” As you know, market movements forecasting is based on two types of analysis: technical and fundamental. “
We have already explored the methods of technical analysis in course of our preceding lectures; now it is time for fundamental analysis.
So, let’s get started. Only few economic factors can influence currency exchange rates. The rest of indicators are mainly used by economists or other markets. These factors confirm to some degree a possible or existing trend in the economy, which does not have a direct impact on the forex market. Therefore, such factors are just absorbed by usual market fluctuations. Fundamental analysis is a way to assess both economic growth in separate countries and the global economic situation, including their mutual influence, allowing for numerous economic indicators and factors. Some deciding events happen accidentally, others are published on a set schedule by government, non-government scientific research organizations.
” Any kind of information that contributes to the economic well-being belongs to fundamental data. “
It can be divided into four major groups, including economic factors, financial factors, political events, and periods of crisis.
- Economic factors (indicators) are set apart from others as their release date is usually known in advance in most industrialized countries.
- Political events represent various influences on the global market. Thus, president election can hardly reverse the market course, while a sudden change of a government system has every chance to shock market participants.
- Financial factors can be referred to the group of events that are hard to be predicted. These factors have a considerable impact on the forex market. Changes in key rates of the world’s leading central banks, such as the US regulator, are an obvious example. No one could clearly foresee monetary policy reforms. There are only expectations available, which in their turn crucially influence the market. Usually, investors begin to express concern about one week before another US Fed’s meeting. The tension becomes almost unbearable in case of a sudden rate change that results in sharp fluctuations in the currency exchange rate.
- Crisis can also play a role of a deciding factor in global markets. An impact it makes depends on the degree of predictability. For example, the Persian Gulf Crisis produced a modest effect on Forex. However, sometimes a simple hint dropped by a senior official can cause huge volatility in the currency exchange market. Thus, UK Prime Minister Tony Blair sparked an immediate response from the market delivering the speech on adopting the euro as the currency to replace the British pound in 2001.