economy, and represents the total market value of all goods and services produced in a given year. Even the value of GDP, is often considered a lagging indicator. Thus, most investors focus on 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. The Gross Domestic Product (GDP) is somewhat similar to the gross profit margin of a public company, as both reports are internal growth measures.
The retail sales report measures the total receipts of all retail stores in a particular country. This measurement is obtained from a diverse sample of stores throughout a nation. The report is useful and serve as a current indicator of broad consumer spending patterns that is adjusted for seasonal variables.
Analysis of indicators in FOREX
There are many economic indicators, and even private reports that can be used to assess the fundamentals of FOREX. It is important to take time and not only look at the numbers, but also understand what they mean and how they affect the economy of a nation.