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Home Fundamental Analysis

Dynamic movement of large capital flows that enter or leave a certain market for a short time cause a market disruption, disturbance to the balance of payments, and thus require adjustments in exchange rates to recover the payment balance. Speculative activities, commodity markets instability, and short-term capital movement cause volatility in exchange rates. Degree of variation appears as a function of the consumer demand. Since financial markets are more adaptable than the stock ones to the changing market conditions, the value of currencies is under the influence of short-term changes in the capital markets and long-term changes in the stock ones.

Financial factors are very relevant in the preparation of fundamental analysis regardless whether it comes to predictions of a specific exchange rate or changes in stock prices on the stock exchange. Changes in government financial and tax policies produce effects in the national economy that affect the national currency and stock indices. Financial factors usually occur after the economic ones. When governors begin to intervene in various aspects of economic life or take on additional international obligations, financial factors may be given priority over the economic ones.

For example, handling interest rates directly affect the currency trading as it consists of a simultaneous exchange of two currencies. The difference between interest rates appears as one of the most important market factors in Forex. Traders do not react to nominal changes in interest rates but to the changes in the interest differential in the respective currencies.валутен курс In the event that the countries of a currency pair simultaneously alter the interest rate with equal value and in one direction, it would not have any effect on the market. We should note that when the amendment is expected, then it is calculated in the price in advance and when it is a fact we may happen to observe reverse actions. In those cases when it is unexpected abrupt changes usually appear. For changes dictated by political rather than by economic reasons, the market actively resist the actions of central banks, and the latter may suffer significant losses.

Other factors that make the trade decision a complex process are the time lag between the rumour and the fact, the reasons for the change in interest rates and the prevailing view in the market for the correctness of the change. In the event that interest rates change in non-market reasons, as in the introduction of the euro, it is most likely the market to indicate their unrealistic levels and to go against the decision of the central bank.

Fundamental and technical analyses use statistical methods for processing information concerning the financial markets. However, the fundamental analysis examines the market from the opposite side of the technical one. Changes in the economy of the trading countries, political elections, actions by regulatory authorities, natural disasters – all of them influence exchange rates.
And if some of these events can not be predicted, others are represented by planned /for example, the time for publications of economic news is scheduled for months ahead/ or at least predictable. Therefore, if you make reasonable and timely forecasts, future movements of exchange rates can be predicted and benefits can be obtained with their help.

Here is the place to discuss about a particular aspect of the fundamental indicators. Depending on the state of the economy, fundamental indicators may have different effect on currency market. If the data show a lack of change, the reaction of Forex traders can be ambiguous. If an economy is performing better or worse than the other, the currency will be bought or sold because a long-term trend is generated.

Fundamental analysis goes deep in what cannot be seen on the chart; when it occurs it becomes a subject of the technical analysis. Many Forex traders do not pay the necessary attention to the fundamental, thinking that the technical methods and automated systems are sufficient for successful trading. But sometimes a person falls into a zone of failure when it seems that he/she understands correctly, has the knowledge and skills in accordance with the best methods, but loses positions one after another.валутен курсThen looking for the reason, they start blaming the platform that it is buggy, accuse the market makers of incorrect quotation, justify the concept that this business is a pyramid, etc.

Very rarely a trader in such a state would seek the causes in themselves and would have replied that they were on this market in order to walk off with the money of others, because when someone wins another one must lose. In this respect, Alex Elder gives an example of an advertisement for the recruitment of mercenaries: "You will be able to tour around the world, to see beautiful places, meet interesting people and kill them". When we are on the FOREX things sound approximately like this „You can see the magnificent vast world of financial markets, to get acquainted with interesting people and take their money."

Every time when we buy and realize loss, someone else sells because their plans are opposed. He/She has explored all sides of the market better than us or knows something about the market that we have not learned in time. Isn’t it their advantage? The ocean of information surrounding the currency trader is immense, it is the information that appears as an object and a tool of trade in the modern foreign exchange market, or as the saying goes: "currency trader is information trader". See more in Courses 

ECB exchange rates
january 17 2020
EUR  European euro. Used by 15 member states and 6 countries or areas outside the European union.    
BGN  Bulgarian lev    
CHF  Swiss franc    
GBP  Pound sterling. Scotland and Northern Ireland issues own, diffrent, banknotes.    
RUB  Russian rouble    
TRY  New Turkish lira. New Turkish lira. As of 1 January 2005 the currency of the Republic of Turkey is the new Turkish lira (TRY). 1 TRY equals 1,000,000 old Turkish liras (TRL).    
AUD  Australian dollar    
CAD  Canadian dollar    
USD  US dollar    
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