Those who trade in the foreign exchange market (forex) utilize the same two types of analysis as those who trade in the stock market fundamental analysis and technical analysis. Technical analysis is used in forex in a similar way the price is supposed to reflect all news, and the charts are examined.
Fundamental analysis is concerned with determining an investment’s intrinsic value; in forex, it comprises determining the economic variables that influence the value of a country’s currency.
Economic indicators are reports that detail a country’s economic performance and are provided by the government or a private entity. Economic reports are the primary tool for assessing a country’s economic health but keep in mind that a country’s economic performance is influenced by a variety of circumstances and policies.
These reports are produced regularly and provide market participants with information on whether a country’s economy has improved or deteriorated. The consequences of these reports are similar to how earnings reports, SEC filings, and other public announcements can affect stock prices. Any variation from the norm can create huge price and volume changes in forex, just as it can in the stock market.
The total receipts of all retail outlets in a given country are measured in the retail-sales report. This figure is based on data collected from a wide range of retail outlets around the country. The report is especially useful as a timely estimate of overall consumer spending trends that have been adjusted for seasonal factors. It can be used to forecast the performance of more important lagging indicators as well as gauge an economy’s immediate trajectory. Revisions to advanced retail sales data can cause a lot of volatility. The retail sales report can be likened to a publicly-traded company’s sales activities.
The total market value of all products and services produced in a country over a given year is represented by GDP, which is the broadest measure of a country’s economy. Because the GDP statistic is frequently regarded as a lagging indicator, most traders concentrate on the advance report and preliminary report, which are released in the months leading up to the final GDP figures. Significant changes between these reports can result in a lot of volatility.
Traders who use this indication are mainly concerned with utility production, which can be quite volatile because the utility industry, and hence energy trade and demand, is heavily influenced by weather fluctuations. Weather variations can generate significant revisions between reports, which might lead to currency volatility in the country.
Consumer Price Index
The CPI tracks price changes in over 200 distinct categories of consumer goods. When compared to a country’s exports, this report can be used to determine if a country is profiting or losing money on its goods and services. However, keep an eye on exports – it’s a favorite topic among traders because export prices are typically affected by the strength or weakness of a currency.
To examine forex fundamentals, various economic indicators and even more private reports can be used. It’s critical to spend time not only looking at data but also understanding what they imply and how they affect the economy of a country. These indicators, when applied correctly, maybe a great resource for any currency trader.
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